DIRECTORS' REPORT Your Directors take pleasure in presenting the 25th Annual Report together with the Audited Statement of Accounts for the year ended 31 March, 2015. OPERATIONS: India's merchandise exports of US $ 310534 million recorded in the year under review are marginally lower than US $ 314416 million exports achieved in the previous year, registering a negative growth of 1.23%. During the year, your Company experienced subdued demand from its major overseas clients, due to global slowdown. There was decline in the inflow of orders from European markets where your Company dispatches major quantity of its merchandise. Consequent to this, the actual dispatches in terms of pairs of socks were 12.48% lower compared to the previous year. The actual sales value of Rs. 1893 lac was posted this year by your Company. However, there is a reduction of only 6.60% compared to the previous year sales, due to better product-mix achieved during the year. The export sales constituted 91.38% of the total sales value. Domestic sales this year were 58.06% higher compared to the previous year. Your Company could improve its product-mix by initiating efforts to reach out to some niche markets which need exclusive products and offer higher realization. The average selling price during the year was Rs. 43.57 per pair of socks against Rs. 40.62 per pair of socks achieved in the previous year, recording a rise of 7.26%. The Company is focusing on improving its high margin business through innovation and change in processes. Your Company continued to make relentless efforts to develop new markets and increase the share of sales to existing small clients in export markets. This helped improve its client-mix, and bring down the percentage share of business of concentrated customers with your Company; thereby reducing risk and vulnerability of your Company. The actual profit before tax of Rs. 302.18 lac was 37.90% lower compared to Rs. 486.60 lac recorded in previous year. This significant drop in profits was the out come of many cumulative factors. • Decelerating growth due to reduced inflow of export orders, compared to previous year. • There was significant increase in cost inputs. Though the prices of dyed cotton yarn recorded nominal reduction in the last quarter of the year, the prices of other raw materials ie woolen yarn, nylon and elastane yarn showed no improvement. There was unprecedented rise in minimum wages of operators during the year as declared by the Gujarat Government by Rs. 1359 per month per head amounting to 22.56% of total wages. With 45 to 50% fringe benefits, the impact on the wage bill of the Company was substantial. The power rate increased by 3.88% and natural gas rate increased by 8.82% compared to the previous year. Your Company had to absorb these cost escalations, as it is not possible to pass on the same to clients in the export business. • Your Company launched and successfully test marketed its own brand of various types of high quality cotton "LORD WALKER" (LW) socks, in Pune, Maharashtra. Progressively, these socks are being introduced nation wide. Efforts are also underway to make LW socks available on line, with reputed e-commerce web portals. During the financial year, your Company has spent about Rs. 70 lac towards the cost of Managerial and Marketing personnel, both in house and consultants and for Marketing, including advertising, expenses, for launching and promoting the LW brand of socks. Some of these expenses are one time and some will be recurring. For a correct, like to like, performance comparison with the previous year, this amount of Rs. 70 lac, spent on the LW launch this year, should be added to the profit before tax of this year. Your Company is confident that the contribution of LW socks will be substantial to the performance of the Company, in the coming years. It has been the consistent policy of your Company to plough back a part of surplus profit every year to purchase new machines and other equipment to enhance production, improve product-mix and adhere to strict environmental and safety measures. This helps your Company maintain its competitiveness. During the year, Six coarse gauge double cylinder machines were purchased and installed. The socks produced on these machines are sold in niche markets, with high prices and improved margin. The total capital outlay was Rs. 60.79 lac. Exports will continue to be the main thrust area of your Company, because export clients offer large size orders, which result in better plant efficiency, improvement in quality and better management of inventory. There is assured security in recovery of export receivables. However, it is expected that sales in the domestic market will play an increasingly important role, in the future. Your Company continues to maintain its reputation of being one of the leading suppliers of premium