DIRECTORS' REPORT

DEAR MEMBERS,

Your Directors are pleased to present their Thirty Second Annual Report on the business and operations together with the audited financial statement of the Company for the year ended March 31, 2016.

Operations Review:

FY2016 continued to be a very challenging year for global economy and in particular for the spirits industry in India. The Indian spirits industry has slowed down in recent years from double digits to low single digit volume growth. However, the high value premium segment has not been impacted by this slowdown. This trend was also reflected in the Company's performance. While, overall IMFL volume declined (6.6)% to 181.93 lakh cases in FY2016, Prestige & Above category brands registered a volume growth of 8.9% y-o-y in FY2016 to reach 44.02 lakh cases. Prestige & Above category brands as a percentage of total IMFL sales increased from 20.7% in FY2015 to 24.2% in FY2016. Net Sales declined by (3.1)% to Rs. 1,789.2 Crore.

Despite subdued sales performance, Radico Khaitan delivered a strong operating performance with EBITDA increasing by 14.2% to Rs. 194.6 Crore and EBITDA margins expanding by 165 bps to 10.9%. This was achieved through a combination of the Company's relentless focus on cost optimisation, better product mix and stabilising input price trend. Interest expenses decreased from Rs. 89.9 Crore in FY2015 to Rs. 84.7 Crore in FY2016. Net profit improved by 13.7% to Rs. 76.9 Crore with a 4.3% margin.

Capital Structure and Liquidity:

Share Capital

During the year under review, the Company granted 530,000 stock options under the Employees Stock Option Scheme 2006. These shares well vest with employees in next four years.

General Reserve

An amount of Rs.50 Crore has been transferred to the General Reserve out of Radico Khaitan's profit of Rs.76.88 Crore for the financial year ended March 31, 2016.

Term Loan and Working Capital

As of March 31, 2016, Total Debt was Rs. 851.4 Crore, Cash & Cash Equivalents were Rs. 10.6 Crore resulting in Net Debt of Rs. 840.9 Crore (vs. Rs. 838.9 Crore as of March 31, 2015). Total Debt consists of Rs. 509.9 Crore of Working Capital loans and Rs. 341.5 Crore of Long Term loans, including Long Term loans maturing within 12 months of the balance sheet date. Total Debt includes a sum of Rs. 15.5 Crore being the notional impact of the depreciation of the rupee on foreign currency loans (ECB). During FY2016, the Company reduced the Long Term ECBs from $53.2 million to $41.4 million. Working Capital loans increased during the same period due to seasonality impact.

As of March 31, 2016, Radico Khaitan had a conservative leverage with Debt/Equity ratio of 0.94x and Net  Debt/EBITDA of 4.3x.

Capital Market Ratings:

The Company continued to enjoy investment grade credit rating from Credit Analysis & Research Ltd (CARE) which has re-affirmed the rating of "CARE A+" assigned for the long term facilities. CARE A+ rating is considered to have adequate degree of safety regarding timely servicing of financial obligations. Such instruments carry low credit risk.

CARE has re-affirmed the rating of "CARE A+" assigned for the short term facilities, which is considered to have very strong degree of safety regarding timely servicing of financial obligations. Such instruments carry lowest credit risk.

Directors:

As per Rule 8 (5) (iii) of the Companies Accounts Rules 2014, Mr. Abhishek Khaitan got reappointed during the financial year 2015-16. There was no change in other directors and KMP's.

Board Meetings:

During FY2016, the Board of Directors met 4 (four) times on 22nd May 2015, 10th August 2015, 9th November 2015 and 5th February 2016. The period between any two consecutive meetings of the Board of Directors of the Company was not more than 120 days. The details regarding composition, number of Board Meetings held and attendance of the directors during FY2016 are set out in the Corporate Governance Report as annexed with the report.

Meeting of Independent Directors:

The Independent Directors of the Company met separately on 5th February 2016 without the presence of the Non-Independent Directors and the members of management. The meeting was conducted informally to enable the Independent Directors to discuss matters pertaining to the Company's affairs and put forth their combined views to the Board of Directors of the Company. In accordance with the Listing Agreement, following matters were, inter-alia, discussed in the meeting:

1) Review of the performance of Non-Independent Directors and the Board as a whole;

2) Review of the performance of the Chairperson of the Company, taking into account the views of Executive Directors and Non-Executive Directors;

3) Assessment the quality, quantity and timelines of flow of information between the Company management and the Board that is necessary for the Board to effectively and reasonably perform their duties

Familiarization Programme for the Independent Directors:

Radico Khaitan has developed a well-structured orientation programme for the Independent Directors to provide them an opportunity to familiarize with the Company, its management and its operations so as to gain a clear understanding of their roles and responsibilities. This program is intended to familiarise the new Board members about the Company's strategy, products and offerings, operations and facilities, economic environment, organisation structure, human resource, finance, technology, quality and risk management. The induction programme includes one-to-one interactive sessions with the top management team, business and functional heads among others, and also includes visit to the manufacturing facilities to understand operations and technology.

