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Kothari Sugars & Chemicals Ltd.

BSE: 507190 Sector: Agri and agri inputs
NSE: KOTARISUG ISIN Code: INE419A01022
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Kothari Sugars & Chemicals Ltd. (KOTARISUG) - Director Report

Company director report

To the Members

Your Directors present the 59th Annual Report of the Company together withthe Audited Financial Statements for the year ended March 31 2020.

Financial Summary & Highlights of the Company

Financial Performance 2019 - 2020 2018 - 2019
Net Revenue 35720 34956
Profit/(Loss) before Interest Depreciation 3266 4732
Interest 702 704
Depreciation 1297 1281
Exceptional items 634 (465)
Profit/(Loss) Before Tax 1901 2281
Tax Adjustments including Deferred Tax (40) 1010
Profit / (Loss) after Tax before comprehensive Income 1942 1271
Other Comprehensive Income Net of Tax 0.24 -2
Total Comprehensive Income 1942 1269

Sugar Industry Overview World Sugar:

The Sugar production in the world during 2019 - 2020 is expected to be around 180million MT as against 186 million MT in the previous year. The sugar consumption during2019 - 2020 is expected to be 186 million MT as against 185.6 million MT in the previousyear. The forthcoming sugar year 2020 - 2021 is also expected to be a deficit year.

India's sugar production for the Sugar Year 2019 - 2020 is expected to be 27million MT against previous year's 33.15 million MT. Lesser sugarcane production due toflood in one part and drought in other parts in Maharashtra and Southern India led to theoverall reduction in sugar production. As per the preliminary survey Sugar year 2020 -2021 is expected to be a surplus year for India as the production is expected to reacharound 30 million MT against the consumption of around 26.5 million MT.

Tamil Nadu sugar production in the sugar year 2019 - 2020 is expected to be around0.75 million MT against previous year's 0.86 million MT. Though last year's rainfall wasnormal the sugarcane cultivation has not picked up to the expected level because ofsevere drought faced during the past seven years which led to reduction in water table inmost part of the State.

The Company's command area has received normal rainfall in about 70% of areas and belownormal in the remaining area. The water table remains very low like previous years due tocontinuous and severe drought. This may affect cane availability besides adverselyaffecting sugar cane yield and recovery.

Performance of Business Segment Sugar

During the financial year 2019 - 2020 your Company crushed 668906 tons of cane andproduced 615620 quintals of sugar as against crushing of 661729 tons and sugarproduction of 621760 quintals in the previous year. Because of COVID-19 the sugar plantoperations were stopped in Kattur from 23rd March 2020 for 13 days and inSathamangalam from 26th March 2020 for 5 days and restarted on 7thApril 2020 in Kattur and 1st April 2020 in Sathamangalam based on thedirectives from the State Government. The average Sugar recovery was 9.04% duringfinancial year 2019 - 2020 as against 9.51% in the previous year.

Alcohol

Your Company in the financial year 2019 - 2020 produced 168.53 Lakh litres of alcoholagainst 154.62 Lakh litres in the previous year. The proactive steps taken by themanagement in procuring molasses from North India has helped to achieve this additionalproduction. Your Company has supplied 12 lakh litres of Ethanol to Oil Marketing Companiesduring the marketing year 2018 - 2019. Supply of 7 lakh litres of Ethanol during 2019 -2020 marketing year will be completed by June 2020.

Co-generation of Power

During financial year 2019 - 2020 the total power generation was 57.963 million unitsagainst 55.746 million units for the corresponding period of 2018 - 2019.

Dividend

The Board of Directors met on 17th June 2020 to take account of the fullyear performance various growth opportunities and the ongoing pandemic. After reviewingthis the Board of Directors has decided not to recommend any dividend for the year2019-2020 given the projects that have been lined up and the forward expansion plans.

Conservation of Energy / Technology Absorption / Foreign Exchange Earning and Outgo

(a) Conservation of Energy

Kattur unit

(i) Replacement of Dyno drives with Variable Frequency Drives for cane carrier and RakeElevator 1 & 2.

• Power consumption with Dyno drives (before modification) : 2160 kwh Per day
• Power consumption with VFD's (after modification) : 1440 kwh per day
• Total Power saving : 720 kwh per day

(ii) Replacement of high efficiency planetary drive for return conveyor

• Power consumption with worm type reduction gear drives (before modification.) : 288 kwh Per day
• Power consumption with planetary drive (after modification) : 192 kwh per day
• Total power saving : 96 kwh per day

(iii) Replacement of 2 Nos- Vacuum crystalliser's Worm type reduction drive withPlanetary drives

• Power consumption with worm type reduction drives ( before modification) : 168 kwh Per day
• Power consumption with Planetary drives (after modification) : 94 kwh per day
• Total Power saving : 74 kwh per day

Sathamangalam unit

(i) Installation of 37 kw - VFD drive for Boiler Feed water transfer Pump

SK condensate water was diverted directly to de-aerator. Hence the feed water transferpump 37 kw operated with 50% of speed and energy saved 25 kwh.