quality dress and sports socks to many reputed retail chains in Europe and the Gulf Countries. As most of the customers are high end reputed retailers who need excellent quality socks, the Company has positioned itself to supply them quality products and timely deliveries. Therefore, the Company is optimistic of growth through continued expansion and innovation. The current year 2015-16 has started with great optimism. The order book position has been very encouraging till July 2015 and this reflects the increasing affirmation of your Company's products, quality, timely deliveries, quick response and superb designing capability in export markets. There is no change in the nature of business of your Company for the year under review. Overview of the Economy: The merchandise exports from India have remained stagnant between US $ 302 to US $ 314 billion in the last three financial years. India's share is a mere 2% in Global trade, where as that of China is around 11.7% (2013). The Foreign Trade Policy 2015-2020 announced in April 2015 has set a target of 3.5% by 2020-21 for India. In the last two/three years, the exporting units were big beneficiaries of Indian rupee depreciation. Since mid 2014, the rupee has been strengthening against Several Currencies, resulting in erosion of both realisation and profit for exporters. This is one cause for the deceleration in exports since mid 2014. In Foreign Trade Policy 2015-2020 announced in April 2015, a new scheme named MEIS (Merchandise Exports From India Scheme) has been introduced where by the exporters will get incentive of 2% of FOB value in respect of merchandise falling under ITC (HS) code 61 - Knitted Apparels (including socks) exported to United Kingdom and United States of America etc (but not Switzerland and Gulf countries). This scheme is in substitution of earlier MLFP scheme (market linked focal product) which was off and on introduced and withdrawn. The manufacturing activity has been decreasing. Corporate results were weak in third quarter of the year under review and the fourth quarter results are also not encouraging. However the new initiatives taken and good ground work done to improve the economy will helpfully bear full fruit in the year to come. Despite odds, the performance of your Company in the year under review is satisfactory when viewed in the backdrop of the expense incurred in launching the Lord Walker brand and an extremely challenging environment during the year. Industry Structure and Development The Indian textile industry, including hosiery and clothing, is one of the leading sectors of the Indian economy and contributes significantly to the country's industrial output (14%). It employs 35 million people in direct employment and earns much needed foreign currency with 17% of India's exports coming from Textiles and Garments. Overall, it contributes around 5% to India's GDP. Textiles and apparel exported from India consume mainly indigenous inputs and are, therefore, big earners of net foreign exchange. This helps the country reduce its current account deficit. Value of socks manufactured in India is estimated around Rs. 3000 crores per annum. Many major socks manufacturers in India are supplying their socks in the domestic market as licensees of international brands. Only a few supply under their own brand name. Opportunities Your Company is well poised to seize opportunities available in the sock knitting industry on account of its state-of-the-art production facilities, technical expertise, good quality culture and emphasis on product innovation and growth potential. Your Company is meeting international quality norms of comfort, stretch, sizing, skin care and other parameters essential for inner wear intimate apparel. They also meet the fashion demands in terms of design, different knits and multiple shades. The socks manufactured by your Company are sold in Supermarket Chains and upper end Retail Stores. The growing young middle-class population is a source of great potential and provides immense opportunities to spurt growth in the sock industry in the future. For duty drawback on export shipments, "cap per unit" was raised upwards (more than double, say 2.25-2.50 times) with effect from 22.11.2014. This gave good financial benefit to exporters like Virat, who are exporting high price products. This has provided good opportunity to exporters to improve product-mix for high price markets. Your Company is knitting super sophisticated design socks for a reputed international brand selling socks in big outlets at high prices. This gives great goodwill to your Company, as the name of your Company is mentioned on the band rolls of the socks of that brand. All major overseas customers of your Company insist on social audits to be carried out in the factory at least once in two years, by the internationally acclaimed "Business Social