In pursuit of this, the Directors are updated on a continuing basis on developments in the corporate and industry scenario including those pertaining to regulatory and economic environment, to enable them to take well informed and timely decisions. The details of the familiarisation programme may be accessed on the Company's corporate website at www.radicokhaitan.com

Declaration by Independent Directors:

The Company has received declarations from all Independent Directors that they meet the criteria of Independence as laid down under Section 149 (6) of the Companies Act, 2013, SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and Clause 49 of the Listing Agreement. The Company keeps a policy of transparency and arm's length while dealing with its Independent Directors. No transaction was entered with Independent directors in the year which could have any material pecuniary relationship with them. Apart from sitting fee no other remuneration was given to any of the Independent Directors.

Board Evaluation:

The Board of Directors has laid down the manner in which formal annual evaluation of the performance of the Board, Committees and individual Directors has to be made. Radico Khaitan has in place a comprehensive and structured questionnaire for evaluation of the Board and its Committees, Board composition and its structure, effectiveness, functioning and information availability. This questionnaire also covers specific criteria and the grounds on which all Directors in their individual capacity will be evaluated.

The performance evaluation of the Independent directors was done by the entire Board excluding the director being evaluated. The performance evaluation of the Chairman and the Non-Independent directors was carried out by the Independent directors. The Board of Directors expressed their satisfaction with the evaluation process.

Policy on Nomination, Remuneration and Board Diversity u/s 178(1)

The Board of Directors has framed a policy which lays down a framework in relation to remuneration of Directors, Key Managerial Personnel and Senior Management of the Company. This policy also lays down criteria for selection and appointment of Board Members as well as diversity of the Board. Radico Khaitan recognizes the benefits and importance of having a diverse Board of Directors in terms of skill set and experience. The Company has an optimum mix of executive and non-executive, independent directors and woman director. The detail of the policy is explained in the Corporate Governance Report.

Risk Management Policy:

Risk management is embedded in Radico Khaitan's corporate strategies and operating framework. The Company has in place comprehensive risk assessment and minimization procedures, integrated across all operations and entails the recording, monitoring and controlling enterprise risks and addressing them timely and comprehensively. The risks are reviewed by the Risk Management Committee, Audit Committee and the Board from time to time and new risks are identified based on new business initiatives and the same are assessed, minimisation framework and controls are designed and appropriately implemented.

Awards and Recognition:

During the year Radico Khaitan received numerous awards for its leading brands at various international events. These awards are testament to the Company's understanding of the customer preference as well as the superior quality of its products. Some of the awards received during the year were:

Employee Stock Option Scheme:

Radico Khaitan's employee stock option scheme was implemented to provide the employees with an opportunity to share in the growth of the Company and to reinforce long term commitment. The Compensation Committee, at its meetings held on 23.11.2015, granted 530,000 stock options, to the eligible employees, as per the Employees Stock Option Scheme 2006. The particulars of the options as required by SEBI (Share Based Employee Benefits) Regulations, 2014 are appended as Annexure A and forms part of this report.

Dividend:

The Company has a dividend policy that balances the dual objective of appropriately rewarding its shareholders and retaining capital to support future growth. Your Directors are pleased to recommend a dividend of Rs. 0.80 per equity share or 40% on face value of Rs. 2.00 each for the year ended March 31, 2016. The total dividend payout for the financial year will be Rs. 106431012.00 including a dividend distribution tax of Rs. 21666849.78. This consistent dividend payout is to demonstrate our commitment towards our shareholders. The dividend is subject to approval of shareholders at the Annual General Meeting scheduled to be held on 11th July 2016 and will be paid to the shareholders whose names appear in the Register of Members as on the date of book closure, i.e. from 6.7.2016 to 11.7.2016 (both days inclusive).

