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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 58th Annual Report of the Company together withthe Audited Financial Statements for the year ended March 31 2019.

Financial Summary & Highlights of the Company (Rs. in Lakhs)
Financial Performance 2018 - 2019 2017 - 2018
Net Revenue 34956 29526
Profit/(Loss) before Interest Depreciation 4732 3320
Interest 704 650
Depreciation 1281 1386
Exceptional items 465 1018
Profit/(Loss) Before Tax 2281 267
Tax Adjustments including Deferred Tax 1010 219
Profit / (Loss) after Tax before comprehensive Income 1271 48
Other Comprehensive Income Net of Tax -2 -2
Total Comprehensive Income 1269 46
Appropriations:
Balance Carried Forward 1269 46

 

Operational Review and State of Affairs
Production Performance 2018 - 2019 2017 - 2018
Cane Crushed (tons) 661729 550416
Sugar Recovery (%) 9.51 9.19
Sugar Produced from cane (Qtls) 621760 509860
Sugar Produced from raw sugar (Qtls) - 48580
Alcohol Produced (KL) 15462 12925
Power Produced (lakh kwh) 557 499

Sugar Industry Overview

The global sugar production in the sugar year 2018-19 is expected to be around 186million MT against last year's production of 194 Million MT. The sugar consumption during2018-19 sugar year is expected to be 185 million MT against the consumption of 175 millionMT previous year. 2019-20 sugar year is also expected to follow the production andconsumption pattern of 2018-19. Current sugar years' global sugar consumption growth isexpected to be 1.1% against the long term level of 2%.

India's sugar production for the Sugar Year 2018-19 is expected to be 33 million MTagainst previous sugar year production of 32.5 million MT. Though the area under sugarcane cultivation has come down marginally compared to previous year the overall sugarproduction is likely to remain more or less at the same level due to better recovery inthe central and northern India. 2019-2020 Sugar year will also be a surplus year for Indiaas the preliminary estimates indicate production of around 33 million MT against theconsumption of around 26 million MT.

Tamil Nadu's sugar production in the sugar year 2018-19 is expected to be around 0.85million MT against last year's production of 0.78 million MT. As the state is severelyaffected due to failure of monsoon consecutively for seven years there is no significantimprovement in sugarcane cultivation area.

The Company's cane area is also facing severe drought conditions which may affect caneavailability besides adversely affecting sugar cane yield and recovery.

Performance of Business Segment

Sugar

Your company has crushed 661729 tons of cane during financial year 2018-19 andproduced 621760 quintals of sugar as against cane crushing of 550416 tons and sugarproduction of 509860 quintals (excludes 48580 quintals of sugar made from imported rawsugar processing) in the previous year. This increase of around 20% in cane crushing ismainly on account of marginal increase in cane area and sugarcane yield in the mills'command area and additional 50000 / MT of cane allotted from other sugar mill area.

The average Sugar recovery was 9.51% during financial year 2018 -19 as against 9.19%reported in the previous year.

Alcohol

The total Alcohol production during financial year 2018 -

2019 was 154.62 Lakh litres as against 129.25 Lakh litres produced in the previousyear. The proactive steps taken by the management in procuring molasses from north Indiahas helped to achieve this additional production. Your company got order from OilMarketing Companies (OMC's) for the supply of 12 lakh litres of Ethanol which will besupplied from June'19 to August'19.

Co-generation of Power

The total power generation during financial year 2018-19 was 55.7 million units against49.9 million units for the corresponding period of 2017-18. This increase of around 11% isbecause of increase in crushing operation.

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

(a) Conservation of Energy

Kattur unit

560 kilowatt D.C. drive of first & second mill was replaced with A.C. drive withVFD and commissioned on 22nd January 2019.

Energy consumption of old DC drive including blower : 2.80 kwh / ton of cane
Energy consumption of new system : 2.22 kwh / ton of cane
Net reduction in energy consumption : 0.58 kwh / ton of cane
Total cane crushing for the sugar season : 234106 MT
(from 22/01/2019 to 06/05/2019)
Total energy saving : 135781 kwh
(from 22/01/2019 to 06/05/2019)

Sathamangalam unit

(i) A variable frequency drive has been installed in the 75 KW sulphured juice pump andcommissioned on 22nd December 2018.

