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Ambuja Cements Ltd.

BSE:500425  |  NSE:AMBUJACEMEQ  |  58888:gacl  |  IND:Cement - Pan India  |  ISIN code:INE079A01024  |  SECT:Cement

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You can view full text of the Director's Report for Ambuja Cements Ltd.
Director Report
Dec2016   Dec 2017

Dear Members,

It is our pleasure to present the Annual Report of the company for the year 2017.

1. An overview of the Indian economy in 2017.

Reforms have helped reform the economy into a powerhouse.

2017 was a momentous year with path-breaking reforms undertaken by the Government.

The implementation of GST encouraged financial discipline, while the Fiscal Responsibility and Budget Management Act strengthened India’s institutional framework with the further goal of reducing the fiscal deficit and improving macroeconomic management.

The upgrading of India’s government bond rating from Baa3 to Baa2 by Moody’s, as well as the RBI’s marginal reduction in the repo rate from 6.25% to 6% further contributed to the elevated growth sentiments felt during the year.

A country’s international rankings and sovereign ratings are used by investors not only to ascertain its macroeconomic health and investment climate, but also to instil confidence in its economy.

In terms of the ‘Ease of Doing Business,’ India emerged in the top 100 countries, an improvement of 30 places. This improvement was attributed to the changes brought about by the sustained business reforms undertaken over the course of the year.

The good monsoon showered the economy with gains.

On the sectoral front, the average performance of the agricultural sector improved more in 2017 than in previous years, all thanks to a normal monsoon and the support of the Central and State Governments.

The average manufacturing PMI for the year stood at 51.4. In the services sector, there was a moderate rate of expansion with a PMI of 50.1. Growth within the core industries comprising of coal, crude oil, natural gas, petroleum & refinery, fertilizers, steel, cement and electricity rebounded in the last quarter of 2017 in spite of the fact that crude prices were not very favourable.

Our economy is heading forward by moving online.

India is witnessing structural shifts at multiple levels and across various sectors. It is not only transitioning from an informal to a formal economy, but also from a cash to a digital economy, a rural to an urban and an offline to an online one. Due to this, the economy may experience short-term pains, but in the long run, it stands to gain.

The cement sector’s growth in 2017 was led largely by the continued support from Government backed infrastructural and constructional initiatives, as well as by the facilitation of the flexible interstate movement of cement. The latter was made possible by the elimination of local taxes through the implementation of GST.

Over the course of the year, the Government focused on rural development (increased outlay), infrastructure and affordable housing. It did this through its ‘Bharatmala Project,’ which was undertaken to construct cement concrete roads and highways, as well as to develop the economic corridor, the coastal and port connectivity roads, the international connectivity road, expressways and so on. The overall demand for cement in 2017 grew steadily at 6%, which was predominantly from the Government sponsored affordable housing sector and infrastructure segment.

The Government also introduced the Real Estate Regulatory Act (RERA) and Real Estate Investment Trusts (REIT) to increase transparency in the real estate sector and discourage parallel economies. This will in turn bring back homebuyers’ confidence. Through RERA, the buyer will be guaranteed a dedicated governing body, timely project completion, as well as complete information on the project and the amenities that were promised.

RERA and REIT-like reforms are here for good. This may have affected the growth of the construction sector in the short term, but in the long run, it is felt that such reforms will surely accrue multiple benefits and growth.

2. Amalgamation of the company and ACC Limited.

Cementing a new partnership.

The members may be aware that pursuant to the approval of the FIPB, the Scheme of Amalgamation of the Holcim India Pvt. Ltd. (HIPL) with the company came into effect from 1st August 2016 and ACC Limited and all its subsidiaries became the subsidiary of the company. ACC is one of the oldest cement manufacturers in India with a pan India footprint.

It has also been a pioneer and trendsetter in cement manufacturing since it was established in 1936.

To further optimise the economies of scale to generate higher value for all the stakeholders, the Board of Directors of both the companies decided to explore the possibility of a merger. This could enable both companies to combine their strengths of business and thereby benefit all the stakeholders.

The Special Committee of Directors formed for this purpose have concluded their extensive study and are of the view that currently, there are certain constraints in the implementation of a merger between the Company and ACC. Accordingly, the Board decided not to pursue the merger at this point in time, though it remains the ultimate goal.

In the meanwhile, to maximise synergies and unlock additional value for stakeholders, the Board has approved an arrangement in the form of a Master Supply Agreement for the sale and purchase of materials and services on mutually agreed terms. The approval of the shareholders for the proposed arrangement between the two companies has been obtained through Postal Ballot.