Dematerialisation:

During the year 235,455 shares of the Company constituting 0.18% of the issued and subscribed Share Capital of the Company, were dematerialised. Around 98.07% of the shares of the Company have now been dematerialized as on March 31, 2016. Your Directors would request all the members who have not yet converted their holdings into dematerialized form, to do so thereby facilitating trading of their shares. As per SEBI guidelines it is now mandatory that the shares of a company are in dematerialized form for trading.

Public Deposits:

During the year under review, your Company has neither invited nor accepted any fixed deposits from the public within the meaning of Section 73 of the Companies Act, 2013, read with the Companies (acceptance of Deposits) Rules, 2014.

Subsidiaries and Joint Ventures:

During the year under review, the Company has no subsidiary company. Radico Khaitan has one joint venture, namely, Radico NV Distilleries Maharashtra Limited. The Company has 36% stake in the said JV.

Transfer to Investor Education & Protection Fund:

Section 124 of the Companies Act, 2013 (Section 205A of the Companies Act, 1956) mandates that companies transfer dividend, that has been unclaimed for a period of seven years, from the unpaid dividend account to the Investor Education and Protection Fund (IEPF). To ensure maximum disbursement of unclaimed dividend, the Company sends reminders to the concerned investors, before transfer of dividend to IEPF. Unclaimed dividend has been transferred to IEPF as per below

Key Managerial Personnel:

There has been no change in Key Managerial Personnel during the year under review. Remuneration of the Directors and Employees:

Radico Khaitan's remuneration policy aims at attracting and retaining high quality talent. Your Company's approach is to have performance based compensation culture. The remuneration policy, therefore, is market-led and takes into account the competitive circumstance of the business so as to attract and retain quality talent and leverage performance significantly.

The remuneration payable to each executive Director is based on the remuneration structure as determined by the Board, and is revised from time to time depending upon individual contribution, the Company's performance and the provisions of the Companies Act, 2013.

Particulars of Employees:

In accordance with the provisions of Section 197 (12) of the Companies Act, 2013, read with Rules 5(2) and 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the names and other particulars of employees are to be set out in the Directors' Report, as an addendum thereto. During FY2016, Seven (7) persons employed throughout the year, were in receipt of remuneration of Rs. 60 lacs per annum or more amounting to Rs. 80,846,178. During FY2016, the Company had a total of 1115 employees as per Annexure B.

The above annexure is not being sent along with this Report to the Members of the Company in line with the provision of Section 136 of the Companies Act, 2013. Members who are interested in obtaining these particulars may write to the Company Secretary at the Registered Office of the Company. The aforesaid Annexure is also available for inspection by Members at the registered Office of the Company, 21 days before the 32nd Annual general meeting and up to the date of the ensuing Annual General meeting during the business hours on working days.

None of the employees listed in the said annexure is a relative of any Director of the Company. None of the employees hold (by himself or along with his spouse and dependent children) more than two percent of the equity shares of the Company.

The information required under Section 197 (12) of the Companies Act, 2013 read with Rule 5(1) of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 and forming part of the Directors' Report for the year ended March 31, 2016 is given in a separate Annexure - B to this Report.

The Business Responsibility Reporting as required by Section 134 (5) of the Companies Act, 2013 is not applicable to your Company for the financial year ending March 31, 2016.

Audit Report for the Year Ended FY2016:

The observations made in the Auditors Report are self-explanatory and therefore do not call for any further comments under Section 134 of the Companies Act, 2013.

Statutory Auditor:

The Board of Directors in their meeting held on 25th May 2016 has taken on record the special notice received from a shareholder, as well as recommendation of the Audit Committee for the appointment of M/s. BGJC & Associates, Chartered Accountants (Firm Registration No. 003304N), as Statutory Auditors of the Company for a consecutive term of 5 years in place of the retiring Auditors M/s. V. Sankar Aiyar & Co. and has recommended the same to the Shareholders for their approval in the ensuing AGM. Written consent of the proposed auditors together with a certificate certifying that the appointment, if made, shall be in accordance with the conditions specified in Rule 4 of the Companies (Audit & Auditors Rules) 2014 has been received.

Cost Auditor:

As per the requirement of Central Government and pursuant to Section 148 of the Companies Act, 2013 read with the Companies (Cost Records and Audit) Rules, 2014 as amended from time to time, your Company has been carrying out audit of cost records relating to Industrial Alcohol every year.