Compliance Initiative Agencies". Such audits cover compensation to employees, health, safety, environment and management practices. New customers also insist on such audits to be conducted, before they start the business. The compliance of such audits to International Standards, brings healthy and ethical culture in working and creates goodwill of the Company among its clients. Your Company has successfully complied with many such audits and has thus ensured continuance of business with major clients for long periods. Threats: Your Company derives about 91% of its revenue from the export market. Economic slowdown or decline in demand in the country of buyer of your Company's products will have adverse impact on the working of the Company. Your Company is potentially exposed to any changes in exchange rates, tariff, duty drawback rates, and also the Government Policies of the Countries which purchase your Company's product. In the international market, countries like Turkey have developed an edge over the Indian manufacturers due to reduced freight cost and much reduced delivery time. Besides, Turkey enjoys exemption of 10.6% custom duty in relation with EU countries. This has posed a threat to the Indian socks suppliers and may pressurise them to reduce prices and thereby squeeze their margins. Even Bangladesh enjoys exemption in import duty by virtue of its being a less developed country and exports goods at prices which Indian socks suppliers cannot compete. The major challenge that the textile, apparel and hosiery industry faces is of ever increasing production costs arising out of rising wages, power and other overheads. Rupee has become strong against several foreign currencies from mid 2014. This has already adversely impacted the topline and bottom line of the exporting units, when compared with their last two/three years' performances. FINANCE As on the date of Balance Sheet the company is debt free in terms of long term loans. WORKING CAPITAL LOAN The Company is enjoying export packing credit and foreign bill purchase facilities. INSURANCE All the assets of the Company have been adequately insured. DIVIDEND The Board of Directors of the Company has recommended a dividend of Rs. 1.80 per share of Rs. 10/- each (18%). The total dividend will absorb Rs. 8,862,012 excluding Rs. 1,814,497 as tax on dividend. The dividend will be free of tax in the hands of the shareholders of the Company. BOARD MEETINGS Regular meetings of the Board of Directors are held to discuss and decide on various business policies, strategies and other business. Due to business exigencies, sometimes business decisions are taken by the Board through circulation. The Board met six (6) times during the FY 2014-15, viz. on May 29, 2014, August 12, 2014, September 11, 2014, November 13, 2014, February 12, 2015 and March 05, 2015. Detailed information on the meeting of the Board is included in the report on Corporate Governance which forms part of this Annual Report. DIRECTORS AND KEY MANAGERIAL PERSONNEL Mrs. Ayesha K. DadyBurjor was appointed as a whole time Director of the Company in the Board of Directors' meeting held on 11.09.2014. Her remuneration was also approved by the Nomination and Remuneration Committee on the same date. Her appointment as a Whole-time Director has to be ratified by the shareholders in the Annual General Meeting to be held on 3rd September, 2015. The term of Mr. Adi F. Madan as Managing Director of the Company is expiring on 30th September, 2015. The Board of Directors in its meeting held on 29th May, 2015 has re-appointed Mr. Adi F. Madan as Managing Director of the Company for the further term of 3 years from 1st October, 2015 to 30th September, 2018 on the same terms and conditions as regards his functions, duties and remuneration. The Remuneration Committee has also approved his remuneration. His candidature as non-retiring Director and the Special Resolution for approval of his remuneration will be put before the ensuing Annual General Meeting for your approval. Mr. Adi F. Madan Managing Director and Mr. Asinkhan S. Baholu Company Secretary of your Company are the Key Managerial Personnel as per the provision of the Companies Act, 2013, and were already in office before the commencement of the Companies Act, 2013. Mr. Bhavik Maisuria Deputy Financial Manager was appointed as a Chief Financial Officer of your Company in the Board Meeting held on 29th May, 2014. DECLARATION FROM INDEPENDENT DIRECTORS ON ANNUAL BASIS The Independent Directors have submitted the Declaration of Independence, as required pursuant to section 149(7) of the Companies Act, 2013, stating that they meet the criteria of independence as provided in subsection (6). COMPOSITION OF AUDIT COMMITTEE The Board has constituted an Audit Committee comprising of three Independent Directors. The Committee members meet regularly and make