DIRECTORS' REPORT DEAR SHAREHOLDERS., Your Directors are pleased to present the 29th Annual Report together with the audited financial statements of your Company for the financial year ended 31st March, 2015. Financial Highlights and State of Affairs of the Company (The financial discussion in this section is based on Standalone Financial Statements) Your Company reported an industry-beating performance in an otherwise sluggish housing sector. The Company's net sales grew by 19% from Rs.1875 crore in 2013-14 to Rs.2224 crore in 2014-15. The team's efforts in raising shop-floor efficiencies and marketing effectiveness facilitated in improving business profitability despite inflationary headwinds. EBIDTA grew by 20% from Rs.237 crore in 2013-14 to Rs.286 crore in 2014-15 and the EBIDTA margin stood at 12.86% in 2014-15 against 12.66% in 2013-14. Profit after tax grew by 44% from Rs.117 crore in 2013-14 to Rs.168 crore in 2014-15. The earnings per share (basic) increased from T15.70 in 2013-14 to Rs.21.80 in 2014-15; the book value per share grew from Rs.68.46 in 2013-14 to T90.89 in 2014-15. No material change have incurred after close of the year till the date of this report, which have effect the financial position of the Company. The Company has an adequate internal financial control commensurate with the size, scale and complexity of operations. State of Affairs of the Company is disclosed in the management discussion analysis section which forms part of this report. \OLltlook The Indian tile Industry is expected to witness better days over the medium-term. This optimism is based on important realities. Increasing urbanisation: Over the last two decades, India's urban population increased from 217 million to 377 million and this is expected to reach 600 million, or 40% of the population by 2031. By then, India is expected to have 68 cities with population of more than one million - driving housing demand. Interest rate reduction: The recent reduction in interest rates augurs well for the housing sector. Beside, declining commodity prices are expected to reduce inflationary pressure on the Indian economy, creating a foundation for further interest rate reduction. This should improve housing demand. Cost reduction: Reduction in international crude prices should optimise the energy bill strengthening business profitability. Policy-driven growth: The Government's decision to develop, Housing for all by 2022, Swachh Bharat campaign (Sanitisation for all by 2019), Smart City Mission is expected to create an interesting growth opportunity for the Indian ceramic tile industry. Growth Drivers Capacity augmentation: The Company is increasing its operational capacity in a phased manner facilitating seamless absorption of the additional volumes: Our joint venture partner Taurus commissioned its 5 MSM facility in June 2015. Our brownfield expansion of 3 MSM of ceramic floor tiles is scheduled to commence operations in September/ October 2015. We raised the capacity of our greenfield facility at Rajasthan from the initially budgeted 5 MSM to 6.5 MSM - this unit will kickstart operations in Q4 of this fiscal. We also forged a joint venture alliance with Floera Tiles Private limited, which will add 5.7 MSM vitrified tile capacity in Andhra Pradesh - this unit is expected to come on stream in 2016-17. Shelf-space increase: We are increasing shelf space with existing dealing and progressively adding new dealers and sub-dealers, largely in Tier-II and Tier-III locations for wider reach and deeper penetration into demand pockets pan-India. Consolidated Financial Statements The Consolidated Financial Statements of the Company prepared in accordance with relevant Accounting Standards (AS) viz. AS-21, AS-23 and AS-27 issued by the Institute of Chartered Accountants of India form part of this Annual Report. Holding, Subsidiaries, Associate Companies and their Performance During the year under review, following companies have become the subsidiaries of the Company: 1. Taurus Tiles Private Limited 2. Kajaria Ceramics Kazakhstan, LLP 3. Kajaria Bathware Private Limited During the year under review Kajaria Sanitaryware Private Limited ceases to be the subsidiary of the Company and become the step down subsidiary of the Company i.e (subsidiary of Kajaria Bathware Private Limited). A report on performance and financial position (form AOC-1) of each of the subsidiaries as per the Companies Act, 2013 is provided as "Annexure-I". Dividend Your Directors have recommended a dividend of Rs.4 (i.e 200%) on equity shares (previous year per equity share) of face value of Rs.2 each for the financial year ended on 31st March 2015. The total pay-out will be T38.15 Crore (including dividend distribution tax of Crore). The dividend pay-out for the year under review has been formulated in accordance with the Company's Policy to pay sustainable dividend linked to long term growth objectives of the Company to be met by internal cash accruals. Share Capital The Authorised Share Capital of the Company is Rs.35 Crore comprising of 12.50 crore of equity shares of Rs.2 each and 10 lakh preference shares of Rs.100 each. The paid up capital of the Company as on 31st March 2014 was Rs. 15.12 Crore divided into 75583580 equity shares of Rs.2 each. As per the resolution passed by the shareholders in general meeting held on 6th November 2013 authorising the Board to issue the shares after conversion of warrants on preferential basis, during the year