3. Financial performance - 2017.

AT A GLANCE - STANDALONE FINANCIAL ACHIEVEMENTS IN 2017.

The company cemented its financial position in 2017.

- Cement production increased by 8% from 21.2 million tonnes to 22.98 million tonnes.

- The domestic cement sales volume increased from 21.1 million tonnes in 2016 to 22.95 million tonnes in 2017. Clinker sales (including exports) decreased from 0.37 million tonnes in 2016 to 0.03 million tonnes in 2017.

- The net sales of Rs.10,240 crores are an increase of 12.32% from the previous year’s Rs.9,117 crores. The average sales realisation increased by around 5% at Rs.4,455 per tonne against approximately Rs.4,227 per tonne in 2016.

- The total operating expenses for the year 2017 were higher than the previous year.

- The absolute EBITDA of Rs.1,940 crores was 14.66% higher than the corresponding EBITDA of Rs.1,692 crores for the year 2016.

- Profit before Tax at Rs.1,619 crores was up by 26.58% over the corresponding Profit before Tax of Rs.1,279 crores from the year 2016.

- Net Profit at Rs.1,250 crores was up by 34.12% over the corresponding Net Profit of Rs.932 crores from the year 2016.

Performance of the material subsidiary.

Pursuant to the Amalgamation of HIPL the company acquired 50.05% shareholding of ACC Limited. The summary of ACC Limited’s financial performance is as under:

- Cement volumes in 2017 were at 26.21 million tonnes, as compared to 22.99 million tonnes in the previous year.

- Operating EBITDA for the full year was Rs.1,912 crores, as compared to Rs.1,478 crores of the previous year.

- Consolidated profit before tax for the year was up by Rs.425 crores.

The Implementation of IND-AS in 2017.

The company has adopted Indian Accounting Standards (Ind-AS) with effect from 1st January 2017. The transition date was 1st January 2016, as prescribed under section 133 of the Companies Act 2013 and read with the relevant rules issued thereunder. Accordingly, the company has provided Ind-AS compliant comparative financial results for the previous year that ended on 31st December 2016.

Amount in Rs. Crore

Standalone

Consolidated

Current Year 31-12-2017

Previous Year 31-12-2016*

Current Year 31-12-2017

Previous Year 31-12-2016*

SUMMARISED PROFIT AND LOSS

Sales (Net of excise duty)

10,240.18

9,117.19

23,116.08

19,874.97

Profit before finance cost, depreciation & amortisation expense and exceptional item

2,299.23

2,202.56

4,180.19

3,649.04

Finance costs

107.19

74.24

205.78

152.99

Gross Profit

2,192.04

2,128.32

3,974.41

3,496.05

Depreciation and amortisation expense

572.92

848.85

1219.45

1,460.93

Add: Share of profit of associates and joint ventures

-

-

12.77

11.31

Less: Exceptional item

-

-

-

(38.59)

Profit before Tax and Non Controlling Interest

1,619.12

1,279.47

2,767.73

2,007.84

Tax expense

369.55

347.23

822.85

573.77

Profit after tax but before non controlling interest

1,249.57

932.24

1,944.88

1,434.07

Less: non controlling interest

-

-

428.52

328.99

Net profit for the year

1,249.57

932.24

1516.36

1,105.08

MOVEMENT IN RETAINED EARNING

Balance as per last account

687.18

(445.56)

988.48

(261.67)

Net profit for the year

1,249.57

932.24

1,516.36

1,105.08

Add : other comprehensive income

3.41

(1.24)

4.32

(9.00)

Transfer from / to general reserve (net)

-

850.00

-

834.98

Dividend on equity shares (including interim)

555.98

434.53

555.98

522.99

Corporate dividend tax on above

80.66

88.46

113.42

32.65

Interim equity dividend paid by HIPL including tax thereon

-

199.96

-

199.96

Add: Inter company elimination of dividend pursuant to scheme of amalgamation of HIPL with the company

74.69

74.69

Closing balance

1,303.52

687.18

1,839.76

988.48

* Figures have been restated as per Ind AS.

4. Disclosures under the Companies Act, 2013 and listing regulations.

Extract of Annual Return.

The details forming part of the extract of the annual return in Form MGT-9 is given as Annexure II to this Report.

Number of Board Meetings.

The Board of Directors met 7 (seven) times in the year 2017. The details of the board meetings and the attendance of the Directors are provided in the Corporate Governance Report.