• Power Consumption ( before modification) : 888 kwh per day
• Power consumption (after modification) : 288 kwh per day
• Total power saving : 600 kwh per day

(ii) Installation of 37 kw - VFD drive for Clear Juice Pump

• Power consumption without VFD : 888 kwh per day
• Power consumption with VFD : 528 kwh per day
• Total power saving : 360 kwh per day

(b) Technology absorption

(i) Sugar colour at both Kattur and Sathamangalam plants has been improved to below 50ICUMSA level as against the industry norm of below 100 ICUMSA. This has been achievedthrough in-house R & D efforts. This is one of the best sugar colours achieved throughdouble-sulphitation process in the sugar industry.

(ii) The Company facilitated entrepreneurs in our sugarcane command area to procure 3nos of sugarcane harvesters during 2019 - 2020 financial year thereby became no.1 sugargroup in Tamilnadu operating more no. of harvesters and reducing the dependence on manuallabour for sugarcane harvest. This also reduces the cost of sugarcane cultivation to thefarmer.

(c) Ongoing projects

(i) Ethanol storage tanks:

As per the recently amended PESO (Petroleum and Explosives Safety Organisation) normsdistilleries are required to provide storage facilities separately for storing the ethanolproduced and have a license from PESO. In order to comply with these norms your Companyhas completed the installation of 2 storage tanks having capacity of 300 KL each.

(ii) Multi Effect Evaporator system:

In order to reduce the effluent (spent wash) quantity by 60% your Company installedand commissioned the multiple effect evaporator system in February'20. Concentrated spentwash from this evaporator system will be utilised for bio-compost manufacturing process.

(iii) Bio - Digester:

To meet the steam requirement of the proposed multiple effect evaporator system a newbio-digester has been installed in the distillery unit to generate additional bio-gas byusing the spent wash coming out from distillation plant. This additional bio-gas will beused in the boiler to generate additional steam to meet the steam demand of multipleeffect evaporator system. This system was commissioned during March'2020.

(d) Foreign exchange earnings and Outgo

Particulars 2019 - 2020 2018 - 2019
(i) Total Foreign Exchange earned - -
(ii) Total Foreign Exchange outflow 50.01 47.38

Awards and Recognition

(a) BHARATIYA Sugar Award:

Sathamangalam unit was awarded Best Overall Performance of Sugar Mill award for theyear 2018 - 2019.

(b) SISSTA Awards:

Sathamangalam unit was awarded in the following categories based on 2018 - 2019Operations:

(i) Golden Award - for “Best Sugarcane Development”.

(ii) Platinum Award - for “Best Technical Efficiency”.

New Products:

Though we have faced difficult time during the COVID-19 lockdown period to mobilise therequired manpower to operate our plants we could also foresee an opportunity for thesanitiser business. Your Company could start manufacturing and delivering the liquid handsanitiser from March 2020 after obtaining appropriate approvals under three brands namelySani-ko Sani-care and Sani-clean. The products have received immediate acceptance in themarket.

Board Meetings

During the year 04 Board Meetings and 04 Audit Committee Meetings were held thedetails of which are given in the Corporate Governance Report. The intervening gap betweentwo meetings was within the period as prescribed under the Companies Act 2013 and SEBI(Listing Obligations and Disclosure Requirements) Regulations 2015.

Directors and Key Managerial Personnel

Mr. Arjun B. Kothari (DIN 07117816) Director is liable to retire by rotation at theensuing Annual General Meeting and being eligible offers himself for re-appointment.

Mr. Arjun B. Kothari Managing Director Mr. M. Silvester Goldwin Whole Time DirectorMr. R. Krishnan Chief

Financial Officer and Mr. R. Prakash Company Secretary are the Key ManagerialPersonnel of the Company as per section 203 of the Companies Act 2013.

Declaration from Independent Directors

The Company has received necessary declaration from each Independent Director of theCompany under Section 149(7) of the Companies Act 2013 and Regulation 16 of the SEBI(LODR) Regulations 2015 that the Independent Directors of the Company meet the criteriaof their Independence laid down in Section 149(6) including the confirmations that theirnames inclusion in the Data Bank. During the year under review the Independent Directorsmet on February 13 2020 without the presence of NonIndependent Directors and members ofthe Management.