Energy consumption per month before installation of VFD : 54720 kwh
Energy consumption per month after installation of VFD : 48240 kwh
Energy saving per ton of cane : 0.07 kwh / ton
Total energy saving during 2018-19 crushing season : 32550 kw

(ii) An automatic on-off level control system has been installed in the de-aeratorstorage tank and feed water transfer pump. A 45 kw variable frequency drive has beeninstalled in the boiler feed water transfer pump and commissioned on 20thDecember 2018.

energy consumption per month before installation of VFD : 21600 kwh
energy consumption per month after installation of VFD : 9300 kwh
Energy saving per ton of cane : 0.13 kwh / ton
Cane crushing for the season 2018-19 : 4.65 lac MT
Total energy saving during 2018-19 crushing season : 60450 kwh

(iii) The steam condensate from semi kestner has been directly fed in to the De-aeratoravoiding earlier system of passing through the feed water storage tank. With thisarrangement steam consumption in de-aerator has been reduced by 10 MT per day.

(b) Technology absorption

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 colour achieved thoroughdouble-sulphitation process in the sugar industry.

(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 companyis installing 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 isinstalling a multiple effect evaporator system. Concentrated spent wash from thisevaporator system will be utilised for bio-compost manufacturing process. This system isexpected to be commissioned by November 2019.

(iii) Bio - Digester:

To meet the steam requirement of the proposed multiple effect evaporator system a newbio-digester is being 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 is expected to be commissioned by November 2019.

(iv) Poly house shed:

It is proposed to construct a poly house shed covering an area of 4 acres to processthe bio-compost during monsoon period. This will allow us to operate our distillery planteven during rainy season subject to availability of molasses. The construction of thisshed will be completed by October 2019.

(d) Foreign exchange earnings and Outgo

(`in Lakhs)
Sl. No. Particulars 2018 - 2019 2017 - 2018
(i) Total Foreign Exchange earned - -
Total Foreign
(ii) Exchange outflow 47.38 1469.49

Awards and Recognition

(a) SISSTA Awards:

Kattur unit has been awarded in the following categories based on 2017-18 operations:(i) Best Co-Generation Award for the Tamilnadu Region - Platinum Award.

(ii) Best Distillery Award for the Tamilnadu Region - Golden Award.

Sathamangalam unit has been awarded in the following categories based on 2017-18

Operations:

(i) Best Co-Generation Award for the Tamilnadu Region - Silver Award.

(ii) Best Sugarcane Development Award for the Tamilnadu Region - Golden Award.

(b) Bharatiya Sugar Award:

Sathamangalam unit received "Best overall performance of Sugar mill" awardfrom Bharatiya Sugar for the year 2017-18 performance.

Dividend

The Board of Directors at its meeting held on 21st May 2019 recommended adividend at the rate of 5% i.e. Re.0.50 paise per equity share of Rs. 10/- each for thefinancial year ended March 31 2019. If the dividend is approved by the Members at theensuing Annual General Meeting to be held on 7th August 2019 it will be paidon or before 4th September 2019 to those Members whose names appear in theCompany's Register of Members as at the close of business hours on Wednesday 31stJuly 2019.

Board Meetings

During the year 05 Board Meetings and 05 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 Obligation and Disclosure Requirements) Regulations 2015.

Share Capital

The paid up equity share capital of the Company as on March 31 2019 was Rs. 8288.86Lakhs. The company has neither issued any shares with differential voting rights norgranted stock options or sweat equity.

Directors and Key Managerial Personnel

Mrs. Nina B Kothari (DIN 00020119) Director is liable to retire by rotation at theensuing Annual General Meeting and being eligible offers herself for re-appointment. Mr.Arjun B Kothari (DIN 07117816) was appointed as Managing Director on 08thApril 2015 and the Board proposes to reappoint him for three years with effect from 01stSeptember 2019 with the remuneration as set out in the Notice of the Company. Mr.C.V.Krishnan (DIN 01606522) was appointed as Independent Director w.e.f. 28.05.2018 for aterm of years. Mr. P.S. Balasubramaniam Mr. V.R. Deenadayalu and Mr. P.S.Gopalakrishnanwere reappointed as Independent Directors w.e.f. 01.04.2019 for second term on passing aSpecial Resolution by the Company in the last Annual General Meeting held on 31.07.2018.

Mr. Arjun B Kothari Managing Director Mr. M.Silvester Whole Time DirectorMr.R.Krishnan Chief Financial Officer and Mr. R.Prakash Company Secretary are theManagerial Personnel 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). During the year under review theIndependent Directors met on February 13 2019 without the presence of Non-IndependentDirectors and members of the 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 the Board of Directors is posted on the website of the Companywww.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. All the Directors and the designated employees haveconfirmed compliance with the Code.

