DIRECTORS' REPORT

TO

THE MEMBERS THIRUMALAI CHEMICALS LTD.

Your Directors present the FORTY THIRD ANNUAL REPORT AND AUDITED STATEMENT OF ACCOUNTS of the Company for the year ended March 31, 2016. The Management Discussion and Analysis has also been incorporated into this report

Dividend

During the year 2015-16, two interim dividends were declared; 1st interim dividend at Rs.4/- per share in October 2015 and the 2nd interim dividend at Rs.6/- per share in March 2016, totally Rs.12.33 cr including taxes on Dividends (Previous Year: Rs.4.93 cr). Considering the above, your Directors do not recommend a further dividend for the year ended March 31, 2016.

Tarderiv International Pte Ltd., Singapore is a wholly-owned subsidiary of your Company. Your Company has three step-down subsidiaries viz. Cheminvest Pte Ltd., Singapore, Optimistic Organic Sdn. Bhd., Malaysia (OOSB) and LAPIZ Europe Ltd.

The Performance, Plans and Prospects of your Company Your Company's current year Business:

All Divisions of the Company have performed well.

Phthalic Anhydride:

Your Company was able to generate better margins despite the mid-year slump, especially in Q2 and Q3 when there was a sharp drop in product prices, and in gross margins. Our improvement in internal efficiencies, including in Marketing and Working Capital management helped us significantly address these issues in the latter half of the year.

Our supply chain improvements also helped us address the volatility in prices, which in earlier years, have caused huge losses during times of falling prices. Without these improvements, the sharp drop in prices which had an adverse impact on the Industry, would have severely affected our performance.

There was also an upturn in performance of logistics, customer satisfaction, inventory & receivables management and HR practices across the Company.

We are now confident that these improvements, along with tighter management and faster reaction are well embedded in our business practices and policies.

A serious concern during the year was the increased dumping of PA into India at lower prices. India is used as an easy dumping ground for excess capacity from the Far & Middle East, Russia and a few other CIS countries. An increased flow into India has been seen in recent times due to the economic crisis in these countries. This situation is aggravated by the progressively weakening demand in China. Many of them have tried to "export their way" out of the problem, while aggressively protecting their domestic markets.

In Russia, the artificial and unusual "export duties" on raw material 'Ortho Xylene" caused a major distortion in the whole value chain, which allowed the local and related CIS producers to buy raw material at significantly lower and artificial numbers. This helped them to sell the product at a value far below the international price.

However, after a long effort of over 2 years, your Company has been able to address this issue through an Anti-dumping duty. Though there is an existing Anti-dumping Duty against some countries and selected Companies, Producers and Traders in certain countries like Korea, have found loopholes to circumvent it. This continues to be a major reason for the low margin, not only for our business, but also for our customers. Much more remains to be done with respect to other CIS group countries which have this distortion.

Your Company is reviewing these issues with the assistance of consultants and Government departments to block these loopholes.

Derivatives and Food Ingredients

Our Fine Chemicals Divisions have performed very well. Their contributions have increased significantly. All these Plants are working at full capacity and substantial expansions through de-bottlenecking are underway.

We hope to see the early results of these efforts during the second half of the current year. These will help us to serve our customers better and increase our market share.

Finance & Cash flow:

Your company continued to generate good cash flow during the year. This enabled your Company to pay down the balance of its debts almost fully and to reduce borrowings for Working Capital. The total bank debt therefore is only Rs. 26.39 cr now (previous year Rs.67.96 cr). This was a result of continued focus on Working Capital, tightening of operations especially of Inventories and Receivables. Consequent to this, our Balance Sheet and Ratios have improved, and interest and finance charges have come down. We hope to continue on this track during the current year.

Environment:

Your company continues to drive down Energy, Chemicals and Water consumption. As a result, the per unit utilization has decreased further. This has been done along with improvements in control of inputs and waste reduction. We continue to be a Zero Discharge Company. We generate almost all our energy internally from Waste Heat Recovery. Our achievements in Water and Energy conservation and Environmental Management have been recognized and have become examples within our Industry.

Safety management receives the highest priority and the safety performance during the year continues to be very good.

