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Ponni Sugars (Erode) Ltd.

BSE: 532460 Sector: Agri and agri inputs
NSE: PONNIERODE ISIN Code: INE838E01017
BSE 13:58 | 08 Apr 133.00 -9.00
(-6.34%)
OPEN

130.40

HIGH

133.00

LOW

130.40

NSE 14:09 | 08 Apr 131.10 -6.05
(-4.41%)
OPEN

130.15

HIGH

140.00

LOW

130.15

OPEN 130.40
PREVIOUS CLOSE 142.00
VOLUME 26
52-Week high 183.80
52-Week low 86.60
P/E 4.16
Mkt Cap.(Rs cr) 114
Buy Price 130.05
Buy Qty 10.00
Sell Price 138.90
Sell Qty 15.00
OPEN 130.40
CLOSE 142.00
VOLUME 26
52-Week high 183.80
52-Week low 86.60
P/E 4.16
Mkt Cap.(Rs cr) 114
Buy Price 130.05
Buy Qty 10.00
Sell Price 138.90
Sell Qty 15.00

Ponni Sugars (Erode) Ltd. (PONNIERODE) - Director Report

Company director report

Your Board is pleased to present the 23rd Annual Report and the audited financialstatements for FY 2018/19.

2018-19 2017-18
Physical Performance
Cane crushed (tonnes) 448400 318716
Sugar recovery (%) 9.92 8.89
Sugar produced (tonnes) 44484 34102
Power produced (lakh kwh) 916 552
Financial Performance (Rs crores)
Total Income 187.96 198.59
Profit Before

Interest Depreciation &Tax

22.73 22.71
Profit Before Exceptional Items & Tax 13.33 15.06
Profit Before Tax 12.00 3.80
Profit After Tax 8.43 3.34

Transfer to Reserves

Your Directors have proposed to transfer र5 crores to General Reserve.

Dividend

Your Directors recommend a dividend of र2/- per equity share of र10 eachfor the financial year ended 31st March 2019 subject to the approval of shareholders atthe ensuing Annual General Meeting.

Global sugar scenario

World sugar production after its strong rebound during 2017-18 season that came aftertwo years of deficit phase slided from the summit in 2018-19 season but still ranks thesecond highest on record. Strong oil prices prompted Brazil to significantly step upsucrose use for ethanol production correspondingly cutting the sugar production andsnipping global surplus. As a result India has re-emerged as the largest sugar producerdisplacing Brazil from the pedestal after a decade and more. Ethanol demand shouldcontinue to remain dynamic for Brazil in 2019-20 to maintain its ethanol mix closer tolast season's record high level of 65%. World production in 2019-20 is punctuated by lowercrops in India and Thailand stable low EU crop and modest rise in Brazil crop. Againstmodest surplus in 2018-19 the coming season would witness modicum of deficit.

World sugar prices stumbled and tumbled to a decadal low in April 2018 that managed tomove up marginally thereafter. The projected decline in production and the return todeficit is too minimal to cause a storage in the backdrop of huge stock pile. Thissingularly clouds the market mood and strangles the scope for perceptible price recovery.Any supply-side shortfall caused by adverse weather could get instantly off-set by Brazilthat enjoys ethanol mix arbitrage by tweaking its output. World prices for now remainlargely on a neutral note varying in a relatively narrow range between 11 & 13 c/lb.The neutral market tone has also resulted in a steady and relatively weak nominal whitesugar premium that is far below the long term average.

Indian sugar overview

After recording an all time high sugar production of 325 lakh tonnes in 2017-18 seasonthe estimates for the current 2018-19 season at different points in time witnessed wildswings. While the initial prognosis on plummeting sugarcane yield for Maharashtra that hadsuffered under a short-tailed monsoon turned incorrect further upsurge in UP's sugarrecovery more than made-up for the downside elsewhere. As a result the three dominantsugar producing States of UP Maharashtra and Karnataka have maintained their peak in sugarproduction propelling the country's overall production to a new zenith.