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 andsufficient care for the maintenance of adequate accounting records in accordance with theprovisions of this Act for safeguarding the assets of the company and for preventing anddetecting 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.

Subsidiary and Associate Companies

During the financial year 2018-19 the Company has divested its entire investments madein M/s. Kothari International Trading Private Limited (KITPL) and also a portion ofinvestment made in M/s. Kothari Petrochemicals Limited (KPL). Due to the said divestmentKITPL is no longer a Subsidiary and KPL is no longer an Associate Company of KothariSugars and Chemicals Limited.

Accordingly for the financial year 2018-19 consolidation of accounts with theerstwhile Subsidiary and Associate is not required.

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 as

Annexure-I.

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 61st AnnualGeneral 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. 04of 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 annexed as "Annexure-II". The Report does not contain any qualification.

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. There were no outstanding deposits during and atthe end of the financial year 2018 - 2019.

Significant and Material Orders Passed by the Regulators

There are no significant and material orders passed by

Regulators / Courts which would impact the going concern status of the Company and itsfuture 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 Audit Committee for itsscrutiny and suggestions if any. The Internal Auditor attends the Audit Committeemeetings.

The Internal Auditors monitor and evaluate the efficacyand adequacy of the internalcontrol system in the Company its compliance with operating systems accountingprocedures and policies at all locations of the Company. Based on the Report of theInternal Auditors the Company undertakes corrective action in the respective areas andstrengthens 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 investments made by company aregiven 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 review and their 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. Detailed Report on CSR activities in the prescribed format is forming partof this Annual Report.

Related Party Transactions

All related party transactions entered into during the financial year were on an arm'slength basis and in the ordinary course of business. There were no ‘material'contracts or arrangements or transactions and therefore disclosure in form AOC-2 is notrequired.

All Related Party Transactions are placed before the Audit Committee and also the Boardfor approval. Prior omnibus approval of the Audit Committee is obtained for thetransactions which are foreseen and repetitive in nature. For all the transactions enteredpursuant to the omnibus approval so granted a statement giving details of all suchtransactions is placed before the Audit Committee for their approvals on a quarterlybasis.

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 Committee 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 of the Directors (without participation of the relevantDirector) was carried out by the entire Board. The Directors expressed their satisfactionwith 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 reviewed the access the qualityquantity and timeliness of flow of information between the company management and theBoard without the presence of the Non-Independent Directors and members of the Management.

Disclosure about Cost Audit
Filing of Cost Audit Report 2018-2019 2017-2018
Due Date 27.09.2019 27.09.2018
Actual Date 30.08.2019 (Target) 24.08.2018
Mr.K.Suryanarayanan Mr.K.Suryanarayanan
Cost Auditor Details
M.No.24946 Chennai 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 2019-2020 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 on Corporate Governance is included as a part of this Annual Report. Allapplicable Secretarial 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 industry structure (dealing with world sugar and Indiansugar) as well as on the financial and operational performance is contained in the‘Management Discussion and Analysis Report' that forms an integral part of thisReport.

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 andtionthereof and any exceptionaljustifica Remuneration of Managerial Personnel) Rules 2014 areprovided 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.M.Silvester Goldwin Whole TimeDirector of the Company no director was in receipt of remuneration except sitting fees.

b) The percentage increase in remuneration of each Director Chief Financial CompanySecretary or Manager if any in the year:

Sl. No. Name Designation Percentage of Increase
(i) Mr.Arjun B Kothari Managing Director No Salary was paid during the year
(ii) Mr.Silvester Goldwin Whole Time Director 12%
(iii) Mr.R.Krishnan Chief Financial Officer Company 12%
(iv) Mr.R.Prakash Secretary 12%

c) 7.47% increase has been reported in the median remuneration of employees in thefinancial year. d) The number of permanent employees on the rolls of company as on 31stMar 2019: 492

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 for increase in the managerial remuneration:

Increase of remuneration for employees was in the range of 5% to 20% and for KMP theincrease was 12% for the year. f) We affirm that the remuneration paid during theperiod under review is as per the Remuneration 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. Chief Executive

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 by theemployees of the Company.

On behalf of the Board
for Kothari Sugars and Chemicals Limited
Place : Chennai Nina B. Kothari
Date : May 21 2019 Chairperson