Composition of Audit Committee.

The Board has constituted the Audit Committee which comprises of Mr. Rajendra Chitale as the Chairman and Mr. Nasser Munjee, Dr. Omkar Goswami and Mr. Martin Kriegner as members. More details on the committee are given in the Corporate Governance Report.

Related Party Transactions.

In line with the requirements of the Companies Act, 2013 and Listing Regulations, the company has formulated a Policy on Related Party Transactions which is also available on the website of the company at http://ambujacement.com/Upload/PDF/policy_ on_determining_materiality_of_rpt_28_oct_2015 _revised.pdf.

All the related party transactions are entered on an arm’s length basis in the ordinary course of business and adhers to the applicable provisions of the Act and the Listing Regulations. There are no materially significant related party transactions made by the company with Promoters, Directors or Key Managerial Personnel etc. which may have a potential conflict with the interest of the company at large or which warrants the approval of the shareholders. All Related Party Transactions are presented to the Audit Committee and the Board. Omnibus approval is obtained for the transactions which are repetitive in nature. A statement of all related party transactions is presented before the Audit Committee on a quarterly basis, specifying the nature, value and terms and conditions of the transactions. The statement is supported by the certification from the MD & CEO and the CFO. All related party transactions are subject to half-yearly independent reviews by a reputed accounting firm to establish compliance with the requirements of Arms’ Length Pricing.

In accordance to Section 134(3)(h) of the Companies Act 2013 and Rule 8(2) of the Companies (Accounts) Rules 2014, the particulars of the contract or arrangement entered into by the company with related parties referred to in Section 188(1) in Form AOC-2 is attached as Annexure III.

Renewal of Agreement for Payment of Technology & Know-how fees to Holcim Technology Ltd.

Members of the Company had given their consent through postal ballot conducted in the year 2013 for entering into the Technology and Know-how Agreement with Holcim Technology Ltd, a group company for a period of five years w.e.f. 1st January, 2013. The fee payable for the various services and know-how availed by the Company pursuant to the said Agreement was initially approved @1% of the net sales of the Company for each financial year for two years and was thereafter retained for the remaining period of three years.

It is proposed to renew the said Technology and Know-how Agreement for a further period of three years w.e.f. 1st January, 2018 on the same terms & conditions except for the payment of fee which has been proposed @1% of the net sales of the Company for each financial year or at such rate as may be determined by the Competent Authorities of India and Switzerland under the Bilateral Advance Pricing Agreement (BAPA). Applications have been filed by the Company under BAPA to confirm the Arm’s Length rate for payment under TKH Agreement which applications are still pending with the concerned authorities.

Members’ attention is drawn to the Resolution proposing the approval for the renewal of Technology and Know-how Agreement as aforesaid. As the transaction is a related party transaction, all related parties shall abstain from voting on the resolution. The Directors recommend the resolution set out in item No.9 of the Notice convening the Annual General Meeting.

Policy on Sexual Harassment of Women at Workplace.

The company has zero tolerance towards sexual harassment at the workplace and to this end, has adopted a policy in line with the provisions of Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act 2013 and the Rules thereunder. All employees (permanent, contractual, temporary, trainees) are covered under the said policy. An Internal Complaints Committee has also been set up to redress complaints received on sexual harassment.

During the financial year under review, 1 (one) complaint was received by the company (under its CSR arm, ACF) and the same was investigated in accordance with the procedure laid down under the said Act and the same stands concluded.

No cases of child labour, forced labour, involuntary labour and discriminatory employment were reported during the period.

The company is committed to providing a safe and conducive work environment to all its employees and associates.

5. Corporate Governance.

The company has complied with the corporate governance requirements under the Companies Act 2013 as stipulated under the Listing Regulations. A separate section on corporate governance along with a certificate from the auditors confirming compliance is annexed and forms part of this Annual Report.

6. Internal audits and controls.

A strong internal control framework is an important part of operations and corporate governance.

It is the overall responsibility of the Directors of the listed company to ensure that the company has laid down internal financial controls and that these controls are adequate and are operating effectively.

Simplifying the complexities.

The company has already developed and implemented a robust system and framework of internal controls over financial reporting commensurate with the size, scale and complexity of its operations. The framework has been designed to provide reasonable assurance related to financial and operational information, to comply with the applicable laws and to safeguard the assets of the company. This framework contains Entity Level Controls as well as Business Process Controls. The operating effectiveness and adequacy of these controls are periodically tested and validated. The internal control systems are evaluated with respect to their compliance with operating systems and policies of the company and accounting procedures across all locations of the company.

