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Dharani Sugars & Chemicals Ltd.

BSE: 507442 Sector: Agri and agri inputs
NSE: DHARSUGAR ISIN Code: INE988C01014
BSE 00:00 | 22 Jan 7.79 -0.08
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7.70

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7.80

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7.48

NSE 00:00 | 22 Jan 7.65 -0.15
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OPEN

7.65

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8.00

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7.45

OPEN 7.70
PREVIOUS CLOSE 7.87
VOLUME 3261
52-Week high 13.99
52-Week low 5.55
P/E
Mkt Cap.(Rs cr) 26
Buy Price 7.65
Buy Qty 3.00
Sell Price 7.79
Sell Qty 1591.00
OPEN 7.70
CLOSE 7.87
VOLUME 3261
52-Week high 13.99
52-Week low 5.55
P/E
Mkt Cap.(Rs cr) 26
Buy Price 7.65
Buy Qty 3.00
Sell Price 7.79
Sell Qty 1591.00

Dharani Sugars & Chemicals Ltd. (DHARSUGAR) - Auditors Report

Company auditors report

TO THE MEMBERS OF DHARANI SUGARS AND CHEMICALS LIMITED

Report on the audit of the financial Statements Opinion

We have audited the financial statements of Dharani Sugars and Chemicals Limited("the Company") which comprise the balance sheet as at March 31 2019 and thestatement of profit and loss (including other comprehensive income) the statement ofchanges in equity and the statement of cash flows for the year then ended and notes tothe financial statements including a summary of significant accounting policies and otherexplanatory information.

In our opinion and to the best of our information and according to the explanationsgiven to us the aforesaid financial statements give the information required by theCompanies Act 2013 ("Act") in the manner so required and give a true and fairview in conformity with the accounting principles generally accepted in India of thestate of affairs of the Company as at March 31 2019 and its profit total comprehensiveincome the changes in equity and cash flows for the year ended as on that date.

Basis for opinion

We conducted our audit in accordance with the standards on auditing (SAs) specifiedunder section 143 (10) of the Act. Our responsibilities under those standards are furtherdescribed in the auditor's responsibilities for the audit of the financial statementssection of our report. We are independent of the Company in accordance with the code ofethics issued by the Institute of Chartered Accountants of India (ICAI) together with theethical requirements that are relevant to our audit of the financial statements under theprovisions of the Act and the rules thereunder and we have fulfilled our other ethicalresponsibilities in accordance with these requirements and the ICAI's code of ethics.

We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our opinion.

Material Uncertainty Related to Going Concern

The Company's net worth is negative and the borrowings from banks and financialinstitutions have been classified by the lenders as non-performing assets during the year.We understand from the management that the poor performance of the Company is mainly dueto low availability of sugarcane for crushing as planting areas are being continuouslyreduced due to continuous draught and the general slowdown in sugar industry due tofactors like failure of monsoon varietal degeneration reduced recovery decline in areaunder cultivation and the resultant reduction in capacity utilisation of sugar mills.

This being a general industry issue a formal representation was made by the SouthIndian Sugar Mills Association (SISMA) in which the Company is a member to the Hon'blePrime Minister and the Chief Minister of Tamil Nadu for announcing revival packages forthe sugar industry. SISMA expects that its demands will be considered by the Central andState Governments favourably.

On a petition led by the Company and others the Hon'ble Supreme Court of Indiadeclared the RBI circular of February 12 2018 as "ultra-vires Section 35AA of theBanking Regulation Act". The Company has submitted a resolution plan to theconsortium banks for restructuring the loans and the consortium banks have suggested tothe Company to plan for a One Time Settlement (OTS) of the loans. The lenders agreed toinitiate fresh valuations for plant and machineries of all the three units. Subsequent tothe balance sheet date few banks issued notice to recall the loans. We understand thatthe Company is in the process of appropriately replying to the notices. The next hearingof the consortium banks is expected to be in June 2019. We were informed that the Companyis also in the process of identifying alternative plans to initiate the OTS with thebanks. Pending submission of the OTS/ other alternative resolution plans a decision isyet to be taken by the lenders regarding restructuring of the Company's borrowings.