Two successive years of record high sugar production building a surplus of 160 lakhtonnes that is close to 8 months' consumption left the market in a damp squib. Sugarprices suffered a calamitous collapse threatening to breach र20 per kg level.Government came in as saviour with its timely intervention through mandated MinimumSelling Price (MSP) for sugar that stemmed the slide and lifted sugar prices closer to theMSP It was first fixed at '29/ kg in June'18 and later revised to ' 31/ kg in Feb'19.While this MSP is unarguably below cost of production it has doubtless thrown a lifelinefor the industry besides playing a crucial role in containing cane price arrears.

While the monsoon failure in the later parts of last season didn't much impactsugarcane productivity in Maharashtra it has deplorably dried up reservoirs and dampenedfresh cane planting. It is feared Maharashtra would face a formidable fall in sugarcanearea and sugar production next season while UP looks well poised for a further rise. Withlittle change likely from other States Indian production next year must recede more than10%

from current high level; yet the production would outpace domestic consumption andcomes on top of current mountainous sugar stocks.

There is hence imminent and imperative need to destock sugar to address surplusstockpile. Exports despite prescriptive quotas backed by subsidies repeatedly fall shortof set targets owing to inherent uncompetitiveness caused by the cane cost that is thehighest amongst large exporters. In this context it is gratifying to observe the new andpath breaking policy initiative to promote ethanol production in substitution of sugarincentivizing the switch through premium pricing depending on the degree of sugarsubstitution. Concurrently financial assistance through interest subvention is beingoffered for creating fresh and expanded capacities in ethanol production. While this maynot bring immediate succour to current sagging sugar prices it is bound to be a gamechanger in the next couple of years and reassure long term sustainability of Indian sugarindustry.

Amidst aforesaid adversities sugarcane price arrears has peaked to र20000crores causing considerable anguish and distress to farmers. While some of the current andcontemporaneous moves of the Government towards mandatory inventory norms monthly salequota export quota and minimum sugar price are well meant and seen inevitable to bail theindustry out and protect cane farmers it clearly tends to put the clock back on sugarindustry reforms.

The long term remedy for this malaise lies only in linking sugarcane price torealization from sugar and primary byproducts as recommended in Dr Rangarajan CommitteeReport and reiterated in successive reports of CACP on sugarcane pricing. The formulamight just need a bit of tweaking and refining for the emerging ethanol switch model. Thiswould at once obviate the need for endless Government intervention often times costingthe exchequer quite heavily and yet leaving every stakeholder unhappy in the end.

Sugar in Tamil Nadu

Government of Tamil Nadu having discontinued the State Advised Price (SAP) forsugarcane from 2017-18 season has enacted ‘The Tamil Nadu Sugarcane (Regulation ofPurchase Price) Act 2018.' This provides for a minimum price for sugarcane equivalent tothe Fair and Remunerative Price of Central Government. However this law further mandatessugar mills to bear the full cost of transportation of sugarcane putting them at aconsiderable cost disadvantage compared to peers in other States. Sugarcane supplierswould get additional cane price through the revenue sharing formula.

In order that farmers' interest is protected the State has offered a transitionalsubsidy to protect the current level of cane price. Towards this the State has alreadydisbursed र200/ tonne of cane for 2017-18 season by way of direct credit tosugarcane farmers. It has offered a similar measure of subsidy at र137.50/ tonne for2018-19 season. The State Government deserves high praise for implementing the overduereform in sugarcane pricing.

There is perceptible progress in the development of new sugarcane variety for TamilNadu thanks to the collaborative efforts between SISMA-TN and Sugarcane BreedingInstitute. In particular Co 11015 has proved successful in trial plots promising higherrecovery improved yield and lower maturity time. It is intended to enhance planting ofthis variety on wider areas during 2019-20 season with the fond hope that the success intrials would transcend to commercial scale cultivation.

Company's performance

At the start of the year we were weary of recurring monsoon failure in our regionwary of depressive sugar price outlook and deeply worried over the dystopian prospects forthe year. We are indeed glad to be proved wrong. Our committed efforts to shore upoperating performance buttressed by the fortuitous turn of events have in the endgleefully infused desired positivity in our financial results.

SW monsoon was bountiful in the neighbouring State of Karnataka that led to improvedflow in river Cauvery and filled Mettur reservoir to its near full capacity in many years.The resultant improved water source and access enthused farmers expanded cane areaenhanced cane yield and ensured higher sucrose content in cane. The one-time settlementreached with our cane farmers on SAP involving huge upfront payout helped in instantrestoration of harmonious relationship and motivated more number of farmers to willinglycome forward and supply sugarcane to our mill. Indeed spot registration of standing caneon this score has sizeably supplemented cane availability for current year besidescommitting the ratoon crop for the coming year.