Ambuja’s Robust Risk Mitigation System.

The company has a strong and independent in house Internal Audit (IA) department that functionally reports to the Chairman of the Audit Committee, thereby maintaining its objectivity and independence. The scope and authority of the IA function is defined in the Internal Audit Charter approved by the Audit Committee. Every year, the IA department conducts an Internal Audit Risk Assessment which serves as the basis for the preparation of the Annual Internal Audit plan.

This risk-based annual internal audit plan is duly approved by the Audit Committee. The IA department comprises of Internal Auditors along with Subject Matter Experts (SMEs) and IT System Audit Specialists that carry out risk-based audits across all locations, thereby enabling the identification of areas where risk management processes may need to be strengthened. Significant audit observations and corrective action plans are presented to the Audit Committee.

The IA department provides independent assurance to the Board, the Audit Committee, the senior management and the regulators regarding the effectiveness of the company’s governance and controls designed for risk mitigation to enhance the company’s compliance and control. It assesses opportunities for improvement in business processes and follows up on the implementation of corrective actions and improvements in these processes after they have been reviewed by the Audit Committee.

Over the years, the formal and independent evaluation of internal controls and initiatives for remediation of deficiencies by the IA department has resulted in a robust framework for internal controls. This formalised system of internal control and risk management framework facilitates the effective compliance of Section 138 of the Companies Act 2013 and relevant statutes applicable to the LafargeHolcim group.

7. Managing the risks of fraud, corruption and unethical business practices.

VIGIL MECHANISM/ WHISTLE BLOWER POLICY Protecting those who speak up, by listening.

Creating a fraud and corruption free culture has always been at Ambuja’s core. In view of the potential risk of fraud, corruption and unethical behaviour that could adversely impact the company’s business operations, performance and reputation, Ambuja has emphasised even more on addressing these risks. To meet this objective, a comprehensive Ethical View Reporting Policy akin to Vigil Mechanism or the Whistle-blower policy has been laid down.

In terms of the said Policy, all the reported incidents are reviewed by a designated Committee under the Chairmanship of Mr. B.L. Taparia, Director. Based on an in-depth review, all such incidents are investigated in an impartial manner and appropriate actions are taken to uphold the highest professional, ethical and governance standards. The Policy also provides for the requisite checks, balances and safeguards to ensure that no employee is victimised or harassed for reporting and bringing up such incidents in the interest of the company.

No personnel have been denied access to the Audit Committee pertaining to the Ethical View Policy. The implementation of the Ethical View Policy is overseen by the Audit Committee.

More details on this Policy are given in the Corporate Governance Report, which forms part of this Annual Report. The Ethical View Reporting Policy is available on the company website: www.ambujacement.com

CODE OF CONDUCT

The company has laid down a robust Code of Business Conduct and Ethics, which is based on the principles of ethics, integrity and transparency. More details about the Code are given in the Corporate Governance Report.

ANTI-BRIBERY AND CORRUPTION DIRECTIVES (ABCD) We’re only intolerant to corruption.

In furtherance to the company’s philosophy of conducting business in an honest, transparent and ethical manner, the Board has laid down ‘ABCD’ as part of the company’s Code of Business Conduct and Ethics. As a company, Ambuja has zero-tolerance to bribery and corruption and is committed to act professionally and fairly in all its business dealings.

To spread awareness about the company’s commitment to conduct business professionally, fairly and free from bribery and corruption, employee training and awareness workshops were conducted for relevant employees across the organisation during 2017. As part of the continuous education of employees on ‘ABCD’, a mandatory face to face workshop was conducted online through a web-based application tool that was used by approximately 3,000 relevant employees. The above policies and its implementation are closely monitored by the Audit and Compliance Committees of Directors and periodically reviewed by the Board.

8. Board of Directors and key managerial personnel.

Cessation.

Mr. Eric Olsen (DIN 07238383), Director (representing LafargeHolcim) resigned from the Board w.e.f. 21st september, 2017 upon his stepping down as the CEO of LafargeHolcim Ltd.

The Board placed on record its appreciation for the valuable services rendered by Mr. Olsen.

Retirement by rotation.

In accordance with the provisions of Section 152 and Article 147 of the Articles of Association of the company, Mr. Christof Hassig (DIN 01680305) and Mr. Martin Kriegner (DIN 00077715) will retire by rotation at the ensuing Annual General Meeting of the company and being eligible, have offered themselves for re-appointment. The Board recommends their re-appointment.