their recommendations in accordance with the terms of reference specified by the Board. Such recommendations are thoroughly discussed in Board meetings and by and large accepted for implementation. The details of the meetings and the discussion held by the Committee are given in detail in the 'Report on Corporate Governance' of the Company which forms part of this Annual Report. NOMINATION AND REMUNERATION COMMITTEE The Board has constituted a Nomination and Remuneration Committee comprising of three Independent Directors. The Committee recommends appointment/re-appointment of executive directors and appointment of employees from the level of vice-president and above along with remuneration to be paid to them. The remuneration is fixed keeping in mind the person's track record, his/her potential, individual performance, the market trends and scales prevailing in the similar industry. The details of the meetings and the discussion held by the Committee are given in details in the 'Report on Corporate Governance' of the Company which forms part of this Annual Report. STAKEHOLDERS RELATIONSHIP COMMITTEE The Board has constituted a Stake Holder Relationship Committee comprising of three Directors, two independent Directors and the Managing Director. The Committee met regularly to approve share transfers, transmission, issue of duplicate share certificates, re-materialization of shares and all other issues pertaining to shares and also to redress investor grievances like non-receipt of dividend warrants, non-receipt of share certificates, etc. The committee regularly reviews the movement in shareholding and ownership structure. The committee also reviews the performance of the Registrar and Transfer Agents. The details of the meetings and the discussion held by the Committee are given in detail in the 'Report on Corporate Governance' of the Company which forms part of this Annual Report. VIGIL MECHANISM / WHISTLE BLOWER POLICY The company has an established mechanism for Directors/Employees to report concerns about unethical behavior, actual or suspected fraud or violation of the code of conduct or ethics policy. It also provides for adequate safeguards against victimization of directors/employees who avail of the mechanism. The company affirms that no personnel has been denied access to the audit committee. The company has formulated a Policy of Vigil Mechanism and has established a mechanism that any personnel may raise Reportable Matters within 60 days after becoming aware of the same. All suspected violations and Reportable Matters are reported to the Chairman of the Audit Committee. The key directions/actions are informed to the Managing Director of the Company. DIRECTORS' RESPONSIBILITY STATEMENT In pursuance of section 134 (5) of the Companies Act, 2013, the Directors hereby confirm that: (a) in the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures; (b) the Directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the financial year and of the profit and loss of the company for that period; (c) the Directors had taken proper and sufficient care for the maintenance of 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; (d) the Directors had prepared the annual accounts on a going concern basis; and (e) 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. (f) 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. SUBSIDIARIES As the Company has no subsidiaries, Section 129(3) of the Companies Act, 2013, does not apply. During the previous year(2013-14), the Company had subscribed to 30% of the Partners' Capital in Armayesh Enterprise LLP. EXTRACT OF ANNUAL RETURN Pursuant to sub-section 3(a) of section 134 and sub-section (3) of section 92 of the Companies Act 2013, read with Rule 12 of the Companies (Management and Administration) Rules, 2014 the extract of the Annual Return as at March 31,2015 forms part of this Report as Annexure I. AUDITORS As decided in the last Annual General Meeting held on 11.09.2014, M/s. Deloitte Haskins and Sells, Chartered Accountants, Baroda have been appointed as Statutory Auditors for financial years 2014-15, 2015-16 and 2016-17. The said appointment, on an annual basis, is being ratified in the ensuing Annual General Meeting. SECRETARIAL AUDITOR AND SECRETARIAL AUDIT REPORT Mr. A. J. Gandhi practicing Company Secretary was appointed as a Secretarial Auditor under the provision of section 204 of the Companies Act, 2013 for the financial year 2014-15, during the Board Meeting held on 29th May 2014. The report of the secretarial auditor for the F.Y 2014-15 is annexed to this Report as Annexure - II. CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGOING Additional information on conservation of energy, technology absorption, foreign exchange earnings and outgo as required to be disclosed in terms of Section 134(3)(m) of the Companies Act, 2013 read with