Precot Ltd

Your Directors hereby present the 62 Annual Report of your Company along with the financial results for the year ended 31 March, 2024.

a. Financial results ( In lakhs)

b. Dividend and Transfer to reserves

The Board has recommended a dividend of Rs.1.50 /-per share (15% on face value of Rs.10/-each) for the financial year 2023-24 which is subject to the approval of share holders at the Annual General Meeting (AGM). The Directors have not recommended any transfer to the reserves.

Industry Overview

FY 23-24 was a lackluster year for the spinning industry. Although the year started with some optimism that the worst of the post Covid inventory surpluses were behind us, demand for textile products continued to be sluggish, both in the export and domestic markets. The Indian textile industry faced challenges on multiple fronts including geo-political uncertainties, shifting consumer preferences and stiff competition from our competitors such as Bangladesh and Vietnam. This resulted in modest demand for yarn for most of the year although there was gradual improvement in export demand quarter on quarter. The year started with the spinning division operating at lower utilisation levels due to high inventory of yarn. We were able to bring our finished goods stocks to a normal level and stabilized operations at optimum utilization in all spinning units from June of 2023. The spinning division was only able to record a marginal operating profit for the year.

The Indian cotton season opened with cotton prices just above MSP levels. Prices were stable from November until the beginning of March but then rose sharply, by close to 10%, in a one-month period. This mirrored an increase in the international futures where the index rose from 80 cents to 100 cents in a short period. However, these increases were short lived. The cotton futures index for July is back below 80 cents and Indian cotton prices have given up all the gains from March and April. Demand for yarn is muted but certain segments such as home textiles and woven apparel have performed well in the recent past.

India's textile and apparel exports experienced a setback for the second consecutive year in fiscal year 2023-24. Revenue from exports amounted to US$ 34.4 billion, marking a decline of over $1 billion (3%) compared to the previous fiscal and lower by $ 6.6 billion (16%) compared to 2021-22. Exports of cotton yarns and fabrics saw a year-on-year increase but were still significantly lower than 2021-22 figures. Adverse economic conditions in Europe and the Red Sea crisis which started in December were significant contributors to this overall decline. The Red Sea crisis continues to disrupt global shipping and has led to increased lead times and higher freight costs owing to longer shipping times and a spike in maritime insurance.

The performance of the technical textile division continued to be a bright spot for the Company. The order book for our products was strong through the year and operational efficiencies were maintained at a high level. Costs were lower due to a decrease in raw material prices and the increase in consumption of solar power. The division accrued similar revenues to the previous year while operating margins were better. The planned capacity expansion is in progress and will come on stream during the second quarter of FY 2024-25.

Review of operations

Your Company registered a turnover of Rs. 97,776 lakhs during FY 2023-24, an increase of 2.5% compared to the previous year. Turnover increased despite a drop in yarn prices by 21%, on account of better capacity utilisation in the spinning division. Utilisation improved from 72% in the previous year to 95% in the year under review. The company earned a profit of Rs. 6,275 Lakhs at an EBITDA level. Export revenues from the Spinning Division increased by 47% to Rs. 21,061 Lakhs due to improved demand for value added products. Your company was able to dispose off all excess yarn stock accumulated during the prior year and bring stocks down to a normal level.

Outlook for the current year

International cotton prices continue to be weak on account of increased supply from Brazil and West Africa, favourable forecasted weather conditions for US cotton growers and subdued textile demand. There is also sufficient cotton stock in India with significant quantities being held by the Cotton Corporation of India and private merchants. The forecast for the South West monsoon is good which bodes well for the 2024-25 Indian cotton season. However, there continues to be a problem with respect to cotton yields due to inferior cotton seed technology. The cotton import duty continues to be a pain point and is eroding the competitiveness of Indian spinners. It is hoped that the new government addresses these issues at the earliest, along with completing Free Trade agreements with the UK and the EU which have the potential to be a big positive for the Indian textile and apparel industry. Action in all these areas is essential for the country to meet the ambitious target of becoming a $ 350 billion textile economy by 2030.