Appointment.

Mr. Jan Jenisch (DIN:07957196)

Mr. Jan Jenisch has been appointed as an Additional Director (Non-Independent) under section 161 of the Companies Act 2013, w.e.f. 24th October 2017. Consequent to the stepping down of Mr. Eric Olsen, Mr. Jan Jenisch has also been appointed as the Vice-Chairman of the Board w.e.f. 24th October 2017.

Mr. Jan Jenisch is currently the CEO of LafargeHolcim Ltd. He is an MBA from the University of Fribourg, Switzerland. Prior to joining LafargeHolcim, Mr. Jan Jenisch worked with Sika AG, which develops and manufactures systems and products for building materials and automotive sectors. He worked in various management functions and countries and was appointed to the Management Board in 2004 as Head of the lndustry Division and served as President, Asia Pacific from 2007 to 2012. Under his leadership, Sika AG expanded into new markets and set new standards of performance in sales and profitability. He also served as the Chief Executive Officer of Sika AG from 2012 until 2017.

Mr. Roland Kohler (DIN:08069722)

Mr. Roland Kohler has been appointed as an Additional Director (Non-Independent) under section 161 of the Companies Act, 2013, w.e.f. 20th February, 2018.

Mr. Kohler has extensive commercial and international experience in the cement, ready mix and aggregates industry ranging from operations, marketing, business integration, mergers & acquisitions, divestments etc. He joined Holcim group in 1994 as Head Management Consultant and progressed through the ranks to be appointed to the Executive Committee in March 2010 and was responsible for Group Functions. He was a key member of the integration Committee for the merger of Lafarge and Holcim. He also served as interim COO of the LafargeHolcim group. He is also the Chairman of LafargeHolcim Foundation for Sustainable Construction.

As Additional Directors, Mr. Jan Jenisch and Mr. Roland Kohler shall hold the office up to the date of the ensuing Annual General Meeting. The Board of Directors recommends their appointment.

Further details about the Directors is given in the Corporate Governance Report as well as in the Notice of the ensuing Annual General Meeting being sent to the shareholders along with the Annual Report.

Attributes, qualifications & independence of Directors and their appointment.

The Nomination & Remuneration Committee of Directors has approved a Policy for the Selection, Appointment and Remuneration of Directors, which inter-alia, requires that the Directors shall be of high integrity with relevant expertise and experience to have a diverse Board. The Policy also lays down the positive attributes/criteria while recommending the candidature for the appointment as Director.

The Board Diversity Policy of the company requires the Board to comprise of a set of accomplished individuals, ideally representing a wide cross-section of industries, professions, occupations and functions and possessing a blend of skills, domain and functional knowledge, experience and educational qualifications, both individually as well as collectively.

Directors are appointed/re-appointed with the approval of the Members for a term in accordance with the provisions of the law and the Articles of Association. The initial appointment of Managing Director & CEO is generally for a period of five years. All Directors other than Independent Directors are liable to retire by rotation unless otherwise specifically provided under the Articles of Association or under any statute. One-third of the Directors who are liable to retire by rotation, retire at every Annual General Meeting and are eligible for re-appointment.

The relevant abstract of the Policy for Selection,

Appointment & Remuneration of Directors is given as Annexure IV.

Independent Directors declaration.

The Independent Directors have submitted the Declaration of Independence, as required pursuant to Section 149 of the Companies Act 2013 and provisions of the Listing Regulations, stating that they meet the criteria of independence as provided therein. The profile of the Independent Directors forms part of the Corporate Governance Report.

Evaluation of the Board’s performance.

As per provisions of the Companies Act 2013 and Regulation 17(10) of the Listing Regulations, the evaluation process for the performance of the Board, its committees and individual Directors was carried out internally. Each Board member submitted a detailed evaluation form on the functioning and overall level of engagement of the Board and its committees on parameters such as composition, execution of specific duties, quality, quantity and timeliness of flow of information, deliberations at the meeting, independence of judgement, decision making, management actions etc.

A one-on-one meeting of the individual Directors with the Chairman of the Board was also conducted as a part of self-appraisal and peer group evaluation and the engagement and impact of individual Directors was reviewed on parameters such as contribution, attendance, decision making, inter-personal relationship, actions oriented, external knowledge etc.