The above factors cast a significant uncertainty on the Company's ability to continueas a going concern. Pending the resolution of the above uncertainties the Company hasprepared the aforesaid statement on a going concern basis.

Key audit matters

Key audit matters are those matters that in our professional judgment were of mostsignificance in our audit of the financial statements of the current period. These matterswere addressed in the context of our audit of the financial statements as a whole and informing our opinion thereon and we do not provide a separate opinion on these matters.

In addition to the matter described in the Material Uncertainty Related to GoingConcern section we have determined the matters described below to be the key auditmatters to be communicated in our report.

(a) Adoption of new revenue recognition standard Ind AS 115

Details of the Key Audit Matter

The Company adopted Ind AS 115 "Revenue from Contracts with Customers" witheffect from April 1 2018. The application of the new revenue accounting standard involvescertain key judgements relating to identification of distinct performance obligationsdetermination of transaction price of the identified performance obligations and point ofrecognition of revenue. Ind AS 115 also requires extensive disclosures.

Auditors' Response to the Key Audit Matter

We assessed the Company's process to identify the impact of adoption of the new revenueaccounting standard (Ind AS 115).

Our audit approach consisted testing of the design and operating effectiveness of theinternal controls and substantive testing as follows:

(a) Evaluated the design of internal controls relating to implementation of the newrevenue accounting standard.

(b) Selected a sample of continuing and new contracts and tested the operatingeffectiveness of the internal control relating to identification of the distinctperformance obligations and determination of transaction price.

(c) Selected a sample of continuing and new contracts and performed the followingprocedures:

• Read analysed and identified the distinct performance obligations in thesecontracts.

• Compared these performance obligations with that identified and recorded by theCompany.

• Considered the terms of the contracts to determine the transaction priceincluding any variable consideration to verify the transaction price used to computerevenue and to test the basis of estimation of the variable consideration.

Performed analytical procedures for reasonableness of revenue recognition as per Ind AS115.

(b) Dues from TANGEDCO

Description of Key Audit Matter

Trade receivables includes Rs.2829.23 Lakhs due from TANGEDCO is outstanding for morethan 1 year. The Company is following up for recovery of the same and initiated therequired steps. The Company is also initiated steps through South Indian Sugar MillsAssociation (SISMA) to represent to the Government of Tamilnadu for instructing TANGEDCOto pay the dues.

Since these are due from Government Undertakings and are arising from contractualobligation of those undertakings in the opinion of the management no allowance forexpected credit loss is considered required.

Auditors' Response to the Key Audit Matter

We assessed the Company's process to identify the recoverability of trade receivables.

Our audit approach consisted testing of the design and operating effectiveness of theinternal controls and substantive testing as follows:

(a) Evaluated the design of internal controls relating to evaluation of credit risk intrade receivables.

(b) Selected a sample of contracts with TANGEDCO and performed the followingprocedures:

• Read analysed and identified the terms of the contract and the contractualobligations of the customer

• Compared the results with those identified and recorded by the Company.

• Considered the terms of the contracts to determine whether the amountsrecognised in the earlier years is as per the contract terms agreed by the customer.

• Obtained and evaluated management estimation of future recoverabilityconsidering the sovereignty of the Government of Tamilnadu and management conclusion thatit is only a case of delay in collection and no amount will become bad

• Obtain an understanding that this is a general issue of the industry and ongoingfollow-up is being made with TANGEDCO and the Government of Tamilnadu.

Information other than the financial statements and auditors' report thereon

The Company's board of directors is responsible for the preparation of the otherinformation. The other information comprises the information included in the ManagementDiscussion and Analysis Board's Report including Annexures to Board's Report BusinessResponsibility Report Corporate Governance and Shareholder's Information but does notinclude the financial statements and our auditor's report thereon.

Our opinion on the financial statements does not cover the other information and we donot express any form of assurance conclusion thereon.

In connection with our audit of the financial statements our responsibility is to readthe other information and in doing so consider whether the other information ismaterially inconsistent with the standalone financial statements or our knowledge obtainedduring the course of our audit or otherwise appears to be materially misstated.