under review, on exercising the option, the Company has issued 3885420 equity shares to M/s WestBridge Crossover Fund, LLC. These shares would be pari passu with the existing equity shares of the Company. The Equity Share capital of the Company as on 31st March 2015 was Rs.15.89 Crore divided into 79469000 equity shares of Rs.2 each. During the year under review, the Company has neither issued shares with differential voting rights nor granted stock options/ sweat equity. As on 31st March 2015, none of the Directors of the Company hold instruments convertible into equity shares of the Company. Transfer to Reserves A sum of Rs.40 Crore has been transferred to the Company's General Reserve account and the balance has been carried to surplus in statement of profit and loss which now has a balance of Rs.352.81 Crore. Directors' Responsibility Statement In terms of the provisions of the Companies Act, 2013, the Directors confirm that: i) In the preparation of the annual accounts for the year ended on March 31, 2015, the applicable accounting standards had been followed and that no material departures have been made from the same. ii) Appropriate accounting policies have been selected and applied consistently and judgments and estimates made are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as on 31st March 2015 and the profit and loss and cash flow of the Company for the period 31st March 2015. iii) Proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities. iv) The annual accounts have been prepared on a going concern basis. v) The Company is following up the proper internal financial controls laid down by the Directors of the Company and such internal financial controls are adequate and are operating effectively and vi) the Company has devised proper system to ensure the compliance with the provisions of all the applicable laws and that such systems are adequate and operating effectively. Corporate Governance The Company has complied with the Corporate Governance requirements as stipulated under the Listing Agreement with the Stock Exchanges. A separate section on corporate governance, along with a certificate from the Practicing Company Secretary confirming the compliance, is annexed and forms part of the Annual Report. Management Discussion and Analysis Report Management discussion and analysis on matters related to the business performance as stipulated in clause 49 of the Listing Agreement with the Stock Exchanges is given as a separate section in the Annual Report. Related Party Transactions All related party transactions that were entered into during the financial year were on an arm's length basis and were in the ordinary course of business. There are no materially significant related party transactions made by the Company with Promoters, Directors and Key Managerial Personnel which may have a potential conflict with the interest of the Company at large. For all related party transactions prior omnibus approval of the Audit Committee is obtained on a yearly basis for the transactions which are of a foreseen and repetitive nature and such approval is in the interest of the Company. The transactions entered into pursuant to the omnibus approval so granted are audited and a statement giving details of all related party transactions is placed before the Audit Committee and the Board of Directors for their approval. All transactions entered with related parties during the year under review were on arm's length basis and in ordinary course of business. All related parties transactions are disclosed in Note number 42 to the financial statements .Material related party transactions which are at arm's length are disclosed in form AOC-2 annexed as "Annexure-2". The Company has developed a related party transactions policy for purpose of identification and monitoring of such related party transactions, which may be accessed on the Company's website at weblink i.e. <http://www.kajariaceramics.com/pdf/> RelatedPartyTransactionPolicy.pdf Corporate Social Responsibility Initiatives In terms of provisions of Section 135 of the Companies Act, 2013 and Companies (Corporate Social Responsibility Policy) Rules, 2014, the Corporate Social Responsibility Committee has formulated and recommended to the Board a CSR policy indicating the activities to be undertaken by the Company, which has been approved by the Board. The constitution of CSR Committee is disclosed in Corporate Governance Report The CSR policy may be accessed on the Company's website i.e <http://www.kajariaceramics.com/pdf/CSR_Policy.pdf> As a part of initiative of CSR drive, the Company has undertaken the project of building / renovation of sanitation facilities in the schools near the manufacturing facilities. The Company has also taken steps for preventive health care by organising the camps through various agencies / trusts, contributing to the education and social economic development of under privileged children and for slum area / rural area development. These projects are in accordance with Schedule VII of the Companies Act, 2013. The Annual Report on CSR activities as required under the Company's (Corporate Social Responsibility Policy) Rules 2014 is set out as annexure-3 forming part of this Report. Being the initial year, the Company has incurred CSR expenditure of T109.66 lacs (as against T297.14 lacs) during the current financial year. The Company is in process of identifying the projects/activities for the benefit of the Public