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DIRECTOR'S REPORT

N R Agarwal Industries Ltd.

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Market Cap. (₹) 848.06 Cr. P/BV 3.87 Book Value (₹) 128.91
52 Week High/Low (₹) 600/250 FV/ML 10/1 P/E(X) 9.40
Bookclosure 20/09/2017 EPS (₹) 53.03 Div Yield (%) 0.60
Year End :2016-03 

Dear Members,

The Directors have pleasure in presenting the 23rd Annual Report of the Company and the Audited Accounts for the year ended March 31, 2016.

Performance of the Company

Despite difficult market conditions throughout the year, the Company recorded a significant improvement in business performance through strong operational performance, better revenue management and generating better cash flow. During the financial year ended March 31, 2016, the Company continued to execute initiatives for reducing the cost of production, improving customer satisfaction, continued focus on safety environment and productivity. These efforts have helped the Company improve profitability substantially registering an increase in profitability over the last financial year. The summary of financial performance for the year is encapsulated below:

Financial Results

(Rs. In Lacs)

PARTICULARS

Year ended March 31, 2016

Year ended March 31, 2015

Revenue from Operations and Other Income

89,126.58

73,071.91

Finance Costs

4,570.43

3,561.32

Gross Profit after Finance Costs but before Depreciation and Taxation

2,758.23

48.80

Depreciation

2,347.91

1,765.63

Profit before Tax and Exceptional Items

410.32

(1,716.83)

Exceptional Items

-

-

Profit before Tax and after Exceptional Items

410.32

(1,716.83)

Provisions for Taxation

83.50

0.48

Deferred Tax

(1,455.75)

1,626.15

Net Profit for the year

1,782.58

(3,343.46)

Balance in Statement of Profit and Loss

4,974.25

8,408.03

Amount available for Appropriation

6,756.83

5,064.58

Depreciation on transition to Schedule II of the Companies Act, 2013 (net of deferred tax)

-

(90.33)

Balance carried to Balance Sheet

6,756.83

4,974.25

Overview of the Economy

Global demand for Paper & Paperboard in 2015 remained at appx. 400 million MT for the third year in a row. During the period 2010 to 2015, global Paperboard demand has grown at 1% CAGR primarily driven by Asian and Middle East markets. Over the next

5 years, growth is expected to slow down further to 0.6%-0.8% CAGR mainly due to deceleration of the Chinese economy. The Newsprint and Writing & Printing categories are expected to witness decline in demand going forward primarily on account of increasing adoption of digital media and proliferation of smartphones usage. The overall pricing scenario is expected to remain weak in view of muted demand conditions and surplus capacity in China consequent to declining economic growth rate and significant capacity additions since 2012.

While India sustained its position as one of the fastest growing Paper and Paperboards markets in the world, overall industry demand during the year remained adversely impacted due to slowdown in the FMCG industry. Pricing power of the domestic paper industry was also impacted with additional capacity going on stream during the year. Over the next 5 years, overall demand is expected to grow at 6% CAGR with Paperboard (46% of the market) and Writing & Printing Paper (31% of the market) estimated to grow at 6% CAGR and 4% CAGR respectively.

Financial and Operational Performance

Your Company's total income (including other income) was placed at Rs. 89,126.58 lakhs in year 2015-16 (Year 2014-15 Rs. 73,071.91 lakhs) representing a growth of 21.97%. Profit before tax was placed at Rs. 410.32 lakhs (Year 2014-15 (Rs. 1,716.83) lakhs) representing a growth of 123.90%. Reasonable growth in domestic and export markets together with improvement in operational efficiency led to favourable impact on bottom line. Your Company has been consistently practising prudent finance and working capital management. The strong focus on working capital and liquidity management has helped timely generation of sufficient internal cash flows to invest in long-term strategic objectives of the Company. The Directors consider your Company's performance as satisfactory.

Material Changes and Commitments after the end of the Financial Year

There are no material changes and commitments in the business operations of the Company since the close of the financial year on March 31, 2016 to the date of this Report.

Number of Meetings of the Board of Directors

There were 4 (Four) meetings of the Board of Directors of the Company during the financial year 2015-16.

Dividend

The Company wishes to retain its profits for future growth and expansion activities and hence, your Directors decided not to recommend payment of dividend for the financial year under review.

Directors & Key Managerial Personnel

Directors:

In accordance with provisions of Section 152 of the Companies Act, 2013, Shri R N Agarwal, Chairman and Managing Director, retires by rotation at the forthcoming Annual General Meeting and being eligible, offers himself for re-appointment.