If based on the work we have performed we conclude that there is a materialmisstatement of this other information we are required to report that fact. We havenothing to report in this regard.

Management's responsibility for the financial statements

The Company's board of directors is responsible for the matters stated in section 134(5) of the Act with respect to the preparation of these financial statements that give atrue and fair view of the financial position financial performance including othercomprehensive income cash flows and changes in equity of the Company in accordance withthe Indian Accounting Standards (Ind AS) prescribed under section 133 of the Act read withthe Companies (Indian Accounting Standards) Rules 2015 as amended from time to time andother accounting principles generally accepted in India.

This responsibility also includes maintenance of adequate accounting records inaccordance with the provisions of the Act for safeguarding of the assets of the Companyand for preventing and detecting frauds and other irregularities; selection andapplication of appropriate accounting policies; making judgments and estimates that arereasonable and prudent; and design implementation and maintenance of adequate internalfinancial controls that were operating effectively for ensuring the accuracy andcompleteness of the accounting records relevant to the preparation and presentation ofthe financial statements that give a true and fair view and are free from materialmisstatement whether due to fraud or error.

In preparing the financial statements management is responsible for assessing theCompany's ability to continue as a going concern disclosing as applicable mattersrelated to going concern and using the going concern basis of accounting unless managementeither intends to liquidate the Company or to cease operations or has no realisticalternative but to do so.

The board of directors are also responsible for overseeing the Company's financialreporting process.

Auditor's responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financialstatements as a whole are free from material misstatement whether due to fraud or errorand to issue an auditor's report that includes our opinion. Reasonable assurance is a highlevel of assurance but is not a guarantee that an audit conducted in accordance with SAswill always detect a material misstatement when it exists. Misstatements can arise fromfraud or error and are considered material if individually or in the aggregate theycould reasonably be expected to influence the economic decisions of users taken on thebasis of these financial statements.

As part of an audit in accordance with SAs we exercise professional judgment andmaintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the financialstatements whether due to fraud or error design and perform audit procedures responsiveto those risks and obtain audit evidence that is sufficient and appropriate to provide abasis for our opinion. The risk of not detecting a material misstatement resulting fromfraud is higher than for one resulting from error as fraud may involve collusionforgery intentional omissions misrepresentations or the override of internal control.

• Obtain an understanding of internal controls relevant to the audit in order todesign audit procedures that are appropriate in the circumstances. Under section 143(3)(i)of the Companies Act 2013 we are also responsible for expressing our opinion on whetherthe company has adequate internal financial controls system in place and the operatingeffectiveness of such controls

• Evaluate the appropriateness of accounting policies used and the reasonablenessof accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management's use of the going concern basisof accounting and based on the audit evidence obtained whether a material uncertaintyexists related to events or conditions that may cast significant doubt on the Company'sability to continue as a going concern. If we conclude that a material uncertainty existswe are required to draw attention in our auditor's report to the related disclosures inthe financial statements or if such disclosures are inadequate to modify our opinion.Our conclusions are based on the audit evidence obtained up to the date of our auditor'sreport. However future events or conditions may cause the Company to cease to continue asa going concern.

• Evaluate the overall presentation structure and content of the financialstatements including the disclosures and whether the financial statements represent theunderlying transactions and events in a manner that achieves fair presentation.

Materiality is the magnitude of misstatements in the financial statements thatindividually or in aggregate makes it probable that the economic decisions of areasonably knowledgeable user of the financial statements may be influenced. We considerquantitative materiality and qualitative factors in (i) planning the scope of our auditwork and in evaluating the results of our work; and (ii) to evaluate the effect of anyidentified misstatements in the financial statements.

We communicate with those charged with governance regarding among other matters theplanned scope and timing of the audit and significant audit findings including anysignificant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have compliedwith relevant ethical requirements regarding independence and to communicate with themall relationships and other matters that may reasonably be thought to bear on ourindependence and where applicable related safeguards.