in general and neighbourhood of the manufacturing facilities in the best possible manner into various projects in future. Risk Management In terms of provisions of Section 134(3)(n) of the Companies Act, 2013, the Company, during the year under review, have framed and put in place a Risk Management policy to mitigate the risks, both internal and external, which the Company is exposed to. Business Risk Assessment procedures have been set in place for self-assessment of business risks, operating controls and compliance with the Corporate Policies. The Company manages, monitors and reports on the principal risks and uncertainties that can impact the ability to achieve the objectives. This is an ongoing process to track the evaluation of risks and delivery of mitigating action plans. The risk management policy of the Company is uploaded on the website of the Company i.e www.kajariaceramics.com There is no identification of risks which in the opinion of the Board may threaten the existence of the Company Internal Control and their adequacy The Company has an Internal Control System, commensurate with the size, scale and complexity of its operations. The scope and authority of the Internal Audit (IA) function is defined in the Internal Audit Program. To maintain its objectivity and independence, the internal auditors report to the Chairman of the Audit Committee of the Board. The Internal auditors monitors and evaluates the efficacy and adequacy of internal control system in the Company, its compliance with operating systems, accounting procedures and policies at all locations of the Company and its subsidiaries. Based on the report of internal audit, process owners undertake corrective action in their respective areas and thereby strengthen the controls. Significant audit observations and corrective actions thereon are presented to the Audit Committee of the Board. The Committee reviews the adequacy and effectiveness of the Company's internal control environment. Directors and Key Managerial Personnel i. Mr. Chetan Kajaria (DIN: 00273928) and Mr. Rishi Kajaria (DIN: 00228455) - Joint Managing Directors of the Company were re-appointed as Joint Managing Directors of the Company by the Board of Directors in its meeting held on 30th March 2015 on the recommendation of Nomination and Remuneration Committee and subject to the approval of the members. ii. Mr. Dev Datt Rishi (DIN: 00312882) was appointed as an additional director of the Company by the Board of Directors in its meeting held on 14th January 2015 on the recommendation of Nomination and Remuneration Committee, upto the conclusion of the ensuing Annual General Meeting of the Company. He has been appointed as Director -Technical of the Company by the Board of Directors and subject to the approval of the members. iii. Mrs. Sushmita Shekhar (DIN: 02284266) was appointed as an additional Independent Director by the Board of Directors in its meeting held on 30th March 2015 on the recommendation of Nomination and Remuneration Committee, upto the conclusion of the ensuing Annual General Meeting of the Company. The appointment of Mrs. Sushmita Shekhar, as an Independent Director of the Company, is subject to the approval of the members. iv. Mr. H. Rathnakar Hegde (DIN: 05158270), and Mr. Ram Ratan Bagri (DIN: 00275313) Directors of the Company, will be appointed as the Independent Directors of the Company w.e.f 1st April 2014 subject to the approval of the members. All the Independent Directors have given declarations that they meet the criteria of independence as laid down under Section 149(6) of the Companies Act, 2013 and Clause 49 of the Listing Agreement. The Board recommends for their appointment / re-appointment in the forthcoming Annual General Meeting. No director has resigned during the year under review. At the Board Meeting held on 1st August 2014, Mr. R.C.Rawat - Executive V.P. (A&T) & Company Secretary has been given the additional charge of CFO of the Company and he later on resigned from the post of CFO and Mr. Sanjeev Agarwal was appointed as CFO of the Company in accordance with the resolution passed by the Board in its meeting held on 29th April 2015. Board Evaluation The Board has carried out an annual performance evaluation of its own performance, the Directors, including Chairman individually as well as the evaluation of the working of its Committees. The manner in which the evaluation has been carried out and the details of familiarisation programme has been explained in the Corporate Governance Report. Remuneration Policy On the recommendation of the Nomination & Remuneration Committee, the Board has framed a policy for selection and appointment of Directors, senior management and their remuneration. Nomination and Remuneration Policy including criteria for determining qualification, positive attributes & independence is also placed on the website of the Company i.e <http://www.kajariaceramics.com/pdf/Nomination_> Remuneration_Policy.pdf and is also stated in the "Annexure-4" to this report. Details of remuneration under Section 197 of the Companies Act, 2013 and details required under Rule 5 (1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are stated in "Annexure-4" which forms part of this report. Statutory Audit M/s O P Bagla & Co. (Firm Regn. No. 000018N), Chartered Accountants, the auditors of the Company would retire at the ensuing Annual General Meeting. They have confirmed their eligibility under section 139 & 