Although retail sales in the US improved from the previous year, nearly stagnant growth in consumption of apparel in major markets and a continuous shift towards essential and discretionary spends remain a concern. The exports of cotton yarn, knitted garments and home textiles continue to be stable and there is expectation of improved demand in the coming months. Your company is focused on reducing cost in the spinning division to improve operating margins through continuous improvement in productivity, yarn realization and optimization of power consumption. The technical textile division will continue to be the driver for future growth. With the capacity addition on the anvil, the focus is on accessing new markets and developing new products to enhance our basket of offerings.

Personnel

The Company has been able to continue maintaining cordial relations with its labour force in all its units. The Company has 2224 permanent employees on the roll as on 31 March, 2024.

Internal Control Systems & Risk Management

The Company has adequate internal control systems to monitor business processes, financial reporting and compliance with applicable regulations. The systems are periodically reviewed for identification of control deficiencies and formulation of time bound action plans to improve efficiency at all the levels. The Audit Committee of the Board constantly reviews internal control systems and their adequacy, significant risk areas, observations made by the internal auditors on control mechanism and the operations of the Company and recommendations made for corrective action through the internal audit reports. The Committee reviews the statutory auditors' report, key issues, significant processes and accounting policies. The Directors confirm that the Internal Financial Controls are adequate with respect to the operations of the Company. A report of Auditors certifying the adequacy of Internal Financial Controls is annexed with the Auditors Report.

The Board identifies and reviews the various elements of risk which the company has to face and laid out the procedures and measures for mitigating those risks.

The company does not face any risk other than those that are prevalent in the industry and has taken all possible steps to overcome such risks. The main concerns are volatility in raw material prices and fluctuations in foreign exchange rates. Effective planning in raw material purchasing and the ability to pass on raw material price increases, have minimised the risk relating to the volatility in raw material prices.

Foreign exchange fluctuation risk is minimised through proper planning and natural hedging. As a part of the overall risk management strategy, all assets are appropriately insured.

Number of meetings of the Board

Details of number of meetings of the Board and Committees thereof and the attendance particulars of the Directors in such meetings are provided under the Corporate Governance Report.

Declaration by Independent Directors

The Independent Directors have submitted their disclosures to the Board confirming that they fulfill the requirements enumerated under Section 149(6) of the Companies Act, 2013 (hereinafter "the Act") and Regulation 25 of The Securities Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations,2015.

Appointments, Retirements and Resignations

There is no cessation of office by any Director due to death or resignation. However, Mr. T Kumar, Executive Director retired by rotation, and being eligible, offered himself for reappointment and as reappointed as Director at the AGM held on 27 September 2023.

Mrs.Suguna Ravichandran and Mr.V Prakash have been appointed as Additional Directors (Non- Executive and Independent) of the Company by the Board of Directors of the company at their meeting held on 23-May-2024, on the recommendation of the Nomination and Remuneration committee, for a term of 5 (five) consecutive years effective from 01-Jun-2024. They shall not be liable to retire by rotation. More details on the terms of appointment are provided in the Notice of the AGM.

Mr. Ravi Kumar Abburu has been appointed as an Additional Director of the company by the Board of Directors at their meeting held on 23-May-2024, on the recommendation of the Nomination and Remuneration committee. The Board recommends the appointment of Mr. Ravi Kumar Abburu as a Director of the company to hold office up to 31-Mar-2026. He shall be liable to retire by rotation. More details on the terms of appointment are provided in the Notice of the AGM.

The second term of office of Mr. C. N. Srivatsan (DIN: 00002194) and Mrs. R. Bhuvaneshwari, (DIN: 01628512) as Independent Directors, comes to an end on 31.05.2024. The Board of Directors have expressed their whole hearted appreciation for the contributions made by them during their Directorship.

The following are the whole-time key managerial personnel of the Company as per Section 203 of the Act as on 31 March,2024, (i) Mr. Ashwin Chandran, Chairman and Managing Director (ii) Mr.M.K.Ravindra Kumar, Chief Financial Officer & (iii) Mrs. S. Kavitha, Company Secretary.

Performance Evaluation

The Board of Directors at their meeting held on 12 February, 2024, had carried out an annual evaluation of its own performance and the performance of the Committees of the Board and the individual Directors pursuant to the provisions of the Act and the corporate governance requirements as prescribed by Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements), Regulations 2015 (hereinafter "Listing Regulations").