The Board of Directors, on the recommendation of audit committee, has appointed Mr. S.N. Balasubramanian, Cost Accountants, as cost auditor to audit the cost accounts of the Company for the financial year 2017 at a remuneration of Rs. 1 lac plus service tax as applicable and reimbursement of out of pocket expenses. As required under the Companies Act, 2013, a resolution seeking member's approval for the remuneration payable to the Cost Auditor forms part of the Notice convening the Annual General Meeting.

Secretarial Audit:

Pursuant to the provisions of Section 204 of the Companies Act, 2013 and rules made thereunder, the Company has appointed M/s. Tanuj Vohra & Associates, a firm of Company Secretaries in Practice (C.P. No. 5253) to undertake the Secretarial Audit of the Company. The Secretarial Audit Report is included as Annexure - C and forms an integral part of this Report. There is no secretarial audit qualification for the year under review.

Internal Control Systems and their Adequacy:

Radico Khaitan has an elaborate internal control system commensurate to the size of the Company and its operations. This system continuously monitors compliance to internal processes across the operations to ensure that all assets are safeguarded and protected against loss from unauthorised use or disposition, that transactions are authorised, recorded and reported correctly and that operations are conducted in an efficient and cost effective manner. The policies are in place relating to financial and operational controls.

The internal audit function periodically performs audit of various processes and activities. The Audit Committee reviews the effectiveness of the Internal Control System, and also invites functional Directors and Senior Management personnel to provide periodic updates on operational effectiveness and controls. A CEO and CFO Certificate, forming part of the Corporate Governance Report, confirms the existence and effectiveness of internal controls. The Company has appointed Grant Thornton as their internal auditors, which in turn submits quarterly reports to the Audit Committee. The Company has also appointed external agency to review the Internal Control Systems and they have in turn reported on the effectiveness and efficiency of Internal Control Systems. Being an ongoing exercise, the management continuous to work on the same.

Particulars of Loans, Guarantees or Investment by the Company:

Details of Loans, Guarantees and Investments covered under the provisions of Section 186 of the Companies Act, 2013 are given in the notes to Financial Statements.

Vigil Mechanism:

Pursuant to the requirement of section 177 (9) & (10) of the Companies Act, 2013, Radico Khaitan has adopted a Vigil Mechanism, which allows employees of the Company to raise their concerns relating to fraud, malpractice or any other activity or event which is against the interest of the Company or society as a whole. Details of complaints received and the action taken are reviewed by the Audit Committee. The functioning of the Vigil Mechanism is reviewed by the Audit Committee from time to time. The Vigil Mechanism Policy has been uploaded on the website of the Company at <http://www.radicokhaitan.com/data_pdf/vigil_Mechanism_Whistle_Blower_Policy.pdf>

Archival Policy:

Pursuant to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and in line with Radico Khaitan's Policy on Determination of Materiality of Events and as per the Regulations, the Company shall disclose all such events to the Stock Exchanges and such disclosures shall be hosted on the website of the Company for a period of 5 years and thereafter the same shall be archived so as to be available for retrieval for a further period of three years by storing the same on suitable media. Thereafter the said information, documents, records may be destroyed as per the policy on preservation of documents.

Related Party Transactions:

All transactions entered with Related Parties for the year under review were on arm's length basis and in the ordinary course of business and that the provisions of Section 188 of the Companies Act, 2013 are not attracted. Thus disclosure in form AOC-2 is not required. Further, there are no material related party transactions during the year under review with the Promoters, directors or Key Managerial Personnel. The Company has developed a Related Party Transactions framework through Standard Operating Procedures for the purpose of identification and monitoring of such transactions.

All Related Party Transactions are placed before the Audit Committee as also to the Board for approval. Omnibus approval was obtained on a quarterly basis for transactions which are of repetitive nature. Transactions entered into pursuant to omnibus approval are audited by the Risk Assurance Department and a statement giving details of all Related Party Transactions are placed before the Audit Committee and Board for review and approval on a quarterly basis.

The policy on Related Party Transactions as amended and approved by the Board of Directors has been uploaded on the website of the Company. The web-link of the same has been provided in the Corporate Governance Report. None of the directors has any pecuniary relationship of transactions vis-a-vis the Company.

Environmental Protection Measures Taken by the Company:

In view of the corporate responsibility on Environmental Protection, the Company has adopted a number of measures to improve in the field of environment, safety and health. Measures like standard operating procedures, training programmes for all levels of employees regarding resource conservation, housekeeping, Green Belt development and onsite emergency plan have been taken. Sustainable living is a part of long-term business strategy and your Company continuously strives to reduce our environmental footprint, while enhancing the livelihood of millions of people across our product value chain.