the Companies (Accounts) Rules, 2014 is annexed and forms part of this Report as Annexure - III. DETAILS RELATING TO DEPOSITS The Company has not accepted any deposit during the year, nor any deposit has remained unpaid or unclaimed as at the end of the year. SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS No significant and material orders were passed by the regulators or Courts or Tribunals during the year, adversely impacting the Company's operation in future. INTERNAL FINANCIAL CONTROL SYSTEM AND THEIR ADEQUACY A strong internal control culture is pervasive in your Company. Your Company has documented a robust and comprehensive internal control system for all the major processes to ensure reliability of financial reporting, timely feedback on achievement of operational and strategic goals and compliance with policies, procedures, laws and regulations. Your Company believes in formulating adequate and effective internal control systems and implementing the same to ensure that assets and interests of the Company are safeguarded and reliability of accounting data and accuracy are ensured with proper checks and balances. The Internal control system is improved and modified continuously to meet the changes in business conditions, statutory and accounting requirements. The Audit Committee of the Board of Directors actively reviews the adequacy and effectiveness of internal control system and suggests improvements for strengthening them. The Company has a sound Management Information System which is an integral part of the control mechanism. The Audit Committee of the Board of Directors and Statutory Auditors are periodically apprised of the internal audit findings and corrective actions taken. In furtherance to the Company's philosophy of conducting business in an honest, transparent and ethical manner, your Company has laid down. "Virat Anti corruption and Anti bribery policy". As a Company we take a zero tolerance approach to bribery and corruption. PARTICULARS OF LOANS, GUARANTEES AND INVESTMENTS Your Company has not - • given any loan to any person or other body corporate. • given any guarantee and provided any security in connection with a loan to any other body corporate or any person. • acquired by way of subscription, purchase or otherwise the securities of any other body corporate otherwise than in accordance with the law. RISK Risk Management: A documented risk management policy is in place as per clause 49 (VI) of the listing agreement. Your Company is exposed to risk from fluctuation of foreign exchange rates, prices of raw materials and finished goods, compliances risk and people risk. Foreign Exchange Risk: Your Company manages its foreign exchange risk within the framework laid down by Company's policy, approved by the Board, keeping in mind the size of the Company. Commodity Prices Risk: Your Company proactively manages the risk of purchasing raw materials through forward booking, vendor development practices and inventory management. The Company's strong reputation for quality and services with overseas clients mitigates the impact of price risk on finished goods. Compliance Risk: Your company has to follow various statutes and regulations including the Companies Act. The company is mitigating these risks through regular review of legal compliances carried out through internal as well as external compliance audits. People Risk: Your Company nurtures and grooms the talented and key personnel for future business leadership and looks after them judiciously such that they stay with the Company. CORPORATE SOCIAL RESPONSIBILITY Section 135(1) of the Companies Act 2013, is not applicable to your Company, because the net worth, turnover and net profit of your Company during the year is less than the required limits. RELATED PARTY TRANSACTIONS All related party transaction that were entered during the financial year were in the ordinary course of the business of your Company and were on arm's length basis. There were no materially significant related party transactions entered by your Company with Promoters, Directors, Key Managerial Personnel or other persons which may have a potential conflict with the interest of your Company. The details are given in Annexure - IV, forming part of this report. FORMAL ANNUAL EVALUATION During the year, the Board adopted a formal mechanism for evaluating its performance and as well as that of its Committees and individual Directors, including the Chairman of the Board. The exercise was carried out through a structured evaluation process covering various aspects of the Board functioning such as composition of the Board and Committees, experience and competencies, performance of specific duties and obligations, governance issues etc. Separate exercise was carried out to evaluate the performance of individual Directors including the Board Chairman who