Composition of Audit Committee

The details of composition of Audit Committee are provided in Corporate GovernanceReport of this Annual Report. The Board has not rejected any proposal / recommendations ofAudit Committee during the year.

Remuneration Policy

The Board has on the recommendation of the Nomination & Remuneration Committeeframed a policy for selection and appointment of Directors Key Managerial Personnel andSenior Management and their remuneration. The salient features of the Remuneration Policyare stated in the Corporate Governance Report. The Remuneration Policy approved by theBoard of Directors is posted on the website of the Company www.hckotharigroup.com/kscl

Vigil Mechanism

The Company has a vigil mechanism named “Whistle Blower Policy” to deal withgenuine concerns if any raised by the Directors / Employees. The details of the WhistleBlower Policy are explained in the Corporate Governance Report and also posted on theCompany's website www.hckotharigroup.com/kscl

Prevention of Insider Trading

The Company has adopted a Code of Prevention of Insider Trading with a view to regulatetrading in securities by the Directors and the Designated Persons of the Company. The Coderequires pre-clearance for dealing in the Company's shares and prohibits the purchase orsale of Company shares by the Directors and the Designated Persons while in possession ofunpublished price sensitive information in relation to the Company and during the periodwhen the Trading Window is closed.

Directors' Responsibility Statement

In terms of Section 134(5) of the Companies Act 2013 the

Directors state that:

(a) in the preparation of the annual accounts the applicable accounting standards hadbeen followed along with proper explanation relating to material departures;

(b) the directors had selected such accounting policies and applied them consistentlyand made judgments and estimates that are reasonable and prudent so as to give a true andfair view of the state of affairs of the Company at the end of the financial year and ofthe profit and loss of the Company for that period;

(c) the directors had taken proper and sufficient care for the maintenance of adequateaccounting records in accordance with the provisions of this Act for safeguarding theassets of the Company and for preventing and detecting fraud and other irregularities;

(d) the directors had prepared the annual accounts on a going concern basis;

(e) the directors had laid down internal financial controls to be followed by theCompany and that such internal financial controls are adequate and were operatingeffectively; and

(f) the directors had devised proper systems to ensure compliance with the provisionsof all applicable laws and that such systems were adequate and operating effectively.

Share Capital

The paid-up equity share capital of the Company as on March 31 2020 was ' 8288.86Lakhs. The Company has neither issued any shares with differential voting rights norgranted stock options or sweat equity.

Sale of Investment made in the group Company

After careful consideration and assessing the requirement of funds for managing thecash crunch and for meeting the working capital and also for internal debt restructuringprocess during the financial year 2019 - 2020 the Company has divested its existinginvestments of 10.30 % in M/s. Kothari Petrochemicals Limited (KPL). The disposal was doneon the market value which realised ' 10.03 Crores.

Repayment of outstanding Zero-Coupon Bonds / Debentures and Term Loans

As per the requirement of AAIFR's sanctioned order interest free Zero Coupon Bonds /Debentures / Term Loans were repayable during June 2007 to June 2014 in 28 quarterlyinstalments and another tranche of repayment on the expiry of 25 years from the date ofsanction of the Scheme i.e. by end of June 2029. The first tranche of loan repaymentduring June 2007 to June 2014 were fully discharged in favour of the lenders amounting to' 34.75 Crores. The second tranche of outstanding amount of debts payable during Jun 2029is ' 34.75 Crores.

After considering all factors including the falling rate of returns in Mutual Fundinvestments the capability of servicing the full repayment of ' 34.75 crore in the formof Term Loans and Debentures / Zero Coupon Bonds in 2029 it was considered prudent toliquidate the required level of investments to meet the one-time settlement of alloutstanding debenture ZCB and secured/unsecured loan due to body corporates at thediscounted rate ranging from 6.50% to 6.75 % as mutually agreed between the Company andits Lenders based on the current benchmark interest levels. The resultant outflow onaccount of this as full and final settlement was around ' 19.92 crores.

Extract of Annual Return

As required under section 92(3) of the Companies Act 2013 and Rule 12(1) of theCompanies (Management and Administration) Rules 2014 an extract of Annual Return in MGT- 9 is attached as a part of this Annual Report.

Auditors

a) Statutory Auditors

M/s. P. Chandrasekar LLP Chartered Accountants (Registration No.000580S/S200066) havebeen appointed as statutory auditors of the Company till the conclusion of 61stAnnual General Meeting.

