To the members of the Kallam Textiles Ltd., Your directors are pleased to present their Twenty-Sixth Annual Report of the Company together with the Audited Financial Statements for the year ended 31^st March 2018.

1. CORPORATE OVERVIEW :

W.e.f 09^th April, 2018, your company name has been changed from “KALLAM SPINNING MILLS LIMITED” To “KALLAM TEXTILES LIMITED (“Your Company”). Your company is a leading Textile Company and has its corporate office at Chowdavaram, Guntur - 522019 Andhra Pradesh.

2. REVIEW OF OPERATIONS:

The financial results for the year ended 31^st March 2018 are summarized below :

3. FINANCIAL PERFORMANCE:

Your Company recorded net revenue from operations of Rs.31,071.21 Lakhs with a increase of 8.33% over Rs.28,681.13 Lakhs of the last financial year. The Company recorded a net profit after tax of Rs.1567.30 Lakhs, with a increase of 22.54% over net profit of Rs.1278.99 Lakhs of the last financial year.

4. DIVIDEND AND RESERVES:

Considering the profits for the year under review and also the capital expenditure requirements of the Company, Your Directors are pleased to recommend a dividend of 10% i.e. Rs.0.20 per equity share of face value of Rs.2/- each aggregating to Rs.85.64 Lakhs for the financial year ended March 31, 2018.

During the year under review, no amount from profit was transferred to General Reserve.

The amount lying in the Unpaid Dividend Account of the company in respect of the last five years as on March 31, 2018 is as follows :

During the year 2017-18, Unclaimed Dividend of Rs.3,32,125/- for the year 2009-10 was transferred to Investor Education and Protection Fund (IEPF). Pursuant to the provision of rule 3 of the Investor Education and Protection Fund (Awareness and Protection of Investor) Rules, 2001, necessary e-form (Form 1 INV) which contains the Statement of amounts credited to IEPF was filed to Registrar of Companies (ROC).

5. MANAGEMENT DISCUSSION AND ANALYSIS:

The Management Discussion and Analysis forms an integral part of Annexure [I] to this report and gives details of the overall industry structure, economic developments, performance and state of affairs of your Company’s various businesses viz., Textiles and power business, internal controls and their adequacy, risk management systems and other material developments during the financial year 2017-18.

6. BONUS ISSUE OF SHARES :

During the year under review, the company has issued and allotted 85,63,875 fully paid new equity shares of Rs.2/- each to the shareholders of the Company in the ratio of 1:4 (i.e One Bonus Share for every Four (4) existing equity shares held.) Consequently, the issued, subscribed and paid up equity share capital of the Company after bonus issue of Equity Shares has increased from Rs.6,85,11,000 to Rs.8,56,38,750 and number of shares increased from 3,42,55,500 to 4,28,19,375 of Rs.2/- each.

7. EXTRAORDINARY GENERAL MEETING (EGM) :

The Board of Directors had sought approval of the Shareholders of the Company by process of Extraordinary General Meeting (EGM) in respect of the Special Resolutions set out in the EGM Notice dated on 12th February, 2018. The detailed voting results are given in the “Report on Corporate Governance” forming part of this Annual Report.

8. CORPORATE GOVERNANCE:

As per Regulation 34 (3) read with Schedule V of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, a separate section on corporate governance practices followed by the Company, together with a certificate from the Company's Statutory Auditors confirming compliance forms an integral part of this Report.

9. NUMBER OF MEETINGS HELD OF THE BOARD:

During the year, Seven Board Meetings were held, with a gap between not exceeding the period of 120 days as prescribed under the Act. Details of the Board and Board Committee meetings held during the year are given in the Corporate Governance Report.

10. PUBLIC DEPOSITS :

During the year under review, your Company has not accepted any deposit within the meaning of Sections 73 and 74 of the Companies Act, 2013 read with the Companies (Acceptance of Deposits) Rules, 2014 (including any statutory modification(s) or re-enactment(s) for the time being in force).