Overseas Subsidiary: Optimistic Organic Sdn. Bhd., (OOSB), Malaysia

Our manufacturing Subsidiary M/s. Optimistic Organic Sdn. Bhd., completed its expansion project which will add about 40% capacity. During the Q4 FY16, the expansion and refurbishment of the older plants have been completed and production has started to ramp up during the month of February'16. We are already seeing results of this project in terms of production and lower operating costs. By Q3 FY17 it is expected that the Subsidiary will reach its full designed performance in terms of production, sales and cost reduction. A major part of the Capex costs for expansion was paid from their internal cash flows and accruals of FY13 and FY15. The slump in the world market affected our Subsidiary significantly, where gross margins dropped by over 40%. This was aggravated by the sharp drop in the Malaysian Ringgit vs other currencies. These gave rise to losses. A major portion of the losses are non-operational and unrealized, and are due to the Forex changes relating to residual Term debts due to our company.

We are confident that the Subsidiary will again after a break of two years, start making significant contributions to our consolidated Profits, cash flows and to revenue.

Management Team

We are happy to report to you that over the last 4 years, the company has completed the restructuring of its Management, to build a strong management team. The results are being seen in our improved performances, in our zero term debt, strong ratios and plans for growth. The support of the Directors in the various Committees has also helped in improving functioning and in identifying and implementing various strategic and operational initiatives.

Senior Management Team:

Your Company has a resilient Senior Management Executives and their contributions to execution of strategies in an effective manner were responsible for improved performance of your Company.

At the Board Level:

Your Directors have played a very important role in the improvement of the Company's Business Performance, Controls, Finances and Accounts, Compliances and Systems. Their active involvement and their critical and supportive monitoring have been of great value. They have brought in a breadth of experience and expertise coupled with commitment to the Company.

During the year, your Board has inducted (at its meeting held on October 28, 2015) Mr. Mohanachandra Nair as a Whole-time Director. Mr. Nair has been President (Mfg) in our Company for the last 3 years. He is a well-known Chemical Engineer with about 35 years of experience in various roles at Rashtriya Chemicals and Fertilizers Ltd (RCF), where his previous position was Executive Director. He has extensive experience in Operations, especially Manufacturing, Engineering, Project Management, Technology, Commercial, etc.

The Chairman of your Board Dr. S. Rama Iyer announced his retirement as a Director of the Company at its meeting held on March 21, 2016. During his 18+ year as a Director, his contributions have been immense. He was elected as Chairman of your Board in January 2012 and led your Company ably through a very difficult period. Your Company and the Directors owe him a deep sense of gratitude for his significant contributions as a Director and as Chairman.

During the year six Board Meetings and five Audit Committee Meetings were convened and held. The intervening gap between the Meetings was within the period prescribed under the Companies Act, 2013.

Board Committees:

The Audit Committee had a number of meetings, both formal and internal interactions with the management team in reviewing Accounts, Finances, Compliances and Risks, and in ensuring improved internal reporting, analyses and financial performances. Given the increasing complexities presented by the new Companies Act and other Laws, the Audit Committee has also focused on Compliance and Governance to meet the needs of the present and the future. When necessary, external consultants have been brought in to support the Committee and the Management team.

We are happy to report to you that governance of your Company is of a high order as a result. Further improvements are being implemented.

The Business Review Committee has played an important role in monitoring the Businesses and in improving their management functioning. The Committee meets regularly. Its inputs have been intense and have played a key role in your Company's long-term sustainability of performance and improvement

The Nomination & Remuneration Committee, Stakeholders Relationship Committee and the Corporate Social Responsibility committee have been active in their respective roles.

The details of these are given in the Corporate Governance Report.

Social Responsibility:

Your company plays a key role in contributing to the welfare of the local communities. The founders of your company, had set up the Thirumalai Charity Trust (TCT) and the Akshaya Vidya Trust (AVT) for this purpose.

The TCT, set up in 1970, actively works in 350 villages in Vellore district, providing services in Community Healthcare, Women's Empowerment, Disability, De-addiction, and Village development.

The TCT operates the Thirumalai Mission Hospital, which provides Secondary and Specialized Healthcare, with special focus on Community Health & Lifestyle Diseases (Diabetics, Obesity, Osteoporosis, Women's Health, Alcoholism, etc).

The Vedavalli Vidyalaya Schools (with 3 schools at 2 campuses), managed by the Akshaya Vidya Trust, have around 2,600 students, out of whom 70% are from rural families.

Your company supports these Trusts. Their performance is reviewed periodically by the CSR committee. Your Company can be proud of its contribution to the well-being of the Communities we operate in.