We also re-doubled our efforts on power production. For the first time we operated ourCogen plant on standalone mode during off-season using disparate varieties of bio-fuel.As a result our power production touched the maximum permissible 55% Plant Load Factor(PLF) eligible for preferential tariff. While this significantly helped in achievinghigher topline and healthier bottomline for the Company the inordinate delay by TANGEDCOin paying our power bills has come to squeeze our liquidity besides egregiously erodingmargins because of higher interest cost.

Amidst multitude of measures to help the industry the Central Government has alsobrought back monthly sugar sale quota through inventory control norms. While this measuremight seem necessary in moderating supplies from surplus producing regions it isill-conceived and manifestly unwarranted for a deficit region like Tamil Nadu (TN). Withabysmally low sugar sale quota choking cash flows and stoking cane price arrears mostsugar companies from the State including our Company had to approach the Hon'ble HighCourt of Madras for relief. The interim order staying relevant Government order has cometo immensely help our Company manage its working capital and service sugarcane paymentobligations in time.

The Central Government has also imposed Minimum Indicative Export Quota (MIEQ) but theformula followed in fixing mill-wise quota is felt adversarial to TN sugar mills.Accordingly SISMA-TN the industry body represented to the Central Government forappropriate relaxation in quota considering the acute adversity faced by TN mills underdrought. Pending response there has been little export from TN mills including ours.While non-fulfilment of MIEQ could disentitle the concerned sugar mills from access tovarious Government promotional and incentive schemes it is hoped that the Governmentwould give due weightage to the current plight of TN sugar industry and take a just andequitable view.

We have achieved considerably higher sugar production with better recovery in thecurrent year. While our power production has peaked we have concurrently cut down on fuelcost by switching to lower cost biofuels and optimising bagasse sale. Sugar sale volumehowever slipped and slumped due to Government intervention measures as well as sluggishmarket. The single most negative factor eclipsing our otherwise strong operatingperformance was the disconsolate decline in sugar prices by 16%. Despite same our PBIDThas been sustained. Interest costs have soared on account of higher working capitalavailment. While we have had to reckon with the huge impact of cane price settlement lastyear exceptional items for the current year are nominal. As a result our PBT for theyear has tripled. In all our performance for the year may not sound commanding but isundoubtedly commendable and comforting under extant external challenges.

Outlook for FY 2019-20

Monsoon failure is fast turning ‘business usual' feature for our region going byyet another abysmal failure of the last NE monsoon. Indeed Government of Tamil Nadu hasdeclared most parts of the State that includes our region as affected by hydrologicaldrought. While IMD has forecast a normal SW monsoon at 96% of LPA this year there areprivate and overseas forecasts underpinning El Nino threat. Accordingly sugarcaneavailability and quality could again pose severe strain and stress. Sugar prices must moveup but only moderately weighed by supply overhang.

Ethanol is becoming increasingly relevant for managing country's sugar surplus.Government policies of late are being directed towards incentivizing sugar industry forsupporting sugarcane price payments through the ethanol route. While we have initiatedsteps to closely evaluate the financial feasibility for setting up an ethanol productionfacility in our factory we are daunted by low volume of feedstock availability due torecurring drought in our region. Further long lead time involved in securing slew ofState Government clearances remains a key challenge. Your Board is currently weighing theoptions and in due course will take the call.

We are doubtless faced with host of hostile challenges during FY 2019-20. We howeverremain sanguine that on the strength of our committed employees farmer relationship costoptimisation thrust low debt gearing and marginally improved market conditions we wouldsuccessfully weather these adversities.

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 (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 thecompany's auditors confirming the compliance of conditions on Corporate Governance isgiven in Annx-2.

The Corporate Governance Report also includes contents and disclosures required underSection 134(3) of the Companies Act 2013 at relevant places that forms an integral partof this report.

Extract of Annual Return

The details forming part of the extract of the Annual Return in Form MGT-9 is given inAnnx-3. This is also placed on the company's website - www.ponnisugars.com .