Energy Conservation, Technology Absorption and Foreign Exchange Earnings and Outgo:

As per Section 134 (3) (m) read with the Companies (Accounts Rules) 2014, the relevant information and data is given at Annexure - D.

i) the steps taken or impact on conservation of energy;

ii) the steps taken by the company for utilising alternate sources of energy;

iii) the capital investment on energy conservation equipment;

The Company has continued its efforts to improve energy usage efficiencies and endeavours to identify and evaluate the risks associated with the future energy expansion. Furthermore, your Company views foreign exchange as a priority and engages with the overseas markets in a fair and careful manner to seek growth for the business.

Corporate Social Responsibilities (CSR):

Radico Khaitan is a responsible corporate citizen, supporting activities related to the benefit of the society as a whole. The Company is committed to improve quality of lives of people in the community its serves through long term stakeholder value creation, with special focus on empowerment of communities in rural India. As part of its CSR programmes, the Company partners with the community and addresses issues of water and sanitation, education, health and skill-building. Radico Khaitan also promotes and encourages responsible drinking through engaging with employees, taking preventative action, education & raising awareness and bringing communities on board to address local challenges at their root.

Composition of the Committee:

1. Dr. Lalit Khaitan Chairman

2. Mr. K.P. Singh Member

3. Mr. Ashutosh Patra Member

4. Ms. Shailja Devi Member

The Company's projects are in accordance with Schedule VII of the Companies Act, 2013 and the Company's CSR policy. The Report on CSR activities as required under Companies (Corporate Social Responsibility Policy) Rules, 2014 is set out as Annexure - E forming part of this Report. Apart from the CSR activities under the Companies Act,  2013.

Significant and Material Orders Passed by the Regulators or Courts:

There has been no significant and material order passed by the Regulators or Courts that would impact the going concern status of the Company and its future operations.

Safety & Wellbeing of Women:

Gender equality and women safety is a very important part of Radico Khaitan's human resource policies. The Company has zero tolerance for sexual harassment at workplace and has adopted a Policy on prevention, prohibition and redressal of sexual harassment at workplace in line with the provisions of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 and the Rules thereunder for prevention and redressal of complaints of sexual harassment at workplace. During the year under review, there were no sexual harassment cases reported to the Company.

Directors' Responsibility Statement:

To the best of knowledge and belief and according to the information and explanations obtained by them, your Directors make the following statement in terms of Section 134 (3) (c) of the Companies Act, 2013.

i) that in the preparation of the Annual Accounts for the year ended March 31, 2016, the applicable accounting standards have been followed along with proper explanation relating to material departures, if any;

ii) and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at March 31, 2016 and of the profit of the Company for the year ended on that date;

iii) that the Directors have taken proper and sufficient care 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) that the Directors had laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and were operating effectively; and

vi) that the Directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

Extract of Annual Return:

Pursuant to Section 92 (3) of the Companies Act, 2013 and Rule 12 (1) of the Companies (Management and Administration) Rules, 2014, the extract of the Annual Return is provided in Annexure - F

Management Discussion and Analysis for FY2016:

Management Discussion and Analysis Report, as required under the SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 and forms part of this report.

Corporate Governance Report for FY2016:

Report on Corporate Governance along with the certificate of statutory Auditors, M/s. V. Sankar Aiyar & Co., confirming compliance of conditions of Corporate Governance, as stipulated under the SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015, forms part of the Annual Report.

Acknowledgements:

Your Directors would like to express their sincere appreciation to the investors and bankers for their continued support during the year. Your Directors extend their sincere gratitude to all the Regulatory Authorities such as SEBI, Stock Exchanges and other Central & State Government authorities and agencies, Registrars for their guidance and support. The Board also appreciates the support and co-operation your Company has been receiving from its supply chain partners and others associated with the Company as its trading partners. Your Company looks upon them as partners in its progress and has shared with them the rewards of growth.

Your Directors place on record their deep appreciation to employees at all levels for their efforts, dedication and commitment. Their enthusiasm and hard work has enabled the Company to be at the forefront of the industry. We also take this opportunity to thank all our valued customers who have appreciated our products.

For and on behalf of the Board

Sd/- Dr. Lalit Khaitan

Chairman & Managing Director

DIN - 00238222  

Date: 25.05.2016  

Place: New Delhi