11. DIRECTORS AND KEY MANAGERIAL PERSONNEL

Retirement by rotation and subsequent re-appointment :

Pursuant to Section 196, 197, 203 and other applicable provisions of Companies Act, 2013 read with Schedule V to the said act, the shareholders at their 23rd Annual General Meeting held on 26th September, 2015 appointed Sri P. Venkateswara Reddy as a Managing Director and Sri G.V. Krishna Reddy as a Joint Managing Director of the Company for a period of Three years with effect from 29th June, 2015.The Term of their appointment would come to an end on 28th June, 2018. It is necessary to Re-appointment them for another period of Three years. Hence the Board at their meeting held on 28^th May, 2018 decides to Re-appoint Sri P. Venkateswara Reddy as a Managing Director and Sri G.V.Krishna Reddy as a Joint Managing Director & CEO of the Company for another period of Three years on the recommendations of the Nomination and Remuneration Committee.

Pursuant to Section 196, 197, 203 and other applicable provisions, if any, of Companies Act, 2013 read with Schedule V to the said act and Subject to the approval of the shareholders in Annual General Meeting, Sri P. Venkateswara Reddy and Sri G.V.Krishna Reddy be proposed to re-appoint as a Managing Director and Joint Managing Director & CEO of the Company for a period of Three years with effect from and including 29^th June, 2018.

Sri M.V.Subba Reddy, Whole Time Director retire by rotation at the ensuing AGM pursuant to the provisions of Section 152 of the Companies Act, 2013 read with the Companies (Appointment and Qualification of Directors) Rules, 2014 and the Articles of Association of your Company and being eligible has offered himself for reappointment. Appropriate resolution for his reappointment is being placed for your approval at the ensuing AGM.

Mr M.Prasanna Kumar (ACS: 49713) has appointed as a Company Secretary w.e.f 01st April, 2017 and he has resigned from the post of Company Secretary as well as Compliance Officer w.e.f 31st May, 2017.

The Independent Directors Mr. S.Pulla Rao and Smt V.Bhargavi of your Company hold office upto 26th September, 2019 and Mr Ajeya Kallam and V.Ramgopal of your Company hold office upto 28th September, 2022 and they are not liable to retire by rotation.

All Independent Directors have given declarations that they meet the criteria of independence as laid down under Section 149(6) of the Companies Act, 2013 and Regulation 16 (b) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

During the year, Pursuant to the Provisions of Section 149(1) of the Companies Act, 2013 read with Rule 3 of the Companies (Appointment and Qualification of Directors) Rules, 2014 and also as per Regulation 16(1) (b) of the SEBI (LODR) Regulations, 2015, the Company, with the approval of shareholders at AGM, has appointed Mr. Ajeya Kallam and V.Ramgopal, as Independent Directors of the company on 29^th September, 2017.

During the year, Non-Executive and Independent Directors of the Company, Mr M.R.Naik and Mr A.Krishna Murthy have submitted their resignations to the Board on the Board Meeting held on 29^th September, 2017.

The Board has accepted their resignations and relieved them as Directors of the Company with effect from the same Board Meeting where they submitted their resignations and Board placed on record its sincere appreciation of services rendered by them as Directors of the Company during their tenure.

Pursuant to Regulation 30 of SEBI (LODR) Regulations, 2015 of the Listing Agreement, We informed the same to Bombay Stock Exchange, where the shares of the company were listed and also as per Section 168 of the Companies Act, 2013 the Board of Directors also took the note of their resignations and intimate to the Registrar of Companies, Hyderabad for the States of Andhra Pradesh and Telangana.

Disclosure Relating to Remuneration of Directors, Key Managerial Personnel and particulars of Employees:

The remuneration paid to the Directors is in accordance with the Nomination and Remuneration Policy formulated in accordance with Section 178 of the Companies Act, 2013 and Regulation 19 of the Listing Regulations (including any statutory modification(s) or re-enactment(s) for the time being in force). The salient aspects covered in the Nomination and Remuneration Policy has been outlined in the Corporate Governance Report which forms part of this report.

The information required under Section 197 of the Companies Act, 2013 read with Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 in respect of Directors/ employees of your Company is set out in Annexure [II] to this report.

