BOARD'S REPORT Your Board is pleased to present the 20b1 Annual Report and the audited financial statements for FY 2015/16. Dividend Your Directors recommend a dividend of Rs.1.20 per Equity Share of Rs.10 each for the financial year ended 3I£t March 2016. While the company was compelled to skip dividend for FY 2014-15 for the first time since it started declaring dividend in 2004-05, the swift turnaround achieved in Its financial performance and resuming dividend declaration within a year is gratifying. Sugar Industry Overview World sugar production has been receding year on year since 2013-14, yet leaving a small surplus for each of the years and building up stocks. However sugar season 2015-16 has put paid to this scourging stock pile with a discernible decline in production, manifestly marking a return to the deficit phase for the first time in the current decade. Responding to the changed global fundamentals, world sugar prices have recovered by more than 50% from the lows touched in August 2015; yet the prices are below the Eevels obtaining during 2011-14 that dearly underpins the distance yet to be covered for the industry towards regaining its financial strength. With the bears remaining reticent and in the rearguard for the present, sugar futures in NY-ICE market is mercifully no longer inverted. Sugar is no stranger to fluctuating fortunes brought about by the cyclical swings in production and consequent demand-supply disequilibrium. Yet, the crisis faced by the Indian sugar industry crescendo in the last couple of years, leaving it crestfallen due to sugar surplus scornfully building up over five years in a row since 2010-11 sugar season. While this traumatic trend was feared to continue during 2015-16, the dour outcome of drought caused by deficient monsoon in Maharashtra and Karnataka has come to cripple cane availability and crumble sugar production in those States, Still worse, cane planting in these regions during current season that is intended for sugar production in the ensuing season, has been severely hit. As a result, demand-supply parity has restored for the current season while the deficit to dawn in the coming season can be counted for driving sugar prices north. Sugar prices were indeed in a sedate state at the start of FY 2015-16 lingering and languishing at a five-year low. They sputtered during most part of the year while nosediving to their nadir by the second quarter. The fortunes of the industry finally got revived by the unfortunate occurrence of drought in the country, revving up sugar prices redoubtably from then on to end the year at a five-year high. While so, cost of production has catapulted during this quinquennium mainly due to the hefty hike in cane prices. I t is hence imperative to not lose sight of the fact that sugar prices have just reached a level closer to the cost of production; yet the industry feels much relieved now with improved cash flows promising to and paving way for the payment of cane price in time. It would seem too naive to perceive and berate the recent price rise to be bestowing a benevolence and blame the industry to be profiteering. No doubt the recent price spurt in sugar has been rather sharp but such a rebound has occurred from the rock bottom levels at which they remained rooted for fong. In fact, there is no gainsaying that sugar prices should rise further, albeit in a benign pace, to levels that would generate commensurate cash flows for the industry towards discharging committed cane price obligations for the current season, besides servicing the special soft loan packages extended by the Centre for clearing cane price dues in the past. Government Policies The Central Government with a view to check and correct the unabated rise in sugar inventory fixed 'Minimum Indicative Export Quota' for every sugar mil] in the country with a target to evacuate about 40 lakh tonnes of sugar from the country. It further offered production subsidy of Rs.45/ tonne of cane crushed during 2015-16 season conditional upon the sugar mills complying with stipulated percentage export quota and ethanol blending norms. To augment resources for meeting the subsidy commitment, the rate of sugar cess was hiked by Rs.lOO/qtl. Physical sugar export against the above target is just in the region of 15 lakh tonnes. Lt looks Government may be persuaded to go soft on the export quota at this juncture, having regard to the pressures on domestic production brought by two years of back to back drought in the country. In fact, the Government has since imposed stock holding limits on sugar dealers, signaling its intent to curb hoarding of and speculative trade in sugar. It is trite to reiterate that Government intervention in sugar has been frequent, forceful and oftentimes flip-flop, be it to facilitate the rise or fall in sugar prices or formulate soft loan packages to help clear cane price dues. It is time the Government created conditions for 'ease of doing business' in sugar. For this, the reforms initiated in 2013 must remain irreversible and the unfinished agenda must at once be addressed on the sugarcane front so as to decisively link and establish sustainable input-output price parity. Following global models, sugarcane price should firmly be fixed on a revenue sharing formula, embracing the recommendations of Dr C Rangarajan Committee report on the subject. While it is fair and fully justified on the part of Government to protect farmers' interest through a minimum guaranteed price, such protection should axiomatically come out of a price stabilization fund to bridge the deficit during times of distressed sugar prices as being recommended by the expert body - CACP in its sugarcane pricing reports. Discernible disconnect between sugar and sugarcane prices brought about either by lower market price for sugar or by higher arbitrary State Advised Price (SAP) for cane has long been the bane of the industry. Sooner this is corrected, the better it is for all stakeholders and for the unhindered functioning of the industry to focus on core business value enhancement. Company performance Sugarcane availability for the company has become a chronic challenge due to below par monsoon