From the matters communicated with those charged with governance we determine thosematters that were of most significance in the audit of the financial statements of thecurrent period and are therefore the key audit matters. We describe these matters in ourauditor's report unless law or regulation precludes public disclosure about the matter orwhen in extremely rare circumstances we determine that a matter should not becommunicated in our report because the adverse consequences of doing so would reasonablybe expected to outweigh the public interest benefits of such communication.

Report on other legal and regulatory requirements

As required by the Companies (Auditor's Report) Order 2016 ("the Order")issued by the Central Government of India in terms of sub-section (11) of section 143 ofthe Companies Act 2013 we give in Annexure "A" a statement on the mattersspecified in paragraphs 3 and 4 of the Order.

As required by Section 143(3) of the Act we report that:

(a) We have sought and obtained all the information and explanations which to the bestof our knowledge and belief were necessary for the purposes of our audit;

(b) In our opinion proper books of account as required by law have been kept by theCompany so far as it appears from our examination of those books;

(c) The balance sheet the statement of profit and loss including other comprehensiveincome statement of changes in equity and the statement of cash flow dealt with by thisreport are in agreement with the books of account;

(d) In our opinion the aforesaid financial statements comply with the IndianAccounting Standards specified under Section 133 of the Act;

(e) On the basis of the written representations received from the directors as on March31 2019 taken on record by the Board of Directors none of the directors is disqualifiedas on March 31 2019 from being appointed as a director in terms of Section 164 (2) of theAct;

(f) With respect to the adequacy of the internal financial controls over financialreporting of the Company and the operating effectiveness of such controls refer to ourseparate report in "Annexure B". Our report expresses an unmodified opinion onthe adequacy and operating effectiveness of the Company's internal financial controls overfinancial reporting;

(g) With respect to the other matters to be included in the Auditor's Report inaccordance with the requirements of section 197 (16) of the Act as amended in ouropinion and to the best of our information and according to the explanations given to usthe remuneration paid by the Company to its directors during the year is in accordancewith the provisions of section 197 of the Act; and

(h) With respect to the other matters to be included in the Auditor's Report inaccordance with Rule 11 of the Companies (Audit and Auditors) Rules 2014 in our opinionand to the best of our information and according to the explanations given to us: a. TheCompany has disclosed the impact of pending litigations on its financial position in itsfinancial statements Refer Note 40 to the financial statement b. The Company has madeprovision as required under the applicable law or accounting standards for materialforeseeable losses if any on long-term contracts including derivative contracts; and c.While there has been no delay in transferring amounts required to be transferred to theInvestor Education and Protection Fund by the Company the related shares could not betransferred due to technical issues. We were informed that the Company is taking necessarysteps in this regard.

For CNGSN & Associates LLP
Chartered Accountants
Firm Registration No.004915S/ S200036
(CHINNSAMY GANESAN)
Place: Chennai - 34 Partner
Date: 28th May 2019 Membership No. 027501

ANNEXURE A TO INDEPENDENT AUDITOR'S REPORT

(Referred to in paragraph 1 under ‘Report on other legal and regulatoryrequirements' section of our report to the members of Dharani Sugars and Chemicals Limitedof even date)

1. In respect of the Company's fixed assets:

(a) The Company has maintained proper records showing full particulars includingquantitative details and situation of fixed assets.

(b) The Company has a program of verification to cover all the items of fixed assets ina phased manner over a period of three years which in our opinion is reasonable havingregard to the size of the Company and the nature of its assets.

Pursuant to the program certain fixed assets were physically verified by themanagement during the year. According to the information and explanations given to us nomaterial discrepancies were noticed on such verification

(c) According to the information and explanations given to us the records examined byus and based on the examination of the conveyance deeds provided to us we report thatthe title deeds comprising all the immovable properties of land and buildings which arefreehold are held in the name of the Company as at the balance sheet date.

In respect of immovable properties of land and building that have been taken on leaseand disclosed as fixed assets in the financial statements the lease agreements are in thename of the Company.

2. The inventory has been physically verified by the management during the year. In ouropinion the frequency of such verification is reasonable. According to the informationand explanations given to us and as examined by us no material discrepancies were noticedon such verification.