The Board of Directors, on the recommendation of the Nomination and Remuneration Committee, appointed Shri Ashok Kumar Bansal as an Additional Director of the Company with effect from November 5, 2015. The Board also appointed Shri Ashok Kumar Bansal as the Whole Time Director of the Company for a period of three years with effect from November 5, 2015. The said appointment is subject to the approval of the Members of the Company in General Meeting.

With a view to strengthen the Board and also to meet the regulatory requirements, the Board of Directors of the Company on the recommendation of Nomination and Remuneration Committee appointed Shri Ajay Arvind Nair as an Additional Director with effect from August 1, 2016 and as an Independent Non-Executive Director of the Company under Section 149 of the Companies Act, 2013 read with Regulation 16 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, ('Listing Regulations') to hold office upto July 31, 2021. The said appointment is subject to the approval of the Members of the Company in General Meeting.

The resolutions seeking approval of the Members for the appointment of Shri Ashok Kumar Bansal and Shri Ajay Nair have been incorporated in the notice of the forthcoming annual general meeting of the Company along with brief details about them. The Company has received notices under Section 160 of the Act along with the requisite deposits proposing their appointment.

Shri Naresh Kumar Garg who was appointed as an Additional and Independent Director with effect from November 5, 2015, resigned with effect from May 25, 2016. The Board expresses it gratitude to Shri Garg for the services rendered by him during his association with the Company.

Key Managerial Personnel

During the year, Shri R H K Sinha, President & CEO, in the category of Key Managerial Personnel of the Company resigned with effect from May 31, 2015. The Board expresses it gratitude to Shri R H K Sinha for the services rendered by him during his association with the Company.

Declaration from Independent Directors

Shri S N Chaturvedi, Shri P Kumar, Shri C R Radhakrishnan and Shri Ajay Nair, Independent Directors, have submitted declarations that each of them meets the criteria of independence as provided in sub-section (6) of Section 149 of the Act and that there has been no change in the circumstances which may affect their status as Independent Directors during the year. In the opinion of the Board, the Independent Directors possess appropriate balance of skills, experience and knowledge, as required.

Composition of Audit Committee

The composition of Audit Committee of the Company is mentioned in the Corporate Governance Report attached to this report.

Vigil Mechanism

The Company has adopted a Whistle Blower Policy to deal with any instance of fraud or any unethical or improper practices. A copy of this policy is placed on the Company's website. The Policy prescribes adequate safeguards against victimization of employees who avail of the mechanism and also provides for direct access to the Chairman of the Audit Committee. It is affirmed that no personnel of the Company has been so far denied access to the Audit Committee.

Procedure for Nomination & Appointment of Directors

The Nomination and Remuneration Committee is responsible for developing competency requirements for the Board based on the industry and strategy of the Company. The Board Composition Analysis reflects in-depth understanding of the Company, including its strategies, environment, operations, financial condition and compliance requirements.

The Nomination and Remuneration Committee conducts a gap analysis to refresh the Board on a periodic basis, including each time a Director's appointment or re-appointment is envisaged. The Committee is also responsible for reviewing and vetting the CVs of potential candidates' vis-a-vis the required competencies and meeting potential candidates prior to making recommendations for their nomination to the Board. At the time of appointment, specific requirements for the position, including expert knowledge expected, is communicated to the appointee.

Criteria for Determining Qualifications, Positive Attributes & Independence of a Director

The Nomination and Remuneration Committee has formulated the criteria for determining qualifications, positive attributes and independence of Directors in terms of provisions of Section 178 (3) of the Act and Regulation 19 read with Part D of Schedule II of the Listing Regulations.

Independence: In accordance with the above criteria, a Director will be considered as an 'Independent Director' if he/she meets with the criteria for 'Independent Director' as laid down in the Act and Regulation 16 (1) (b) of the Listing Regulations.

Qualifications: A transparent Board nomination process is in place that encourages diversity of thought, experience, knowledge, perspective, age and gender. It is also ensured that the Board has an appropriate blend of functional and industry expertise. While recommending the appointment of a Director, the Nomination and Remuneration Committee considers the manner in which the function and domain expertise of the individual will contribute to the overall skill-domain mix of the Board.

Positive Attributes: In addition to the duties as prescribed under the Act, the Directors on the Board of the Company are also expected to demonstrate high standards of ethical behaviour, strong inter-personal and communication skills and soundness of judgment. Independent Directors are also expected to abide by the 'Code for Independent Directors' as outlined in Schedule IV to the Act.