Directors Responsibility Statement:

Pursuant to Section 134(3)(c) of the Companies Act, 2013 (including any statutory modification(s) or re-enactment(s) for the time being in force), the Directors of your Company confirm that:

(a) in the preparation of the annual accounts for the financial year ended 31st March, 2018, the applicable Accounting Standards and Schedule III of the Companies Act, 2013 (including any statutory modification(s) or re-enactment(s) for the time being in force), have been followed and there are no material departures from the same;

(b) for the financial year ended 31st March, 2018, the Directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of your Company as at 31st March, 2018 and of the profit and loss of the Company for the financial year ended 31st March, 2018;

(c) proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 (including any statutory modification(s) or re-enactment(s) for the time being in force) for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities;

(d) financial statements have been prepared on a “going concern” basis;

(e) proper internal financial controls laid down by the Directors were followed by your Company and that such internal financial controls are adequate and operating effectively; and

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

12. EXTRACT OF THE ANNUAL RETURN:

The details forming part of the extract of the Annual Return as on 31^st March, 2018 in Form MGT - 9 in accordance with Section 92(3) of the Companies Act, 2013 read with Companies (Management and Administration) Rules, 2014, are set out herewith as Annexure [III] to this report. This Annexure is also posted on the website of the Company (www.ksml.in).

13. A STATEMENT ON DECLARATION GIVEN BY INDEPENDENT DIRECTORS:

During the year under review, one meeting of Independent Directors was held on 12th February, 2018 in compliance with the requirements of Schedule IV of the Companies Act, 2013.

All the Independent Directors of the Company have declared that they meet the criteria of Independence in terms of Section 149(6) of the Companies Act, 2013 and that there is no change in the status of Independence.

14. EVALUATION OF BOARD'S PERFORMANCE:

Pursuant to the provisions of the Companies Act, 2013 read with the Rules issued thereunder and the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, (including any statutory modification(s) or re-enactment(s) for the time being in force), the process for evaluation of the annual performance of the Directors/ Board/ Committees was carried out. The criteria applied in the evaluation process are detailed in the Corporate Governance Report which forms part of this report.

i. Observations of board evaluation carried out for the year - NIL

ii. Previous year’s observations and actions taken - NIL

iii. Proposed actions based on current year observations- NIL

15. COMMITTEES OF THE BOARD:

The Board of Directors has the following Committees:

1. Audit Committee

2. Nomination and Remuneration Committee

3. Stakeholders’ Relationship Committee

4. Corporate Social Responsibility Committee.

5. Share Transfer Committee

The details of the Committees along with their composition, number of meetings and attendance at the meetings are provided in the Corporate Governance Report.

16. DISCLOSURE UNDER SECRETARIAL STANDARDS ON MEETING OF BOARD OF DIRECTORS (SS-1):

During the year under review, the company has complied with all the applicable Secretarial Standards.

17. STATUTORY AUDITORS AND AUDITORS' REPORT:

M/s. Chevuturi Associates., Chartered Accountants (Firm Reg No : 000632S), were appointed as the statutory auditors at the Annual General Meeting held on September 29, 2017 for a term of five (5) years from the conclusion of the 25th annual general meeting till the conclusion of 30th annual general meeting. As per the provisions of Section 139 of the Companies Act, 2013, the appointment of Auditors is required to be ratified by Members at every Annual General Meeting.

But, in accordance with the Companies Amendment Act, 2017, enforced on 7^th May, 2018 by the Ministry of Corporate Affairs, the appointment of Statutory Auditors is not required to be ratified at every Annual General Meeting.

The Statutory Auditors of the Company have not reported any fraud as specified under the second proviso of Section 143(12) of the Companies Act, 2013 (including any statutory modification(s) or re-enactment(s) for the time being in force). The Auditors’ Report for the financial year ended 31st March, 2018, does not contain any qualification, reservation or adverse remark.

18. COST AUDITOR:

The Board of Directors of your Company, on the recommendations made by the Audit Committee at its meeting held on 28th May, 2018 has approved the appointment of Mr. P.Srinivas, Cost Accountant, (Membership No. 21170) as the Cost Auditor of your Company for FY 2018-19 and recommends ratification of his remuneration by the Members at the ensuing Annual General Meeting. The Company has maintained the cost records and there are no qualifications in the report of the cost auditor for the financial year 2017-18.