The Directors were also asked to provide their valuable feedback and suggestions on the overall functioning of the Board and its committees and the areas of improvement for a higher degree of engagement with the management.

The Independent Directors met on 8th December 2017 to review the performance evaluation of Non-Independent Directors and the entire Board of Directors including the Chairman, while considering the views of the

Executive and Non-Executive Directors.

The Independent Directors were highly satisfied with the overall functioning of the Board, its various committees and with the performance of other Non-executive and Executive Directors. They also appreciated the exemplary leadership role of the Board Chairman in upholding and following the highest values and standards of corporate governance.

Post the review by the Independent Directors, the results were shared with the entire Board and its respective committees. The Board expressed its satisfaction with the Evaluation results, which reflects the high degree of engagement of the Board and its committees with the company and its Management.

Based on the outcome of the evaluation and assessment cum feedback of the Directors, the Board and the Management have also agreed on various action points which will be implemented during the year 2018.

Remuneration policy.

The company follows a Policy on the Remuneration of Directors and Senior Management Employees. The policy is approved by the Nomination & Remuneration Committee and the Board. The main objective of the said policy is to ensure that the level and composition of remuneration is reasonable and sufficient to attract, retain and motivate the Directors,

KMP and Senior Management employees.

The remuneration involves a balance between fixed and incentive pay, reflecting short and long-term performance objectives appropriate to the working of the company and its goals.

The Remuneration Policy for the Directors and Senior Management employees is given in the Corporate Governance Report.

Induction and familiarisation programme for Directors.

The details of the induction and familiarisation program of the Directors are given in the Corporate Governance Report.

9. Directors’ responsibility.

Pursuant to Section 134(5) of the Companies Act 2013, the Board of Directors to the best of their knowledge and ability confirm that:

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

ii) they have selected such accounting policies, judgments and estimates that are reasonable and prudent and have applied them consistently to give a true and fair view of the state of affairs of the company as on 31st December 2017, and of the statement of Profit and Loss and cash flow of the company for the period ended 31st December 2017.

iii) proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act 2013 for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities;

iv) the annual accounts have been prepared on an ongoing concern basis.

v) proper internal financial controls to be followed by the company have been laid down and that such internal financial controls are adequate and were operating effectively and

vi) proper systems to ensure compliance with the provisions of all applicable laws have been devised and that such systems are adequate and are operating effectively.

10. Auditors & Auditors’ Report.

Statutory Audit.

At the 34th Annual General Meeting held on 31st March 2017, M/s. Deloitte Haskins & Sells LLP (ICAI Firm Registration No.117366W/W-100018), Chartered Accountants, were appointed as the Statutory Auditors for a period of 5 years commencing from the conclusion of the 34th Annual General Meeting till the conclusion of the 39th Annual General Meeting, subject to ratification of their appointment by members at every subsequent AGM. M/s. Deloitte Haskins & Sells LLP has furnished a certificate of its eligibility and consent under section 139 and 141 of the Companies Act 2013 and the Companies (Audit and Auditors) Rules 2014 for their appointment as Auditors of the company for the financial year 2018. In terms of the Listing Regulations, the Auditors have confirmed that they hold a valid certificate issued by the Peer Review Board of the ICAI. The Board, based on the recommendation of the Audit Committee, recommends the appointment of M/s. Deloitte Haskins & Sells LLP, Chartered Accountants as Statutory Auditors of the company for the fiscal 2018.

The Auditors’ Report for financial year 2017 on the financial statement of the company forms part of this Annual Report.

Explanations or comments by the Board on “emphasis of matters” made - (i) by the statutory auditor in his report

- Order passed by the Competition Commission of India - refer to section “Significant and material orders passed by courts or regulators”.

- During the year that ended 31st December 2016, pursuant to Scheme of Amalgamation, Holcim (India) Private Limited has been amalgamated with the Company with effect from the appointed date 1st April 2013 and was accounted for in accordance with then applicable accounting standards as per the scheme.

Cost Audit.

Pursuant to section 148 of the Companies Act 2013, the Board of Directors on the recommendation of the Audit Committee appointed M/s P.M. Nanabhoy & Co. Cost Accountants (ICWAI Firm Registration No.000012) as the Cost Auditors of the company for the Financial Year 2018 and has recommended their remuneration to the Shareholders for their ratification at the ensuing Annual General Meeting. M/s P.M. Nanabhoy & Co. have given their consent to act as Cost Auditors and confirmed that their appointment is within the limits of the Section 139 of the Companies Act, 2013.