The performance of the Board was evaluated by the Board of Directors after seeking inputs from all the Directors on the basis of criteria such as Board composition and structure, effectiveness of the Board meetings and process and contributions made by the Directors.

The performance evaluation of each Director was done by the entire Board of Directors, excluding the Director being evaluated, taking into consideration inputs received from the other Directors, covering various aspects of the Board's functioning such as active participation and contribution during discussions, effective deployment of knowledge and expertise towards the growth and betterment of the Company, impact and influence on the growth of the Company and performance of specific duties, obligations and governance.

The performance of the committees was evaluated by the Board after seeking inputs from the committee members on the basis of criteria such as the composition of the committees and effectiveness of the committee meetings.

In a separate meeting of Independent Directors held on 20 March, 2024 performance of the non-independent Directors, performance of the Board as a whole and performance of the Chairman were evaluated, taking into account the views of the executive Directors and non-executive Directors.

The Board also carried out an evaluation on the performance of the Independent Directors and also verified the fulfilment of the criteria for independence as specified under listing Regulations and their independence from the management. This evaluation of Independent Directors was done by the entire Board, excluding the Independent Directors being evaluated.

Policy on Director's appointment and remuneration and other details

The Company's policy on Director's appointment and remuneration and other matters provided in Section 178(3) of the Act has been disclosed in the Corporate Governance Report.

Auditors' report and Secretarial Auditors' report

The auditors' report and secretarial auditors' report do not contain any qualifications, reservation or adverse remarks.

During the year under review, neither the Statutory auditors nor the Secretarial Auditor have reported to the Audit Committee, any instances of fraud committed against the Company by its officers or employees.

The report of the Secretarial Auditor is furnished as Annexure A and forms part of this report.

Receipt of any commission by Whole Time Directors from the Company or receipt of commission/remuneration from subsidiary Company

During the year under review all the Executive Directors have received commission from the Company. They have not received any commission/ remuneration from subsidiaries during the year under review.

Annual Return

The extract of the annual return pursuant to Section 92 read with rule 12 of the Companies (Management and Administration) Rules, 2014 is available on the website of the Company www.precot.com under investors.

Secretarial Standards

The Company complies with all the applicable mandatory secretarial standards issued by the Institute of Company Secretaries of India.

Particulars of Employees

The particulars as required under rule 5 of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, is provided in Annexure B.

Consolidation of Accounts

The Company has control over "Suprem Associates", a partnership firm by holding majority of the capital in the firm. The accounts of the said firm are consolidated as per the requirement of Indian Accounting Standards (IndAS).

Maintenance of Cost Records

The Company is maintaining the cost records as specified under Section 148(1) of the Companies Act, 2013.

Audit Committee

The Company has constituted an Audit Committee as per Section 177 of the Act and Listing Regulations.

The details pertaining to vigil mechanism, composition and meetings of the Audit Committee are included in the Corporate Governance Report.

Exchange Earnings and Outgo

The details as required under Section 134(3)(m) of the Act read with Rule 8 of the Companies (Accounts) Rules, 2014, is detailed in Annexure C.

Corporate Governance

A report on corporate governance is furnished as Annexure D and forms part of this report. This includes other disclosures as required under the provisions of the Act. The Company has complied with the conditions relating to corporate governance as stipulated in Regulation 34 of the Listing Regulations.

Corporate Social Responsibility (CSR)

The CSR Committee comprises of 1. Mr. Ashwin Chandran, 2. Mr. Prashanth Chandran and 3. Mr. Vijay Raghunath. This committee takes care of CSR policy execution to ensure that the CSR objectives of the Company are met. The CSR policy deals with allocation of funds, activities, identification of programmes, approval, implementation, monitoring and reporting.

For the financial year 2023-24, the Company was not required to spend for CSR activities as per the provisions of the Companies Act.

The CSR policy is available on the Company's website http://www.precot.com/investors.

Particulars of Loan, Guarantees or Investments

Details as per the provisions of Section 186 of the Act, is given under notes to financial statements.

Related Party Transactions

None of the transactions with related parties falls under the scope of Section 188(1) of the Act. Information on 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 Annexure E in Form AOC-2 and the same forms part of this report.