As required under SEBI (Listing Obligations and Disclosure Requirements) Regulations2015 the Auditors have confirmed that they hold a valid certificate issued by the PeerReview Board of the Institute of Chartered Accountants of India.

b) Cost Auditor

Pursuant to Section 148 of the Companies Act 2013 read with the Companies (CostRecords and Audit) Amendment Rules 2014 the Cost Audit Records maintained by the Companyin respect of its Sugar Co-gen and Distillery Unit are required to be audited. YourDirectors on the recommendation of the Audit Committee appointed Mr. K. SuryanarayananCost Accountant in Practice for conducting the audit of cost records of the Company andthe remuneration payable to the Cost Auditor is required to be ratified by the Members ina general meeting. Accordingly a Resolution seeking Member's ratification for theremuneration payable to Mr. K. Suryanarayanan Cost Accountant is included at Item No. 03of the Notice convening this Annual General Meeting.

c) Secretarial Auditor

Pursuant to the provisions of Section 204 of the Companies Act 2013 and the Companies(Appointment and Remuneration of Managerial Personnel) Rules 2014 the Company hasappointed Mr. M. Alagar of M/s. M. Alagar and Associates Chennai Company Secretary inPractice to undertake the Secretarial Audit of the Company. The Secretarial Audit Reportis forming part of this Annual Report. The Secretarial Report does not contain anyqualification or observations.

Deposits

The Company has not accepted deposits either from the members or public falling withinthe ambit of Chapter V of the Companies Act 2013 and The Companies (Acceptance ofDeposits) Rules 2014 during the year hence there were no outstanding deposits duringand at the end of the financial year 2019 - 2020.

Significant and Material Orders Passed by the Regulators

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

Internal Financial Control Systems and their Adequacy

The Company has an Internal Control System commensurate with the size scale andcomplexity of its operations. The Internal Audit function is carried out by an independentfirm of Chartered Accountants. The scope and authority of the Internal Audit function isdefined by the Audit Committee. The Internal Audit Reports are placed before the AuditCommittee for its scrutiny and suggestions if any. The Internal Auditor attends the AuditCommittee meetings. The Internal Auditors monitor and evaluate the efficacy and adequacyof the internal control system in the Company its compliance with operating systemsaccounting procedures and policies at all locations of the Company. Based on the Report ofthe Internal Auditors the Company undertakes corrective action in the respective areasand strengthens the controls.

Particulars of Loans Guarantees or Investments

The Company has not given any Loans or Guarantees covered under the provisions ofsection 186 of the Companies Act 2013. The details of the general investments made by theCompany are given in the notes to the financial statements.

Risk Management

Pursuant to the requirement of SEBI (Listing Obligations and Disclosure Requirements)Regulations 2015 the Company has laid down the procedures to inform Board Members aboutthe risk assessment and minimization procedures. Accordingly the Company periodicallysubmits the Risk Management Review Report to the Board for its review and suggestions.

Corporate Social Responsibility Policy

Pursuant to the provisions of section 135 and schedule VII of the Companies Act 2013Corporate Social Responsibility (CSR) Committee was formed to recommend (a) the policy onCorporate Social Responsibility (CSR) and (b) implementation of the CSR Projects orPrograms to be undertaken by the Company as per CSR Policy for consideration and approvalby the Board of Directors. The policy on Corporate Social Responsibility as approved bythe Board is posted on the Company's website www.hckotharigroup.com/kscl

As part of its initiatives under “Corporate Social Responsibility” (CSR) theCompany has contributed funds for the schemes for promotion of education. Thecontributions in this regard have been made to a Registered Trust which is undertakingthese schemes. A detailed Report on CSR activities in the prescribed format is formingpart of this Annual Report.

Related Party Transactions

All related party transactions entered during the financial year were on an arm'slength basis and in the ordinary course of business. There were no 'material' contracts orarrangements or transactions and therefore disclosure in form AOC-2 is not required.

All Related Party Transactions are placed before the Audit Committee and the Board forapproval. Prior omnibus approval of the Audit Committee is obtained for the transactionswhich are foreseen and repetitive in nature. For all the transactions entered pursuant tothe omnibus approval so granted a statement giving details of all such transactions isplaced before the Audit Committee for their approvals on a quarterly basis.

The policy on Related Party Transactions as approved by the Board is posted on theCompany's website www.hckotharigroup.com/kscl.

Annual Performance Evaluation

Pursuant to the provisions of the Companies Act 2013 and SEBI (Listing Obligations andDisclosure Requirements) Regulations 2015 the Board has carried out the AnnualPerformance Evaluation of the Board its Committees and of individual directors in theformat (questionnaire) prescribed by the Nomination and Remuneration Committee of theCompany.