Employees:

Employees at all levels have performed well. On your behalf, we sincerely thank all our staff for their hard work & outstanding commitment to your company.

Industrial Relations:

Industrial Relations during the year under review continued to be very cordial.

Financial and Operating Performance:

Your company achieved a Net profit of Rs.42.73 cr compared to Net profit of Rs.14.20 cr in the previous year, a Gross Profit before Interest and Finance Charges and Depreciation of Rs.91.55 cr (previous year Rs.59.65 cr) and a Profit Before Depreciation and Tax of Rs.70.58 cr (previous year Rs.26.54 cr).

Finance

All taxes and statutory dues have been paid on time. Payment of interest and installments to the Financial Institutions and Banks are being made as per schedule. Your Company had not collected any Fixed Deposits during the Financial Year. Your Company is also regular in attending every enquiry from old Depositors.

Contribution to the Exchequer:

The amounts paid to the Central and State Exchequer by way of Excise Duty, Sales Tax, Customs duties (incl. paid to supplier), Income Tax, etc., is about Rs. 130.55 cr on Gross Sales of about Rs.852.64 cr.

Contribution to the Exchequer is about 15.31% of your Company's Sales

Exports:

Calculated on FOB basis, Exports amounted to Rs.102.38 cr (previous year Rs.105.49 cr)

Particulars of Loans, guarantees or Investments

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

Related Party Transactions

All transactions entered into with Related Parties (as defined under the Companies Act, 2013) during the financial year were in the ordinary course of business and on an Arm's length pricing basis, and do not attract the provisions of Section 188 of the Companies Act, 2013 and within the ambit of Reg. 23 of the SEBI (Listing Obligations And Disclosure Requirements) Regulations, 2015. There were no materially significant transactions with related parties during the financial year which were in conflict with the interests of the Company. Suitable disclosure as required by the Accounting Standards (AS18) has been made in the notes to the Financial Statements.

The Board has approved a policy for related party transactions which has been uploaded on the Company's website.

Plans for Financial Year 2016-17

Your company has taken up the following initiatives for the current year:-

1) Continue with reduction in Fixed Costs, Interests and Energy.

2) Improve Gross Margins and Volumes in all products.

3) Management of Working Capital utilization in each business rigorously to ensure better cash realization and ROCE.

4) Debottleneck our existing capacities in various business units to ensure better utilization and sale, and higher market shares and profitability. A number of initiatives for these have been identified and plans are being implemented to achieve these initially in our Fine Chemicals Products during the current year.

5) Identify and implement improvements in our Commodity businesses to improve Technology and Output, Complete the detailing and commence work on growth plans in our business areas.

Directors' Responsibility Statement:

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

i) in the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures.

ii) the directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give true and fair view of the state of affairs of the company at the end of the financial year and of the profit or loss of the company for that period.

iii) the directors have taken proper and sufficient care to maintain adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities.

iv) the directors have prepared the annual accounts on a going concern basis.

v) that proper internal financial controls were in place and that the financial controls were adequate and were operating effectively.

vi) that systems to ensure compliance with the provisions of all applicable laws were in place and were adequate and operating effectively.

Business Risk Management

Business Risk Evaluation and Management is an ongoing process within the Organization. The Company has a robust risk management framework to identify, monitor and minimize risks. Pursuant to the requirement of Reg. 17(9) of the SEBI (Listing Obligations And Disclosure Requirements) Regulations, 2015, the Company has constituted a Business Risk Management Committee and the details of the Committee are as under:

Vigil Mechanism / Whistle Blower Mechanism

The Company has a vigil mechanism to deal with instance of fraud and mismanagement, if any. The details of the Policy are explained in the Corporate Governance Report and also posted on the website of the Company.

Corporate Social Responsibility (CSR) Committee

The Committee recommended continuing support for the Thirumalai Charity Trust's Health and Rural development projects and for the Akshaya Vidya Trust's Educational programmes.

The terms of reference of the Corporate Social Responsibility Committee (CSR) broadly comprises:

• To review the existing CSR Policy and to make it more comprehensive so as to recommend the activities to be undertaken by the Company as specified in Schedule VII of the Companies Act, 2013. The policy is available in the company website <http://www.thirumalaichemicals.com>

Total Expenditure on Corporate Social Responsibility (CSR) as a percentage of profit after tax (%):

The Company's total spending on CSR is 2.67% of the average profit of the last three financial years towards Health and Sanitation Programmes.