They have also certified that they are free from any disqualifications specified under Section 141 of the Companies Act, 2013. The Audit Committee has also received a certificate from the Cost Auditor certifying their independence and arm’s length relationship with the company. Pursuant to Companies (Cost Records and Audit ) Rules, 2014, the Cost Audit Report for the financial year 2016 was filed with the Ministry of Corporate Affairs on 16th May, 2017 vide SRN No.G43667930.

Secretarial Audit.

The Board had appointed M/s Himanshu S. Kamdar (CP No.3030), Partner of M/s. Rathi & Associates, Company Secretaries in Whole-time Practice, to carry out Secretarial Audit under the provisions of Section 204 of the Companies Act, 2013 for the fiscal year 2018.

The company has received consent from M/s. Rathi & Associates to act as the auditor for conducting audit of the Secretarial records for the financial year ending 31st December 2018.

The report of the Secretarial Auditor for financial year 2017 is annexed to this report as Annexure V. The report does not contain any qualification, reservation and adverse remarks.

Reporting of fraud.

The Auditors of the company have not reported any fraud as specified under Section 143(12) of the Companies Act, 2013.

11. Compliance with secretarial standards on Board and Annual General Meetings.

The company has complied with the Secretarial Standards issued by the Institute of Company Secretaries of India on Board Meetings and Annual General Meetings.

12. Significant and material orders passed by the courts or regulators.

Order Passed by the Competition Commission of India (CCI).

i) Acting upon the complaint filed by the Builders Association of India (BAI), the Competition Commission of India (CCI) held the Cement Manufacturers Association (CMA) with its member cement companies, including the company guilty of violating provisions of the Competition Act, and imposed a penalty of Rs.1,163.91 crore vide Order dated 20.06.2012. On Appeal, the Competition Appellate Tribunal (COMPAT) remanded the matter back to CCI for fresh hearing vide Order dated 11th December 2015.

CCI heard the matter afresh and vide its Order dated 31st August 2016 once again held CMA and its member-cement companies including the company guilty and imposed the same amount of penalty as levied in its previous Order. The company immediately filed an appeal before the COMPAT and then obtained a stay against the operation of the said order, subject to the deposit of a 10% penalty amount which was forthwith complied by the company.

By Government Notification, all cases pending before COMPAT were transferred to the National Company Law Appellate Tribunal (NCLAT) and, as such, the Appeal was heard by NCLAT and the Order is kept reserved.

ii) State of Haryana had filed a Complaint before the Competition Commission of India (CCI) alleging that Cement Companies including Ambuja Cements Limited (ACL) had indulged in anti-competitive practices while participating in Tender for supply of Cement to Government department. CCI conducted inquiry and vide order dated January 19, 2017, held the Cement Companies guilty of breaching provisions of the Competition law and accordingly imposed penalty at the rate of 0.3% of the average turnover of the last 3 financial years (2012-13, 2013-14 & 2014-15). In case of ACL, the penalty amounts to Rs.29.84 Crores.

ACL has filed Appeal against CCI’s Order before the Competition Appellate Tribunal (COMPAT) and obtained interim relief/stay against the operation of CCI’s Order in the meanwhile. Pursuant to merger of COMPAT with the National Company Law Appellate Tribunal (NCLAT), the Appeal is now being heard by NCLAT.

Other than the aforesaid, there have been no significant and material orders passed by the courts or regulators or tribunals impacting the ongoing concern status and company’s operations. However, members’ attention is drawn to the statement on contingent liabilities and commitments in the notes forming part of the Financial Statements.

13. Particulars of loans, guarantees or investments.

Particulars of loans, guarantees given and investments made during the year, as required under Section 186 of the Companies Act 2013 and Schedule V of the Securities and Exchange Board of India (Listing Obligation and Disclosure Requirement) Regulations 2015, are provided in Notes 12, 29 and 45 of the Standalone Financial Statements.

Treasury operations.

During the year, the company’s treasury operations continued to focus on cash forecasting and the deployment of excess funds on the back of effective portfolio management of funds within a well-defined risk management framework. All investment decisions in deployment of temporary surplus liquidity continued to be guided primarily by the tenets of safety of Principal and liquidity. Despite Interest Rates coming down in calendar year 2017, a proactive management of portfolio helped improve treasury yield performance.

During the year, the investment portfolio mix was continuously rebalanced in line with the evolving interest rate environment.