and bottoming water table in its operational area. Further, sugarcane pricing has turned contentious of late due to the distraught state of the industry, forcing private players in the State to challenge the enforcement of SAP that is only recommendatory in nature. For the current season, sugarcane price has been intensely negotiated and agreed at Fair & Remunerative Price, besides voluntarily committing to bear in full the transport cost thereof from field to factory. The company during the year was daunted by dreaded shortage of harvest labour, forcing it to source laboui force in large number from long distances. Operational performance was spruced up with constant vigil and monitoring that helped optimize the consumption of chemicals and utilities and achieve better throughput in power generation. Sugar off-take was sluggish during most part of the year that finally picked up by year end. Sugar exports against Government mandated quota eventually led to an overall 26% increase in sale volume. Turnover increase in sugar however was muted at 7% due to hugely depressed prices on the whole. The company was indeed faced with formidable losses till end of third quarter but tail-winds in the form of improved fundamentals helped turbocharger its performance during the last quarter Significantly, the tariff revision ordered by the State Regulator giving effect to the principles upheld by the Appellate authority on tariff fixation and coming into force from August 2012 has given a booster dose to its overall results. In all, the company could manage to not only wipe out the losses suffered but end the year on a positive note. Finance The company during the year availed Rs.11.53 crore of loan under GOI Soft Loan Scheme 2015 from its consortium of working capital bankers. Interest subvention for this loan is available only for the first year, pegged to 10% rate of interest. Nonetheless, the loan has come in time for the company to clear its cane dues. The company has after regular and long pursuit got disbursement of eligible MNRE subsidy of Rs.82.5 lakhs during the year for its Bagasse based Cogen Project. The Board's Report in the earlier years bemoaned the dragging dispute with the Sugar Development Fund (SDF) locking up Rs.6.9 crores of our eligible subsidies, having obtained a favorable ruling from both the Single Judge and Division Bench of the High Court of Madras, it has now come as good comfort that SDF has since decided to accept the High Court ruling and not file an SLP before the Supreme Court in the matter. It has thus laid to rest a long standing suffering, agony and disadvantage for the company In dealing with SDF that is critical for the company to avail diverse forms of financial support from the Central Government from time to time. Disbursement of withheld subsidies and sanction of term loan for Cogen Project are now being pursued with SDF with renewed vigour. While the company has returned to profits during FY 2015-16, its finances are yet frail with huge sums locked up In receivables. This includes Government subsidies, levy sugar price differential due from FCI and power charges due in pursuance of the tariff revision. It is hoped that the company would be able to swiftly sort out residual procedural issues and realize most part of it in the coming year. Outlook for 2016-17 The company has witnessed comparatively improved rainfall in its area during the year, but that is still far below its long term average. The delayed start of cane crushing during FY 2015-16 has shifted sizeable chunk of cane to be crushed in FY 2016-17. As a result, we should be able to operate for fonger duration and step up our sugar production in the coming year. Further, we are close to obtaining environment clearance for the enhancement in the capacity of Cogen Plant from 15 MW to 19 MW. We also expect to be hugely helped by dovish external environment with improved sugar prices and increased tariff for Cogen power reassuring healthy operating margins. Accordingly we foresee a perceptible improvement in our financial performance during FY 2016-17. General The company during the year with the approval of shareholders by special resolution through postal ballot has increased the limit for foreign investment in the Equity Shares of the company from 24% to 49%. RBI has accorded its approval for the increase in this limit by its communication dt.24.02.2016. Listed entities hitherto have been complying with the listing obligations imposed by SEBI through the listing agreement subsisting between the Stock Exchanges and the listed entities. With a view to consolidate and streamline the provisions of the existing listing agreement for different segments of the capital market, SEBI notified the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 coming into force from 02,12.2015, While the Regulations in most part have reiterated the obligations already tn vogue under the listing agreement, there are certain increased compliance requirements brought about by them. Your company has already taken effective steps to comply with the new Listing Regulations in letter and spirit and well in time. Management Discussion and Analysis Report A detailed discussion on the industry structure (dealing with world sugar and Indian sugar) as well as on the financial and operational performance is contained in the 'Management Discussion and Analysis Report' that forms an integral part of this Report (Annx-1). Corporate Governance Pursuant to Regulation 34(3) of SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015, Corporate Governance Report together with the certificate from the company's auditors confirming the compliance of conditions on Corporate Governance is given in Annx-2. The Corporate Governance Report also includes several additional contents and disclosures required under Section 134(3) of the Companies Act, 2013 at relevant places that forms an integral part of this report. Extract of Annual Return The details forming part of the extract of Annual Return in Form MGT-9 is given in Annx-3, Directors' Responsibility Statement Pursuant to Section 134(3)(c) of the Companies Act, 2013 with respect to the Directors Responsibility Statement, your