Statement pursuant to Listing Agreement

Your Company's shares are listed with the National Stock Exchange of India Ltd. and the BSE Ltd. We have paid the respective annual listing fees and there are no arrears.

Report on Corporate Governance

A Report on Corporate governance is annexed herewith. Auditors' Report on the same is also annexed. An extract of Annual Return and Secretarial Audit report are attached as required u/s 134 of the Companies Act, 2013.

Performance Evaluation

Pursuant to the provisions of the Companies Act, 2013 and Reg. 17(10) of the SEBI (Listing Obligations And Disclosure Requirements) Regulations, 2015, the Board carried out the annual performance evaluation of its own performance, of the Directors individually as well as the evaluation of working of its Audit, Nomination & Remuneration and Compliance Committees. A structured questionnaire is prepared after taking into consideration the inputs received from Directors, covering various aspects of the Board's functioning such as adequacy of the composition of the Board and its Committees, Board culture, Execution and Performance of specific duties, obligations and governance.

A separate exercise was carried out to evaluate the performance of individual Directors including the Chairman of the Board, who were evaluated on parameters such as level of engagement and contribution, independence of judgment, safeguarding the interests of the Company and its minority shareholders, etc. The performance evaluation of the Independent Directors was carried out by the entire Board. The performance evaluation of the Chairman and the Non-Independent Directors was carried out by the Independent Directors who also reviewed the performance of the Secretarial Department. The Directors expressed their satisfaction with the evaluation process.

Disclosure under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013

The Company has in place an Anti-Sexual Harassment Policy in line with the requirements of The Sexual Harassment of Women at the Workplace (Prevention, Prohibition & Redressal) Act, 2013. An Internal Complaints Committee (ICC) has been set up by your Company to redress complaints received regarding sexual harassment. All employees (permanent, contractual, temporary, trainees) are covered under this policy.

Since the number of complaints filed during the year was Nil, the Committee prepared a Nil complaint report.

Statutory Auditors

M/s. CNK & Associates LLP, Chartered Accountants, present Statutory Auditors of your Company have completed more than two terms of five consecutive years, and therefore your company is required to appoint new auditors in order to comply with provisions of Sec.139(2) of the Companies Act, 2013, within three years from the date of commencement of the new Act.

M/s. CNK & Associates LLP and their predecessors have been the Auditors of your Company since their inception. They have played a thorough role in ensuring that Accounts and Reports of the Company are transparent and critically audited. Their inputs have been of great support to the Audit Committee and to the Board.

On your behalf, the Directors wish to place on record our sense of satisfaction and gratitude to M/s. CNK & Associates LLP, and especially so to the partners : Mr. Kishnadwala and Mr. Vijay Mehta for their signal contributions.

M/s. Walker Chandiok & Co LLP, Chartered Accountants have been recommended highly given their breadth of experience and expertise to perform their function as Statutory Auditors of the Company. The Board of Directors have therefore recommended them for your consideration to be appointed as Statutory Auditors of the company for a term of five years from the ensuing AGM.

Internal Auditors

The Internal Auditors M/s. M.S. Krishnaswamy & Co have played an important role in strengthening the Systems and internal Controls within the Company. The Company's System Auditors M/s. Aneja Associates also contributed significantly in improving the System Operating Procedures.

Cost Auditor

Mr. G. Sundaresan, Cost Accountant, was appointed as Cost Auditor to conduct cost audit of the cost records maintained by our Company with respect to products manufactured during the Financial Year 2015-16. For the Financial Year 2014-15, the Cost Audit Report was filed with MCA, Government of India, by the Company on September 14, 2015, well before September 30, 2015, the due date of filing.

Secretarial Audit

The Board appointed M/s. R.M. Mimani & Associates LLP, Company Secretaries, to conduct Secretarial Audit for the Financial Year 2015-16. The Secretarial Audit Report for the Financial Year ended March 31, 2016 is attached to this Report. The Secretarial Audit Report does not contain any qualification, or reservations or adverse remark.

Extract of Annual Return

Extract of Annual Return of the Company for the year ended March 31, 2016 is attached to this Report

Personnel

In terms of the provisions of section 197(12) of the Companies Act, 2013 read with the rule 5 of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 the names and other particulars of employees are set out in the Annexure A to the Directors' Report.