141 of the Companies Act, 2013 and willingness for re-appointment as statutory auditors of the Company. The Board of Directors recommends the re-appointment of M/s O.P.Bagla & Co. (Firm Regn. No. 000018N), as Statutory Auditors from the conclusion of ensuing Annual General Meeting till the conclusion of next Annual General Meeting. The report given by the auditors on the financial statements of the Company is a part of the Annual Report. There has been no qualification, reservation, adverse remark or disclaimer given by the Auditors in their report. There were no frauds reported by the auditors under subsection 12 of section 143 of the Companies Act, 2013. Secretarial Audit Pursuant to the provisions of Section 204 of the Companies Act, 2013 and The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Company has appointed M/s Chandrasekaran Associates, a firm of Company Secretaries in Practice to undertake the Secretarial Audit of the Company. The Secretarial Audit Report is annexed herewith as "Annexure 5". There is no qualification , reservation, adverse remark or disclaimer given by Secretarial Auditor in their report. Disclosures: Audit Committee: The Composition of Audit Committee is disclosed in the Corporate Governance report. All the recommendations made by the Audit Committee were accepted by the Board. Vigil Mechanism The Company has established a Vigil Mechanism for Directors and employees by adopting the Whistle Blower Policy to report genuine concerns or grievances. The Whistle Blower Policy may be accessed on the website of the Company i.e <http://www.kajariaceramics>. com/pdf/whistel_blowing_policy.pdf Sexual Harassment of w omen at Workplace (Prevention, Prohibition & Redressal) Act, 2013 The Company has in place a policy for prevention of sexual harassment at workplace in line with the requirements of the Sexual Harassment of Women at Workplace (Prevention, Prohibition & Redressal) Act 2013. This policy may be accessed on the Company's website i.e. <http://www.kajariaceramics.com/pdf/> prevention_of_sexual_harassment.pdf. Internal Complaints Committee has been set up to redress complaints received regarding sexual harassment. All employees (permanent, contractual, temporary, trainees) are covered under this policy. We have not received any sexual harassment complaints during the year 2014-15. Meetings of the Board The details of the number of Meetings of the Board held during the financial year 2014-2015 forms part of the Corporate Governance report. Particulars of Loans, Guarantee and Investments Particulars of Loans, Guarantees and Investments, covered under the provisions of Section 186 of the Companies Act, 2013 are given in the notes 13, 14, 27 & 42 to the Financial Statements. Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and Outgo The particulars relating to Conservation of Energy, Technology Absorption, Foreign Exchange Earnings and Outgo as required to be disclosed under the Act are provided in "Annexure-6" to this report. Extract of Annual Return The details forming part of the extract of the Annual Return in form MGT-9 is annexed herewith as "Annexure-7". Particulars of employees The information required pursuant to Section 197 read with Rule, 5 of The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 in respect of employees of the Company is attached as "Annexure-8" to the Directors Report. Fixed Deposits The Company did not invite/ accept any fixed deposit within the meaning of Section 73 of the Companies Act, 2013, and the rules made there under. Significant and Material Orders passed by the Regulators or Courts Regional Director -North has approved the transfer of registered office of the Company from the state of Uttar Pradesh to the state of Haryana vide its order dated 9th June 2015. Besides this, there are no material and significant orders passed by the Regulators / Courts which would impact the going concern status of the Company and its future operations. Cautionary Statement Statements in this Director's Report & Management Discussion and Analysis describing the Company's Objectives, projections, estimates, expectations or predictions may be forward looking statements within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make difference to the Company's operations including raw material/ fuel availability and its prices, cyclical demand and pricing in the Company's principle markets, changes in the government regulations, tax regimes, economic developments within India and the Countries in which the Company conducts business and other ancillary factors. Appreciation and Acknowledgment Your Directors place on record their deep appreciation to the employees at all levels for their hard work, dedication and commitment. The enthusiasm and unstinting efforts of the employees have enabled the Company to remain as industry leaders. Your Directors would also like to record their appreciation for the support and cooperation your Company has been receiving from its suppliers, dealers, business partners and other associated with the Company. Your Directors express their deep sense of gratitude to the banks, Central and State governments and their departments and the local authorities for their continued support. And to you, our Shareholders, we are deeply grateful for the confidence and faith that you have always reposed in us. For and on behalf of the Board Ashok Kajaria Chairman & Managing Director DIN: 00273877 Place: New Delhi Date: 29th July 2015 |