3. According to information and explanation given to us the company has not grantedany loan secured or unsecured to companies firms limited liability partnerships orother parties covered in the register required under section 189 of the Companies Act2013. Accordingly paragraph 3 (iii) of the order is not applicable.

4. In our opinion and according to information and explanation given to us the companyhas not granted any loans or provided any guarantees or given any security to which theprovision of section 185 of the companies Act are applicable.

In respect of investments made by the Company the Company had complied with theprovisions of section 186 of the Companies Act 2013.

5. In our opinion and according to the information and explanations given to us thecompany has not accepted any deposits and accordingly paragraph 3 (v) of the order is notapplicable.

6. We have broadly reviewed the books of account maintained by the Company pursuant tothe rules made by the Central Government for the maintenance of cost records under section148 of the Act and are of the opinion that prima facie the prescribed accounts andrecords have been made and maintained. However we have not carried out a detailedexamination of the same.

7. According to the information and explanations given to us in respect of statutorydues:

(a) The Company has generally been regular in depositing undisputed statutory duesincluding provident fund employees' state insurance income tax sales tax service taxvalue added tax goods and services tax customs duty excise duty cess and othermaterial statutory dues applicable to it with the appropriate authorities;

(b) There were no undisputed amounts payable in respect of provident fund employees'state Insurance income tax sales tax service tax value added tax goods and servicestax customs duty excise duty cess and other material statutory dues in arrears as atMarch 31 2019 for a period of more than six months from the date they became payable; and

(c) The details of dues of income tax sales tax service tax excise duty goods andservices tax and value added tax which have not been deposited as at March 31 2019 onaccount of dispute are given below:

Name of the Statute Nature of dues Amount (Rs. in lakhs) Period to which the amount relates Forum where the dispute is pending
Finance Act 1994 Service Tax on Goods Transport Agency 87.95 April 2008 to April 2013 CESTAT - Chennai
Central Excise Act 1944 CENVAT credit on Capital goods 85.37 Sep 2008 to Feb 2010 CESTAT- Chennai

8. According to the information and explanation given to us and records examined by usthe Company has defaulted in repayment of dues to banks financial institutions andgovernment as detailed in Appendix I to this report. The Company does not have any dues todebenture holders during the year.

9 In our opinion and according to the information and explanations given to us theterm loans taken by the Company have been applied for the purpose for which they wereraised. The Company has not raised any money by way of initial public offer or furtherpublic offer (including debt instruments) during the year

10 To the best of our knowledge and according to the information and explanations givento us no fraud by the Company or no material fraud on the Company by its of cers oremployees has been noticed or reported during the year.

11 In our opinion and according to the information and explanations given to us theCompany has paid/ provided managerial remuneration in accordance with the requisiteapprovals mandated by the provisions of section 197 read with Schedule V to the Act.

12 The Company is not a Nidhi Company and accordingly Paragraph 3 (xii) of the orderis not applicable to the Company.

13 According to the information and explanations given to us and based on ourexamination of the records of the company transactions with the related parties are incompliance with section 177 and 188 of the Act. Where applicable the details of suchtransactions have been disclosed in the financial statements as required by the applicableaccounting standards.

14 According to the information and explanations given to us and based on ourexamination of the records of the company the company has not made any preferentialallotment or private placement of shares or fully or partly convertible debentures duringthe year. Accordingly paragraph 3(xiv) of the order is not applicable.

15 According to the information and explanations given to us and based on ourexamination of the records of the company the company has not entered into non-cashtransactions with directors or persons connected with them. Accordingly paragraph 3(xv)of the order is not applicable.

16 According to the information and explanations given to us and based on ourexamination of the records of the company the company is not required to be registeredunder section 45-IA of the Reserve Bank of India Act 1934.