14. Transfer of unclaimed dividend and unclaimed shares.

The details relating to Unclaimed Dividend and Unclaimed shares forms part of the Corporate Governance Report.

15. Energy, technology and foreign exchange.

Information on the conservation of energy, technology absorption, foreign exchange earnings and out go is required to be given pursuant to the provisions of Section 134 of the Companies Act 2013, read with the Companies (Accounts) Rules 2014, which is marked Annexure VI and forms part of this report.

16. Particulars of employees.

There were 4992 permanent employees of the company as of 31st December 2017.

The disclosure pertaining to remuneration and other details as required under Section 197(12) of the Companies Act 2013, read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014 are annexed to this report at Annexure VII.

Further, a statement showing the names and other particulars of employees drawing remuneration in excess of the limits as set out in the Rules 5(2) and 5(3) of the aforesaid Rules forms part of this report. However, in terms of first provision of Section 136(1) of the Act, the Annual Report and Accounts are being sent to the members and others entitled thereto, excluding the aforesaid information. The said information is available for inspection by the members at the Registered Office of the company during business hours on working days up to the date of the ensuing Annual General Meeting. If any member is interested in obtaining a copy thereof, such member may write to the Company Secretary, whereupon a copy would be sent.

17. Direct subsidiaries, joint ventures and joint operations.

As of 31st December 2017, the company has 6 direct subsidiaries, 1 joint venture and 1 joint operation.

The Policy for determining Material Subsidiaries adopted by the Board pursuant to Regulation 16 of the Listing Regulations, can be accessed on the company’s website at: www.ambujacement.com/investors

18. Consolidated financial statements.

As stipulated by Regulation 33 of the Listing Regulations, the Consolidated Financial Statements have been prepared by the company in accordance with the applicable Accounting Standards. The audited Consolidated Financial Statements, together with Auditors’ Report, form part of the Annual Report.

Pursuant to Section 129(3) of the Companies Act 2013, a statement containing the salient features of the financial statements of each subsidiary, joint venture and joint operations in the prescribed Form AOC-1 is annexed to this report at Annexure VIII.

Pursuant to Section 136 of the Companies Act 2013, the financial statements of the subsidiary and joint venture companies are kept for inspection by the shareholders at the Registered Office of the company. The company shall provide free of cost, the copy of the financial statements of its subsidiary and joint venture companies to the shareholders upon their request. The statements are also available on the website of the company www.ambujacement.com/investors.

The consolidated net profit of the company and its subsidiaries amounted to Rs.1516.36 crore for 2017 as compared to Rs.1105.08 crores for 2016.

19. Equal opportunity employer.

The company has always provided a congenial atmosphere for work that is free from discrimination and harassment, including sexual

20. Other disclosures.

No disclosure or reporting is made with respect to the following items, as there were no transactions during the year under review:

- Details relating to deposits that are covered under Chapter V of the Act

- The issue of equity shares with differential rights as to dividend, voting or otherwise

- The issue of shares to the employees of the company under any scheme (sweat equity or stock options)

- The company does not have any scheme or provision of money for the purchase of its harassment. It has provided equal opportunities of employment to all without regard to their caste, religion, colour, marital status and sex.

Own shares by employees or by trustees for the benefit of employees

- Neither the Managing Director nor the whole-time Directors of the company receive any remuneration or commission from any of its subsidiaries

- No material fraud has been reported by the Auditors to the Audit Committee or the Board

- There was no revision in the financial statements

- There was no change in the nature of business

21. Caution statement.

Statements in the Directors’ Report and the Management Discussion and Analysis describing the company’s objectives, expectations or predictions may be forward looking within the meaning of applicable securities laws and regulations. Actual results may differ materially from those expressed in the statement. Crucial factors that could influence the company’s operations include global and domestic demand and supply conditions affecting selling prices, new capacity additions, availability of critical materials and their cost, changes in government policies and tax laws, economic development of the country and other factors that are material to the business operations of the company.

22. Acknowledgements.

The Directors take this opportunity to express their deep sense of gratitude to the Banks, Central and State Governments and their Departments, and the Local Authorities for their continued guidance and support. The Directors would also like to place on record their sincere appreciation for the commitment, dedication and hard work put in by every member of the Ambuja family. To them goes the credit for the company’s achievements. And to you, our Shareholders, we are deeply grateful for the confidence and faith that you have always reposed in us.

For and on behalf of the Board of

Ambuja Cements Limited

N. S. Sekhsaria

Chairman & Principal Founder

Mumbai 4th May, 2018

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