Board confirms that: (a) in the preparation of the annual accounts, the applicable accounting standards have been followed. (b) 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 the company at the end of the financial year and of the profit of the company for that period. (c) the directors have taken proper and sufficient care for the maintenance of adequate Accounting records in accordance with the provisions of this Act for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities. (d) the directors have prepared the annual accounts on a going concern basis. (e) the directors have laid down internal financial controls to be followed by the company and that said internal financial controls are adequate and were operating effectively, (f) the directors have devised proper systems to ensure compliance with the provisions of alt applicable laws and such systems were adequate and operating effectively. Particulars of Loans, Guarantees or Investments The company did not give any Loan or Guarantee or provide any security or make investment covered under Section 186 of the companies Act, 2013 during the year. Particulars of contracts or arrangements with Related Party The Corporate Governance Report contains relevant details on the nature of Related Party Transactions (RPTs) and the policy formulated by the Board on Material RPTs. Particulars of contracts or arrangements with related parties referred in Section 188(1) of the Companies Act, 2013 is furnished in accordance with Rule 8(2) of the Companies (Accounts) Rules, 2014 in Form AOC-2 (Annx-4). Material changes and commitments There is no change in the nature of business of the company during the year. There are no material changes and commitments in the business operations of the company since the close of the financial year on 31st March 2016 to the date of this report. Conservation of Energy etc. Information relating to conservation of energy, technology absorption and foreign exchange earnings and outgo as required under Section I34(3)(m) of the Companies Act, 2013 read with Rule 8 of the Companies (Accounts) Rates, 2014 is given in Annx-5. Corporate Social Responsibility (CSR) Section 135 of the Companies Act, 2013 has imposed CSR mandate on companies having minimum threshold limit of net worth, turnover or net profit as prescribed. Since the company does not meet any one of these criterion, it remains outside the purview of Sec. 135 and consequently the reporting requirements there under do not at present apply to us, The company however as a responsible corporate citizen has constituted a CSR Committee and formulated a CSR policy. Its CSR report on voluntary basis is furnished in Annx-6 forming part of this report. Particulars of Employees Information required pursuant to Section 197 read with Rule 5 of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is furnished in Annx-7. Adequacy of Internal Financial Control with reference to financial statements 1) The company maintains all its records in ERP system developed in-house and the work ftow and approvals are routed through this system, 2) The company has laid down adequate systems and well-drawn procedures for ensuring internal financial controls. It has appointed an external audit firm as internal auditors for periodically checking and monitoring the internal control measures. 3) Internal auditors are present at the Audit Committee meetings where internal audit reports are discussed alongside of management comments and the final observation of the internal auditor. 4) The Board of Directors have adopted various policies like Related Party Transactions Policy and Whistle Slower Policy and put in ptace budgetary control and monitoring measures for ensuring the orderly and efficient conduct of the business of the company, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records and the timely preparation of reliable financial information. Directors Mr N Gopala Ratnam retires by rotation at this meeting and being eligible offers himself for reappointment Ali the independent directors have given the declaration that they met the criteria on independence as laid down under Section 149(6) of the Companies Act, 2013. The performance evaluation of independent directors has been done by the entire Board of Directors, excluding the director being evaluated at its 19t,) March 2016 meeting. The Board on the basis of such performance evaluation determined to continue the term of appointment of all the independent directors who have been appointed by the company at its 18lh AGM for a fixed tenure till 315t March 2019. Auditors M/s Maharaj N R Suresh And Co. Chennai (Firm Registration IMo.001931S) shall cease to hold office at the conclusion of this 20lh Annual General Meeting having regard to the provisions of Section 139(2) of the companies Act, 2013, Your Board wish to place on record the excellent professional services received from them all along. M/s R Subramanian and Company have been appointed as statutory auditors of the company till the conclusion of 21£t AGM subject to ratification by members at every AGM. Accordingly requisite resolution for ratifying their appointment is proposed in the manner stated in the Notice for the 20rtl AGM. Particulars of statutory auditors, cost auditors, internal auditors and the secretarial audit have been given in the Corporate Governance Report that forms an integral part of this report. Secretarial Audit Report as required by Section 204(1) of the Companies Act, 2013 is attached (Annx-8). Acknowledgement Your company continues to receive good support from Central and State Government Departments, Banks and Financial Institutions, Customers and Suppliers. The company during the year has received commendable understanding and cooperation from its cane growers despite hostile challenges under egregious external environment. Your Board wish to convey its deep sense of appreciation and commendation for their unstinted support, Your Directors also commend the committed contribution of employees at all levels and the continuing understanding and patronage received from the shareholders. For Board of Directors N Gopala Ratnam Chairman Date : 27th May 2016 Place : Chennai |