19. SECRETARIAL AUDITORS:

The Company has appointed M/s. K. Srinivasa Rao & Co, a firm of Company Secretaries in Practice, Guntur to conduct the Secretarial Audit for the financial year ended March 31, 2019, as required by Section 204 of the Companies Act, 2013 and rules made thereunder.

The Secretarial Audit Report furnished by M/s. K. Srinivasa Rao & Co, for the financial year ended March 31, 2018 is annexed to this report as Annexure [IV].

Board reply on the Qualification of Secretarial Auditor :

The Board has made an utmost effort for the appointment of the Company Secretary as KMP but unable to appoint a Company Secretary due to lack of suitability of the Candidate to the profile of the Company in terms of work location, job profile and remuneration.

20. INTERNAL AUDITORS:

The Board of Directors has appointed M/s Mastanaiah & Co.,(Firm Reg No: 002039S) Chartered Accountants, Guntur, as Internal Auditors for the period of 1 (one) year up to 31st March, 2019 under Section 138 of the Companies Act, 2013 and they have completed the internal audit as per the scope defined by the Audit Committee.

21. PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS BY THE COMPANY

During the year, there were no Loans, Guarantees, Investments and securities given/made/provided by the Company under the provisions of Section 186 of the Companies Act, 2013.

22. RELATED PARTY TRANSACTIONS:

During the financial year 2017-18, your Company has entered into transactions with related parties as defined under Section 2(76) of the Companies Act, 2013 read with Companies (Specification of Definitions Details) Rules, 2014, all of which were in the ordinary course of business and on arm’s length basis and in accordance with the provisions of Section 188 of the Companies Act, 2013, read with the Rules issued thereunder and the Listing Regulations. Further, there were no transactions with related parties which qualify as material transactions under the Listing Regulations. All Related Party Transactions are placed before the Audit Committee as also to the Board for approval. Prior omnibus approvals are granted by the Audit Committee for related party transactions which are of repetitive nature, entered in the ordinary course of business and are on arm’s length basis in accordance with the provisions of Companies Act, 2013 read with the Rules issued thereunder and the Listing Regulations. The policy on Related Party Transactions as approved by the Board of Directors has been uploaded on the website of the Company. The web-link of the same has been provided in the Corporate Governance Report.

The details of the related party transactions as per Accounting Standard 18 are set out in point 35 of the Notes on Accounts to the Financial Statements forming part of this report. The Form AOC - 2 pursuant to Section 134(3)(h) of the Companies Act, 2013 read with Rule 8(2) of the Companies (Accounts) Rules, 2014 is set out as Annexure [V].

23. VIGIL MECHANISM / WHISTLE BLOWER POLICY:

The Company has adopted Vigil Mechanism / Whistle Blower Policy as per the provisions of Section 177 of the Companies Act, 2013 and Regulation 22 of the Listing Regulations. Employees can raise concerns regarding any discrimination, harassment, victimization, any other unfair practice being adopted against them or any instances of fraud by or against your Company. Any incidents that are reported are investigated and the suitable action taken in line with the whistle blower policy. The details of the Vigil Mechanism is explained in the Report on Corporate Governance and also posted on the website of the Company (www.ksml.in).

24. SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS

There are no significant and material orders passed by the Regulators/Courts that would impact the going concern status of the Company and its future operations.

25. CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO:

The information on the conservation of energy, technology absorption and foreign exchange earnings and outgo as stipulated under Section 134 of the Companies Act, 2013 read with Rule 8 (3) of the Companies (Accounts) Rules, 2014, is set out herewith as Annexure [VI] to this report.

26. UNSECURED LOANS RECEIVED FROM DIRECTORS DURING THE YEAR 2017-18:

During the year 2017-18, The Company has received Loans from Three Executive Directors.

All the Directors were, at the time of giving the money, furnished their declaration in writing to the effect that the amount is not being given out of funds acquired by them by borrowing or accepting loans or deposits from others.

27. RISK MANAGEMENT:

The Company has implemented an integrated risk management approach through which it reviews and assesses significant risks on a regular basis to help ensure that there is a robust system of internal controls in place. Your Company believes that managing risks helps in maximizing returns. The Company’s approach to addressing business risks is comprehensive and includes periodic review of such risks and a framework for mitigating controls and reporting mechanism of such risks. The risk management framework is reviewed periodically by the Board and the Audit Committee. The company has put in place response mechanisms that mitigate environmental, operational and business risks and minimise the impact on business.