PARTICULARS PURSUANT TO SECTION 197(12) AND THE RELEVANT RULES OF THE COMPANIES ACT, 2013:

a) The ratio of the remuneration of each Director to the median employee's remuneration for the financial year and such other details as prescribed is as given below:

Name of Director Ratio

1. Mr. R. Parthasarathy (Managing Director) 95: 1

2. Mrs. Ramya Bharathram (Whole-time Director) 35: 1

3. Mr. P. Mohanachandra Nair (Whole-time Director) 8: 1

For this purpose, Sitting fees paid to the Directors have not been considered as remuneration. Gratuity / EL provision is also not considered for this purpose

b) The percentage increase in remuneration of the Managing Director, Chief Financial Officer, Company Secretary or Manager, if any, in the financial year:

Mr. R. Parthasarathy - (Managing Director) : 183%

Mr. Mr. P.Krishnamoorthy - (Chief Financial Officer) : N.A.

Mr. T. Rajagopalan - (Company Secretary) : 19%

c) The percentage increase in the median remuneration of employees in the financial year: 10%

d) The number of permanent employees on the rolls of company: 395

e) The explanation on the relationship between average increase in remuneration and company performance:

The Company's PAT has grown from Rs.14.20 Cr to Rs. 42.73 Cr, an increase of 201% against which the average increase in remuneration is 23%; and this increase is aligned with the Compensation Policy of the Company

The remuneration of the Managing Director Mr. R. Parthasarathy includes the commission of Rs.1 cr, which works out to approximately 1.45% of the net profit for the Financial Year ended March 31, 2016 (maximum permitted 3% as approved by the previous AGM). It may be noted that the increase in the remuneration is mainly due to the significant increase in Net Profit, and commission as a result.

As per the Compensation Policy, the compensation of the Key Managerial Personnel is based on various parameters including Internal Benchmarks, External Benchmarks, and Financial Performance of the Company.

g) Variations in the market capitalization of the company, price earnings ratio as at the closing date of the current financial year and previous financial year and percentage increase or decrease in the market quotations of the shares of the company in comparison to the rate at which the company came out with the last public offer

h) Average percentile increase already made in the salaries of employees other than the managerial personnel in the last financial year and its comparison with the percentile increase in the managerial remuneration and justification thereof and any exceptional circumstances for increase in the managerial remuneration:

Average increase in remuneration is 23% for Employees other than Managerial Personnel & (8.3%) for Managerial Personnel (KMP and Senior Management)

i) The key parameters for any variable component of remuneration availed by the Directors:

Except for Mr.R.Parthasarathy, Managing Director, Mrs. Ramya Bharathram, Whole-time Director and Mr. Mohanachandra Nair, Whole-time Director, no Directors have been paid any remuneration, as only sitting fees are paid to them. The said Directors have not been paid any variable remuneration. The Non-Executive Directors are eligible for a commission on Net Profits in accordance with the approval of the Shareholders at their meeting held on July 5, 2013.

) The ratio of the remuneration of the highest paid director to that of the employees who are not directors but receive remuneration in excess of the highest paid director during the year: Not Applicable

k) If remuneration is as per the remuneration policy of the company: Yes

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

The particulars required to be included in terms of Section 134(3) (m) of The Companies Act, 2013 read with Rule 8(3) of The Companies (Accounts) Rules, 2014 with regard to conservation of energy, technology absorption, foreign exchange earnings and outgo are given in Annexure-C.

Cautionary Statement

Company's objectives, expectations or forecasts may be forward-looking within the meaning of applicable securities laws and regulations. Actual results may differ materially from those expressed in the statement. Important factors that could influence the Company's operations include global and domestic demand and supply conditions affecting selling prices of finished goods, input availability and prices, changes in government regulations, tax laws, economic developments within the country and other factors such as litigation, plant breakdowns, industrial relations, etc.

ACKNOWLEDGEMENTS

The Directors would like to place on record our sincere appreciation for the continued support given by the Banks, Government Authorities, Customers, Vendors, Shareholders and Depositors during the period under review. The Directors also appreciate and value the contributions made by the employees of our Company at all levels.

For and on behalf of the Board of Directors

R. Parthasarathy  

Managing Director

(DIN:00092172)

R. Ravishankar

Independent Director (DIN:01224361)

Date : 14th May 2016

Place : Chennai