Remuneration Policy

Pursuant to Section 178(4) of the Companies Act, 2013, the Company has adopted a remuneration policy relating to remuneration for the directors, key managerial personnel and senior executives. The remuneration policy is attached as Annexure 1 and also placed on Company's website http://www. nrail.com/company policies.html.

Performance Evaluation

Pursuant to the provisions of the Companies Act, 2013 and Regulation 17 of Listing Regulation, the Board has carried out the annual evaluation of its own performance as well as the evaluation of the working of its Committees.

A separate exercise was carried out to evaluate the performance of individual directors including the Chairman & Managing Director 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 Board of Directors expresses its satisfaction with the evaluation process.

Directors' Responsibility Statement

The Directors hereby confirm and declare that:-

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

(ii) they had selected such accounting policies 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 at the financial year ended March 31, 2016 and of the profit of the Company for the year;

(iii) they had 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) they had prepared the annual accounts on a going concern basis;

(v) they had laid down internal financial controls to be followed by the Company and such controls are adequate and operating efficiently;

(vi) they had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems are adequate and operating efficiently.

Internal Financial Controls

The Company has an internal financial control system commensurate with the size, scale and complexity of the operations. The Internal Audit function is controlled by in-house department. The main function of Internal Audit is to monitor and evaluate adequacy of internal control system in the Company, its compliances with the operating systems, accounting procedures and policies at all locations in the Company. Based on the report of internal audit function, process owners take corrective action in their respective areas and thereby strengthen the controls. Significant audit observations and corrective actions are reported to the Audit Committee.

Statutory Auditors audited the Internal Financial Controls (IFC) over financial reporting of the Company as of March 31, 2016 in conjunction with audit of the financial statements of the Company for the year ended on that date. Unmodified opinion on IFC was given by them.

Details of Subsidiaries/Joint ventures/Associates

The Company does not have any subsidiary/joint venture/ associate.

Extract of Annual Return

An extract of Annual Return as on ended March 31, 2016 as required under sub-section 3 of Section 92 of the Companies Act, 2013 in Form No. MGT 9 is attached as Annexure 2.

Auditors' and Auditors' Report

(1) Statutory Auditors

The Members at the Annual General Meeting held on September 28, 2015 appointed Messrs Chaturvedi & Partners, Chartered Accountants, Mumbai as Auditors of the Company to hold office till the conclusion of the ensuing Annual General Meeting. Being eligible for reappointment, Messrs Chaturvedi & Partners, Chartered Accountants have confirmed their eligibility and willingness to accept office, if re-appointed by the Members at the 23rd Annual General Meeting of the Company. Members are requested to consider their re-appointment and authorize the Board of Directors to fix their remuneration.

The Auditors' Report for the financial year ended March 31, 2016 does not contain any qualification, reservation or adverse remark.

(2) Secretarial Auditors

Pursuant to the provisions of Section 204(1) of the Companies Act, 2013, read with the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Company has appointed Messrs Parikh & Associates, Company Secretaries in practice for the financial year 201516 to undertake the Secretarial Audit of the company. The Secretarial Audit Report is annexed herewith as Annexure 3.

The Secretarial Audit Report for the financial year ended March 31, 2016 does not contain any qualification, reservation or adverse remark.

(3) Cost Auditors

Pursuant to the provisions of Section 148 of the Act read with Companies (Audit and Auditors) Rules, 2014, Messrs N. Ritesh & Associates, Cost Accountants, Mumbai have been appointed to conduct Cost Audits for all the units of the Company for the year ending March 31, 2017.

The due date for filing of the Cost Audit Report for the financial year 2014-15 was September 30, 2015. The Company has filed the Report with the Ministry of Corporate Affairs on September 29, 2015.

Technology Absorption, Energy Conservation & Foreign Exchange Earning & Outgo

Particulars of conservation of energy, technology absorption and foreign exchange earnings and outgo as required under Section 134(3)(m) of the Companies Act, 2013 read with Rule 8(3) of the Companies (Accounts) Rules, 2014 are given in the Annexure 4 attached and forms part of this Report.

Particulars of Employees & Related Disclosures

The information required under Section 197(12) of the Companies Act, 2013 read with Rule 5 (1) and Rule 5 (2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is annexed as Annexure 5.

Deposits from Public

The Company has not accepted any deposits from public during the year under review.

Significant and Material Orders passed by the Regulatory/Judicial Authority

There were no significant material orders passed by the regulators or courts which would impact the going concern status of the Company and its future operations.