28. CORPORATE SOCIAL RESPONSIBILITY (CSR)

The CSR expenditure incurred by your Company during the financial year 2017-18 was Rs.29.36 Lakhs which was higher than the statutory requirement of 2% of the average net profits for the last three financial years. (Which amounted to Rs.28.18 Lakhs)

The CSR initiative of your Company was under the area(s) Development of rural areas / Social Business Projects.

Your Company’s CSR Policy statement and annual report on the CSR activities undertaken during the financial year ended 31st March, 2018, in accordance with Section 135 of the Companies Act, 2013 and Companies (Corporate Social Responsibility Policy) Rules, 2014 is annexed to this report as Annexure [VII].

29. DETAILS ON INTERNAL FINANCIAL CONTROLS RELATED TO FINANCIAL STATEMENTS

Your Company has put in place adequate internal financial controls with reference to the financial statements and the Company has effective risk-mitigation system. Your Company has adopted accounting policies which are in line with the Accounting Standards prescribed in the Companies (Accounting Standards) Rules, 2006 that continue to apply under Section 133 and other applicable provisions, if any, of the Companies Act, 2013 read with Rule 7 of the Companies (Accounts) Rules, 2014 and relevant provisions of the Companies Act, 1956, to the extent applicable. These are in accordance with generally accepted accounting principles in India. Changes in policies, if any, are approved by the Audit Committee in consultation with the Statutory Auditors.

The main thrust of internal audit is to test and review controls, appraisal of risks and business processes, besides benchmarking controls with best practices in the industry. The Internal Audit is entrusted to M/s Mastanaiah & Co., Chartered Accountants, Guntur, who submit their reports to the Joint Managing Director & CEO and has direct access to the Audit Committee and they participated in the meetings of the Audit Committee of the Board of Directors of your Company.

The Audit Committee of the Board of Directors actively reviews the adequacy and effectiveness of the internal control systems and suggests improvements to strengthen the same. The Audit Committee of the Board of Directors and Statutory Auditors are periodically apprised of the internal audit findings and corrective actions taken. Audit plays a key role in providing assurance to the Board of Directors. Significant audit observations and corrective actions taken by the management are presented to the Audit Committee of the Board. To maintain its objectivity and independence, the Internal Audit function reports to the Chairman of the Audit Committee.

30. ENVIRONMENT AND SAFETY:

The Company is conscious of the importance of environmentally clean and safe operations. The Company’s policy requires the conduct of operations in such a manner, so as to ensure the safety of all concerned, compliances of environmental regulations and preservation of natural resources for future Generations.

31. PREVENTION OF SEXUAL HARASSMENT OF WOMEN AT WORKPLACE :

As per the requirement of The Sexual Harassment of Women at Workplace (Prevention, Prohibition & Redressal) Act, 2013 ('Act’) and Rules made there under, the Company has formulated and implemented a policy on prevention of sexual harassment at workplace with a mechanism of lodging complaints. For that purpose, Company has constituted Internal Complaints Committees (ICC). During the year under review, no complaints were received in this regard.

32. REGISTRARS AND SHARE TRANSFER AGENTS:

Your Registrar and Share Transfer Agents of the Company M/s Big share Services Private Limited, 306, 3rd Floor, Right Wing, Amrutha Ville, Opp. Yashodha Hospital, Raj Bhavan Road, Somajiguda, Hyderabad - 500 082.

33. APPRECIATIONS AND ACKNOWLEDGEMENTS:

Your Directors sincerely convey their appreciation for the unbelievable commitment, support, dedication, hard work, enthusiasm and significant contribution made by employees in ensuring sustained growth of the Company. The Directors also take this opportunity to thank all shareholders, Clients, Vendors, Bankers, Government and Regulatory Authorities and Stock Exchanges for their continued support.

For and on behalf of Board of Directors

P. Venkateswara Reddy

Managing Director

DIN : 00018677

G.V. Krishna Reddy

Joint Managing Director

DIN :00018713

Place : Chowdavaram, Guntur

Date : 09-08-2018