were evaluated on parameters such as attendance, contribution at the meetings and otherwise, independent judgment, safeguarding of minority shareholders interest etc. MEETING OF INDEPENDENT DIRECTORS All the four independent Directors of the Company held a meeting on 12th February 2015, and reviewed the performance of non-independent Directors and the Board as a whole. They also assessed the quality, quantity and timeliness of flow of information between the Company management and the Board. They expressed their satisfaction at the performance of non-independent Directors and appreciated the flow of information from the Company management. COST AUDITORS The Companies (Cost Records and Audit) Rules, 2014 does not require textile industry to have cost audit records. Moreover, in terms of Rule 7, where the revenue of a company from exports, in foreign exchange, exceeds seventy five percent of its total revenue, the said company is also exempted from maintaining cost audit records. The above rules were notified on 30.06.2014. In view of the above, the Company is exempted from maintaining Cost Audit records and appointment of Cost Auditor for the financial year 2014-15. RATIO OF REMUNERATION TO EACH DIRECTOR The ratio of the remuneration of each director to the median employee's remuneration and other details in terms of sub-section 12 of section 197 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, are forming part of this Report as Annexure V of this report. LISTING FEES Your Company has paid listing fees up to 31st March 2016 to the Bombay Stock Exchange in April, 2015. CORPORATE GOVERNANCE AND SHAREHOLDERS INFORMATION Your Company shall not be mandatorily required to submit Corporate Governance Report as per amendments to Clause 49 of the Equity Listing Agreement of the Securities and Exchange Board of India (SEBI) Circular No.: CIR/CFD/POLICY CELL/7/2014 dated 15th September, 2014; the applicability of Corporate Governance in listed entities is as under: Applicability of Clause 49: The Clause 49 of the Listing Agreement shall be applicable to all companies whose equity shares are listed on a recognized stock exchange. However, compliance with the provisions of Clause 49 shall not be mandatory, for the time being, in respect of the following class of companies: a) Companies having paid up equity share capital not exceeding Rs. 10 crore and Net Worth not exceeding Rs. 25 crore, as on the last day of the previous financial year; Provided that where the provisions of Clause 49 becomes applicable to a company at a later date, such company shall comply with the requirements of Clause 49 within six months from the date on which the provisions became applicable to the company. b) Companies whose equity share capital is listed exclusively on the SME and SME-ITP Platforms. ANTI SEXUAL HARASSMENT POLICY 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. Internal Complaints Committee (ICC) has been set up to redress complaints received regarding Sexual Harassment. All employees (permanent, contractual, temporary, trainees) are covered under this policy. The following is a summary of Sexual Harassment complaints received and disposed of during the year 2014-15: No. of complaints received: Nil No. of complaints disposed of: Not applicable PARTICULARS OF EMPLOYEES As per provision of Section 197 of the Companies Act, 2013 read with the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, particulars of the employees are required to be annexed in respect of the employees of the Company who were in receipt of total remuneration of Rs. 60.00 Lac per annum or Rs. 5.00 Lac per month. During the financial year, under review, there is no employee drawing remuneration as above. CORPORATE GOVERNANCE AND MANAGEMENT DISCUSSION AND ANALYSIS Detailed notes on the Corporate Governance and the Management Discussion and Analysis Report and other such disclosures as are required to be made under the Listing Agreement with the Stock Exchanges, are separately annexed and form part of this Report. COMPLIANCE CERTIFICATE The Certificate from the Auditors of the Company regarding compliance of Corporate Governance as stipulated under Clause 49 of the Listing Agreement is not issued since Corporate Governance is not applicable to the company this year. ACKNOWLEDGMENT Your Directors wish to place on record their sincere appreciation for the co-operation and support extended to the Company by the Government of India, the Gujarat State Government and by the relevant Government Authorities, Central, State and Local, the Company's Bankers and Business Associates. Your Directors also thank all the employees at every level, who, through their dedication, co-operation and support, have enabled the Company to achieve sustained growth. For and on behalf of the Board of Directors Arun S. Sanghi Chairman Place: Mumbai, Date : 29th May, 2015. |