The Board has approved a policy for related party transactions which is available on the Company's website http://www.precot.com/investors.

The Directors confirm that:

a) The applicable accounting standards have been followed and proper explanations provided relating to material departures, if any,

b) The Company has adopted prudent and consistent accounting policies so as to give a true and fair view of the state of affairs of the Company, c) Proper and sufficient care has been taken for maintenance of adequate accounting records under the provisions of the Companies Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities,

d) The annual accounts of the Company have been prepared on a going concern basis,

e) The internal financial controls are adequate and are operating effectively, and

f) A proper system for ensuring compliance of all the applicable laws are put in place and are operating effectively.

Statutory Auditors

M/s VKS Aiyer & Co., Chartered Accountants (Firm Registration No. 000066S), pursuant to the provisions of Section 139 of the Act, were appointed as the statutory auditors of the Company for term of 5 years from the conclusion of the 61 AGM till the th conclusion of the 66 AGM to be held in the year 2029.

They have confirmed that they are not disqualified and are eligible to continue in the office for the year 2024-25.

Cost Auditor

Pursuant to Section 148 of the Act, read with the Companies (Cost Records and Audit) Rules 2014, the Board of Directors, on the recommendation of the Audit Committee, appointed Mr. R Krishnan, Cost Accountant (Associate regn. no. 7799), as the cost auditor of the Company for the financial year 2024-25.

Accordingly, a resolution seeking member's ratification for the remuneration payable to Mr. R. Krishnan, Cost Auditor is included as Item No.7 of the AGM notice.

Secretarial Auditor

Pursuant to Section 204 of the Act, the Board of Directors has appointed Mr. K. Duraisami, Practicing Company Secretary, Coimbatore as the secretarial auditor of the Company for the financial year 2024-25.

Insider Trading Regulations

Based on the requirements under SEBI (Prohibition of Insider Trading) Regulations, 2015, the 'Insider Trading Code' to regulate, monitor and report trading by insiders and the 'Code of Practices and Procedures for fair disclosure of Unpublished Price Sensitive Information' are in force.

Change in nature of business

There was no change in the nature of the business of the Company during the year under review.

Deposits from public

The Company has not accepted any deposits from the public and as such, no amount on account of principal or interest on deposits from public was outstanding as on the date of the balance sheet.

Material Changes

No material changes or commitments affecting the financial position of the Company occurred between the end of the financial year (i.e.31 March, 2024) and the date of this report.

Vigil Mechanism/ Whistle Blower Policy

The Company has formulated and published a Whistle Blower Policy to provide Vigil Mechanism for employees including Directors of the Company to report genuine concerns and to ensure strict compliance with ethical and legal standards across the Company. The provisions of this policy are in line with the provisions of the Section 177(9) of the Act and Listing Regulations, are available on the website of the Company at http://www.precot.com/investors. The details of Whistle Blower Policy forms part of the Corporate Governance Report annexed with this report.

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

The Company has constituted an internal complaints committee to address the complaints regarding sexual harassment. All employees are covered under this policy. The Company has not received any complaints during the year under review. The details relating to Complaints forms part of the Corporate Governance report.

Details of Application made or any proceeding pending under The Insolvency and Bankruptcy Code, 2016 during the year

No applications have been made and no proceedings are pending against the Company under the Insolvency and Bankruptcy Code, 2016 during the year under review.

Details of difference between amount of the valuation done at the time of one time settlement and the valuation done while taking loan from the banks or financial institutions along with the reasons thereof

The disclosure under this clause is not applicable as the Company has not undertaken any one-time settlement with the banks or financial institutions during the year under review.

Unclaimed Shares

In accordance with the requirement of Regulation 34(3) and Schedule V Part F of Listing Regulations, the details in respect of equity shares lying in the suspense account is as follows. .

The voting rights on the shares outstanding in the suspens account as on 31 March, 2024 shall remain frozen till the rightful owner of such shares claims the shares.

Acknowledgment

Your Directors thank the Shareholders, Customers, Suppliers and Bankers for their continued support during the year. Your Directors also place on record their appreciation of the contributions made by Employees at all levels towards the growth of the Company.