For CNGSN & Associates LLP
Chartered Accountants
Firm Registration No.004915S/ S200036
(CHINNSAMY GANESAN)
Place : Chennai - 34 Partner
Date : 28th May 2019 Membership No. 027501

Annexure "B" to the Independent Auditor's Report

(Referred to in paragraph 2 (f) under ‘Report on other legal and regulatoryrequirements' section of our report to the Members of Dharani Sugars and Chemicals Limitedof even date)

Report on the internal financial controls over financial reporting under clause (i) ofsub - section 3 of section 143 of the Companies Act 2013 ("the Act")

We have audited the internal financial controls over financial reporting of DharaniSugars and Chemicals Limited ("the Company") as at March 31 2019 inconjunction with our audit of the financial statements of the Company for the year endedon that date.

Management's responsibility for internal financial controls

The board of directors of the Company is responsible for establishing and maintaininginternal financial controls based on the internal control over financial reportingcriteria established by the Company considering the essential components of internalcontrol stated in the Guidance Note on Audit of Internal Financial Controls Over FinancialReporting issued by the Institute of Chartered Accountants of India. Theseresponsibilities include the design implementation and maintenance of adequate internalfinancial controls that were operating effectively for ensuring the orderly and efficientconduct of its business the safeguarding of its assets the prevention and detection offrauds and errors the accuracy and completeness of the accounting records and the timelypreparation of reliable financial information as required under the Companies Act 2013.

Auditors' responsibility

Our responsibility is to express an opinion on the internal financial controls overfinancial reporting of the Company based on our audit. We conducted our audit inaccordance with the Guidance Note on Audit of Internal Financial Controls Over FinancialReporting (the "Guidance Note") issued by the Institute of Chartered Accountantsof India and the standards on auditing prescribed under Section 143 (10) of the CompaniesAct 2013 to the extent applicable to an audit of internal financial controls. Thosestandards and the guidance note require that we comply with ethical requirements and planand perform the audit to obtain reasonable assurance about whether adequate internalfinancial controls over financial reporting were established and maintained and if suchcontrols operated effectively in all material respects.

Our audit involves performing procedures to obtain audit evidence about the adequacy ofthe internal financial controls system over financial reporting and their operatingeffectiveness. Our audit of internal financial controls over financial reporting includedobtaining an understanding of internal financial controls over financial reportingassessing the risk that a material weakness exists and testing and evaluating the designand operating effectiveness of internal control based on the assessed risk. The proceduresselected depend on the auditor's judgement including the assessment of the risks ofmaterial misstatement in the financial statements whether due to fraud or error.

We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our audit opinion on the Company's internal financial control systemover financial reporting.

Meaning of internal financial controls over financial reporting

A company's internal financial control over financial reporting is a process designedto provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generallyaccepted accounting principles. A company's internal financial control over financialreporting includes those policies and procedures that (i) pertain to the maintenance ofrecords that in reasonable detail accurately and fairly reflect the transactions anddispositions of the assets of the company; (ii) provide reasonable assurance thattransactions are recorded as necessary to permit preparation of financial statements inaccordance with generally accepted accounting principles and that receipts andexpenditures of the company are being made only in accordance with authorisations ofmanagement and directors of the company; and (iii) provide reasonable assurance regardingprevention or timely detection of unauthorised acquisition use or disposition of thecompany's assets that could have a material effect on the financial statements.

Limitations of internal financial controls over financial reporting

Because of the inherent limitations of internal financial controls over financialreporting including the possibility of collusion or improper management of override ofcontrols material misstatements due to error or fraud may occur and not be detected.Also projections of any evaluation of the internal financial controls over financialreporting to future periods are subject to the risk that the internal financial controlover financial reporting may become inadequate because of changes in conditions or thatthe degree of compliance with the policies or procedures may deteriorate.

Opinion

In our opinion and according to the information and explanations given to us theCompany has in all material respects an adequate internal financial control system overfinancial reporting and such internal financial controls over financial reporting wereoperating effectively as at March 31 2019 based on the internal control over financialreporting criteria established by the Company considering the essential components ofinternal control stated in the Guidance Note on Audit of Internal Financial Controls OverFinancial Reporting issued by the Institute of Chartered Accountants of India.

For CNGSN & Associates LLP
Chartered Accountants
Firm Registration No.004915S/ S200036
(CHINNSAMY GANESAN)
Place : Chennai - 34 Partner
Date : 28th May 2019 Membership No. 027501