Directors' Responsibility Statement

Pursuant to Section 134(3)(c) of the Companies Act2013 with respect to the DirectorsResponsibility Statement your Board confirms that:

(a) in the preparation of the annual accounts the applicable accounting standards havebeen followed and there are no material departures from the same;

(b) the directors have selected such accounting policies and applied them consistentlyand made judgements 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 of the company for that period;

(c) the directors have 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 have prepared the annual accounts on a going concern basis;

(e) the directors have laid down internal financial controls to be followed by thecompany and that said internal financial controls are adequate and were operatingeffectively; and

(f) the directors have devised proper systems to ensure compliance with the provisionsof all 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 makeinvestment 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 RelatedParty 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 is no material change or commitment affecting the financial position of thecompany that has occurred since 31st March 2019 to the date of this report.

Conservation of Energy etc.

Information relating to conservation of energy technology absorption and foreignexchange earnings and outgo as required under Section 134(3)(m) of the Companies Act

2013 read with Rule 8 of the Companies (Accounts) Rules

2014 is given in Annx-5.

Corporate Social Responsibility (CSR)

The company is covered under the mandate of Section 135 of the Companies Act 2013 forFY 2018-19. The CSR report in the prescribed form is given in Annx-6 that forms part ofthis report.

Particulars of Employees

The Statement of Disclosure of Remuneration under Rule 5(1) of the Companies(Appointment and Remuneration of Managerial Personnel) Rules 2014 ("Rules") isappended as Annexure -7 to this Report.

The information as per Rule 5(2) of the Rules forms part of this report. However as perfirst proviso to Section 136(1) of the Act and second proviso of Rule 5(2) of the Rulesthe Report and Financial Statements are being sent to the members of the Company excludingthe statement of particulars of employees under Rule 5(2) of the Rules. Any memberinterested in obtaining a copy of the said statement may write to the Company Secretary.

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 workflow and approvals are routed through this system.

2) The company has laid down adequate systems and well drawn procedures for ensuringinternal financial controls. It has appointed an external audit firm as internal auditorsfor periodically checking and monitoring the internal control measures.

3) Internal auditors are present at the Audit Committee meetings where internal auditreports are discussed alongside of management comments and the final observation of theinternal auditor.

4) The Board of Directors have adopted various policies like Related Party TransactionsPolicy and Whistle Blower Policy and put in place budgetary control and monitoringmeasures for ensuring the orderly and efficient conduct of the business of the companythe

safeguarding of its assets the prevention and detection of frauds and errors theaccuracy and completeness of the accounting records and the timely preparation of reliablefinancial information.

Directors

Mr N R Krishnan opted not to seek reappointment considering his advanced age and histenure ended at close of 31.03.2019. The Board wishes to place on record the valuablecontribution received during his tenure as director.

M/s L M Ramakrishnan Nanditha Krishna V Sridar and K Bharathan independent directorswere reappointed for a second term by special resolution passed through postal ballot andthe details are given in the Corporate Governance Report.

Mr Arun G Bijur retires by rotation at this meeting and being eligible offers himselffor reappointment.

Auditors

M/s S Viswanathan LLP (Firm Regn.No.004770S/S200025) were appointed as statutoryauditors by shareholders in the 21st AGM for a term of five years till the conclusion ofthe 26th Annual General Meeting of the company on such remuneration as may be fixed by theBoard of Directors on the recommendation of Audit Committee from time to

time. There is no fraud reported by auditors under Section 143(12) of the CompaniesAct 2013.

Particulars of statutory auditors cost auditors internal auditors and the secretarialauditor have been given in the Corporate Governance Report that forms an integral part ofthis report. Secretarial Audit Report as required by Section 204(1) of the Companies Act2013 is attached (Annx-8).

Acknowledgement

Your company wishes to thank the Central and State Governments Banks customers andsuppliers for the understanding shown and support received. It commends the continuingcommitment of large number of cane growers in growing and supplying cane under extremedrought and challenging conditions.

Your company desires to acknowledge the involvement and commitment shown by employeesat all levels during current tough times. Above all the Board wishes to place on recordthe continuing patronage received from its shareholders.

For Board of Directors

Chennai N Gopala Ratnam

24th May 2019 Chairman