Particulars of Loans, Guarantees or Investments

No loans, guarantees and investments covered under the provisions of Section 186 of the Companies Act, 2013 were given during the year under review.

Related Party Transactions

The note for related party transactions - 'Particulars of transactions with Related Parties' pursuant to Section 134(3)(h) of the Act read with Rule 8(2) of the Companies (Accounts) Rules, 2014 are given in Form AOC-2 and the same forms part of this report as Annexure 6.

There are no materially significant related party transactions made by the Company with promoters, key managerial personnel or other designated persons which may have potential conflict with interest of the company at large.

The Board of Directors approved a policy on related party transactions which is placed on the Company's website at the web link: http://www.nrail.com/companypolicies.html.

Risk Management

Pursuant to Section 134(3)(n) of the Companies Act, 2013 and relevant provisions of Listing Regulations, the Company has adopted Risk Management Policy for identification and implementation of Risk Mitigation Plan for the Company. The Company has laid down appropriate procedures to inform the Board about the risk assessment and minimization procedures. The Board periodically revisits and reviews the overall risk management plan for making desired changes in response to the dynamics of the business.

Corporate Social Responsibility (CSR) Initiatives

Section 135 of the Companies Act, 2013 mandates every Company having minimum threshold limit of net worth, turnover or net profit as prescribed to constitute a Corporate Social Responsibility Committee of the Board, formulate a Corporate Social Responsibility Policy that shall indicate the activities to be undertaken by the Company as specified in Schedule VII to the Companies Act, 2013 and duly approved by the Board, fix the amount of expenditure to be incurred on the activities and monitor the CSR Policy from time to time.

Since your Company falls within the minimum threshold limits, it constituted a CSR Committee of the Board and formulated a CSR Policy. The focus areas of CSR Policy are education, preventive health care, sanitation, environment and engagement. In view of past losses, the Company is not required to spend money on CSR Activities as per Section 135 of the Companies Act, 2013. However, as a responsible corporate citizen, the Company incurred a sum of Rs. 11.36 lakhs (including the unspent amount of Rs. 4.88 lakhs of the previous year) supporting various CSR initiatives in these focus areas.

The CSR Report, forming part of this Report, is furnished in Annexure 7.

Prevention, Prohibition and Redressal of Sexual Harassment at Workplace

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 there under for prevention and redressal of complaints of sexual harassment at workplace. Internal Complaints Committee (ICC) has been set up to redress complaints received regarding sexual harassment. All women employees (permanent, contractual, temporary, trainees) are covered under this policy. No complaint on sexual harassment was received during the financial year 2015-16.

Corporate Governance & Management Discussion & Analysis

The Corporate Governance Report, the Auditor's Certificate regarding compliance with conditions of Corporate Governance and Management's Discussion & Analysis Report forms part of the Annual Report.

Listing Agreement and Listing Fees

The Company entered into Listing Agreement with BSE Limited in terms of the Listing Regulations issued on September 2, 2015 effective from December 1, 2015. The Company has paid the listing fees to BSE Limited for the year 2016-2017.

Insider Trading Regulations and Code of Disclosure

The Board of Directors has adopted the Code of Practices and Procedures for Fair Disclosure of Unpublished Price Sensitive

Information and Code of Internal Procedures and Conduct for Regulating, Monitoring and Reporting of Trading by Insiders in accordance with the requirements of the SEBI (Prohibition of Insider Trading) Regulation, 2015 which is available on our website (http://www.nrail.com/company policies.html)

Human Resources

There is a continuous effort to improve the working environment with focus on employee well-being and capability building to enable them to perform at their best for the Company. We develop leaders at global platforms at regular intervals as a part of our commitment to engage and retain talent. We offer robust leadership development efforts to hone employee skills and help keep the Company ahead of the curve.

People are our real strength & while pursuing best-in-class performance, the Company is significantly increasing its investment in its employees with training and development. NRAIL invests in training and knowledge at all levels in order to align employees with requirements on safety, customer support, market needs, operational excellence, technology up gradation, process improvements, innovation and behavioural competencies.

Acknowledgements

Your Directors wish to place on record their gratitude to the State and Central Governments, lending financial institutions and banks for their continued support during the year.

Your Directors wish to convey their thanks to the valued customers, dealers and suppliers for their continued patronage during the year and place on record their appreciation of the contribution made by all the employees, during the year.

On behalf of the Board of Directors

R N AGARWAL

Mumbai, August 1, 2016 Chairman & Managing Director

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