The structured questionnaire covers various aspects of the Board's functioning such asadequacy of the composition of the Board and its Committees Board culture execution andperformance of specific duties obligations and governance. The performance evaluation ofthe Directors (without participation of the relevant Director) was carried out by theentire Board. The Directors expressed their satisfaction with the evaluation process.

Separate Meeting of Independent Directors

The Independent Directors of the Company had met during the year to review theperformance of Non-Independent Directors and the Board as a whole reviewed theperformance of the Chairperson of the Company and also assessed the quality quantity andtimeliness of flow of information between the Company Management and the Board without thepresence of the Non-Independent Directors and members of the Management.

Disclosure about Cost Audit

Filing of Cost Audit Report 2019-2020 2018-2019
Due Date 27.09.2020 27.09.2019
Actual Date 30.08.2020 (Tentatively) 29.08.2019
Cost Auditor Details Mr. K. Suryanarayanan M.No. 24946 Chennai Mr. K. Suryanarayanan M.No. 24946 Chennai
Audit Qualification in Report Nil Nil

Listing with Stock Exchanges

The Company is listed in The National Stock Exchange of India Limited (NSE) and theStock Code is KOTARISUG & ISIN INE419A01022. The Company confirms that it has paid theAnnual Listing Fees for the year 2020 - 2021 to NSE where the Company's Shares are listed.

Corporate Governance and Shareholders Information

Your Company has taken adequate steps to adhere to all the stipulations laid down inthe SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015. A report onCorporate Governance is included as a part of this Annual Report. All applicableSecretarial Standards have been complied.

Certificate from the Practising Company Secretary confirming the compliance with theconditions of Corporate Governance as stipulated under SEBI (Listing Obligations andDisclosure Requirements) Regulations 2015 is attached to this Report.

Management Discussion and Analysis Report A detailed discussion on the industrystructure (dealing with world sugar and Indian sugar) as well as on the financial andoperational performance is contained in the 'Management Discussion and Analysis Report'that forms an integral part of this Report.

Particulars of Employees

Disclosures pertaining to remuneration and other details as required under Section 197(12) of the Companies Act 2013 read with Rule 5 of the Companies (Appointment andRemuneration of Managerial Personnel) Rules 2014 are provided in the Annual Report.

PARTICULARS PURSUANT TO SECTION 197(12) AND THE RELEVANT RULES:

a) The ratio of the remuneration of each director to the median employee's remunerationfor the financial year and such other details: Except Mr. Arjun B. Kothari ManagingDirector and Mr. M. Silvester Goldwin Whole Time Director of the Company no otherdirector was in receipt of remuneration except sitting fees.

Name Designation Ratio
(i) Mr. Arjun B. Kothari (*) Managing Director 20:1
(ii) Mr. M. Silvester Goldwin Whole Time Director 22:1

(*) Mr. Arjun B. Kothari was re-appointed as Managing Director with effect fromSeptember 012019.

b) The percentage increase in remuneration of each Director Chief Financial OfficerChief Executive Officer Company Secretary or Manager if any in the financial year:

Name Designation Percentage of Increase
(i) Mr. Arjun B. Kothari Managing Director -
(ii) Mr. M. Silvester Goldwin Whole Time Director 14%
(iii) Mr. R. Krishnan Chief Financial Officer 12%
(iv) Mr. R. Prakash Company Secretary 12%

c) 7.28% increase has been reported in the median remuneration of employees in thefinancial year.

d) The number of permanent employees on the rolls of the company as on 31stMarch 2020 : 476.

e) Average percentile increase already made in the salaries of employee's other thanthe managerial personnel in the last financial year and its comparison with the percentileincrease in the managerial remuneration and justification thereof and any exceptionalcircumstances for increase in the managerial remuneration.

Increase of remuneration for employees was in the varying range of 6 to 20% and for KMPthe increase was in the varying range of 12 to 14% for the year.

f) We affirm that the remuneration paid during the period under review is as per theRemuneration Policy of the company.

Cautionary Statement

Statements in this Report particularly those which relate to Management Discussion andAnalysis describing the Company's objectives projections estimates and expectations mayconstitute 'forward looking statements' within the meaning of applicable laws andregulations. Actual results may differ from those either expressed or implied in thestatement depending on the circumstances.

Acknowledgement

Your Directors thank the Banks Customers Debenture / ZCB Holders Farmers FinancialInstitutions Government Authorities Suppliers and Shareholders for their continuedsupport. Your directors also place on record their appreciation for the services renderedby the employees of the Company.

On behalf of the Board
for Kothari Sugars and Chemicals Limited
Place : Chennai Nina B. Kothari
Date : June 17 2020 Chairperson