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Ponni Sugars (Erode) Ltd.

BSE: 532460 Sector: Agri and agri inputs
NSE: PONNIERODE ISIN Code: INE838E01017
BSE 00:00 | 25 Oct 248.70 0.45
(0.18%)
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260.65

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260.65

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247.75

NSE 00:00 | 25 Oct 249.95 1.05
(0.42%)
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261.30

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OPEN 260.65
PREVIOUS CLOSE 248.25
VOLUME 3989
52-Week high 382.50
52-Week low 131.15
P/E 8.19
Mkt Cap.(Rs cr) 214
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00
OPEN 260.65
CLOSE 248.25
VOLUME 3989
52-Week high 382.50
52-Week low 131.15
P/E 8.19
Mkt Cap.(Rs cr) 214
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

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

Company director report

Your Board is pleased to present the 25th Annual Report and the audited financialstatements for FY 2020/21.

Particulars 2020-21 2019-20
Physical Performance
Cane crushed (tonnes) 613226 597536
Sugar recovery (%) 9.36 9.47
Sugar produced (tonnes) 57276 56942
Power produced (lakh kwh) 895 918
Financial Performance C crores)
Total Income 262.55 314.53
Profit Before Interest Depreciation &Tax 36.44 45.43
Profit Before Tax 28.59 35.89
Profit After Tax 25.66 30.94

Dividend

Your Directors recommend a dividend of Rs.4/- (Rupees Four Only) plus a Special SilverJubilee dividend of Rs..1/- (Rupee One Only) totaling to a dividend of Rs.5/- (Rupees FiveOnly) per equity share of Rs.10 each for the financial year ended 31st March 2021 subjectto the approval of shareholders at the ensuing Annual General Meeting.

Transfer to General Reserves

Your directors have proposed to transfer '15 crores to General Reserve.

Global sugar scenario

ISO had earlier estimated the biggest deficit in 11 years for SS 2019/20 pursuant tothe perceptible decline in crop from India and Thailand together contributing about 12 mlntonne fall in production. The advent of Covid-19 however annihilated this prognosis.Global oil price crash goaded and nudged Brazil to notch up cane allocation for sugarwhile consumption growth dimmed and dried up during lock down times. In the end thebiggest deficit projected precariously petered out and global balance became near neutralfor SS 2019/20. Ergo the much taunted and most wanted inventory correction failed tofructify.

With the global economy back in growth mode consumption growth for sugar returned inSS 2020/21. Thanks to the third consecutive year of decreased crop world sugar balance in2020/21 is slated to leave a deficit of 5 mln tonnes. The mediocre performance ofThailand the EU and Russia would seem to prevent a quick return to surplus environment.The marked decrease is of course vulnerable to weather conditions besides oil pricedynamics.

Raw sugar prices in NY 11 for the nearest month demonstrably rebounded from the low of9.38 c/lb in April 2020 witnessed under Covid impact. After touching a peak of 18.41 c/lbin Feb'21 that is the highest in 4 years there were intermittent corrections. The lowerBrazilian crop because of long dry spell has since gleefully reinfused and reenforcedbullish undertone to the market.

Indian sugar overview

Sugar balance

In a convincing departure from oscillating sugar production India has become asustainably surplus sugar producer during the last decade barring the one year that wasextremely devastated by drought. The new sugarcane variety introduced in UP is notably theprime mover and principal contributor for this tectonic shift. Maharashtra and Karnatakahaving recovered from last year's drought and been benefitted by good monsoon this yearbounced back with 71% and 22% rise in production for SS 2020/21. Overall sugar productionis estimated at 30.2 mln tonnes after accounting for about 2 mln tonne of sugarsubstitution through ethanol production from B-heavy molasses and sugarcane juice.

Sugar consumption in India has remained near static around 25.5 mln tonne over the last5 years. Despite the delay in deciding export quota for SS 2020/21 by over a quarter anddownsizing the subsidy amount from '10.45/ kg to '6/ kg the buoyancy in global markethelped Indian millers grab and sign export contracts swiftly for over 5 mln tonnes asagainst the MAEQ of 6 mln tonnes. Coming on top of the all-time high sugar exports made inSS 2019/20 by fulfilling the entire MAEQ for that season the ebullient export performancehas come as a shot in the arm to help de-clog domestic stock pile. Sugar prices during theyear have largely been orbiting around the MSP

Ethanol

Alive to the minatory challenge in continuing sugar export subsidies beyond 2023 underWTO norms the Government has strategically stepped up gas in promoting ethanol as a longterm and lasting solution for absorbing the surplus sugarcane in the system. In thisprophylactic pursuit it is conscientiously continuing with interest subvention supportpassionately monitoring project implementation in coordination with State Governmentsfervidly facilitating environment clearance for expansion of capacities and prepenselypanning out premium pricing for ethanol that is produced subsuming sugar equivalent. Theindustry is truly beholden to the Central Government for its steadfast focus and stridentthrust to forefend foreseeable sugar glut and forestall price collapse.

Sugarcane pricing

While so sugarcane pricing remains the boisterous and biggest challenge for theindustry making Indian sugar globally uncompetitive. This perduring problem by now toowell known but caught in a political quagmire continues to defy a credible solution. Asper CACP report sugarcane guarantees and bestows the best of return for the farmercompared to other competing crops that props up excessive cultivation thereof. The currentpricing formula that egregiously fails to address the paying capacity of sugar mills isunwittingly fatuous and unarguably fallacious frustrating in the process everystakeholder.

It is time the Government acted on the recommendations of both CACP and NITI Aayog TaskForce on the Sugarcane and Sugar industry. Both have resoundingly recommended the revenuesharing formula backed by the setting up of a Sugar Price Stabilization Fund to protectfarmer's interest during times of low sugar price.

Cogeneration

The first major diversification for sugar industry came through cogeneration of poweregged by the clear mandate and convincing promotional measures for renewable energygeneration under the Electricity Act 2003. Bagasse based cogeneration plants came indroves on the strength of such favourable policy environment. Its haleyon days would seemall over going by the multifarious challenges faced of late in the renewal of expiredlong term PPAs lowering of power tariffs and most menacingly the mounting delay inpayment by Discoms that stretches even beyond one year.

The Central Government in its bid to resolutely resolve the underlying crisis has comeout with yet another one-time funding package to help State Discoms borrow from thisCentral corpus and clear power over dues. This of course is conditional upon the Discomsagreeing to a committed road map for reforms. While the first instalment of this packagehas got disbursed and cogenerating units got partially paid further progress would seemstalled and stalemated. The changes proposed in Electricity Act and related Rules areappreciably aimed at addressing the fundamental malaise but its efficacy would eventuallydepend on overcoming the overwhelming enforcement challenges on ground.

Sugar in Tamil Nadu

There is little respite for the TN sugar industry from the rueful impact of recurringdrought and its concomitant challenges. Not long ago TN sugar was the third top producerin India but it has sadly slipped from that high pedestal to an abysmally low level now.Half the private sector mills remain shut for two successive seasons while the rest arecrawling and creeping below their half capacity run. Still worse sugarcane qualitysuccumbed under water stressed conditions leaving the State to languish with an averagerecovery abominably below 9% for six years in a row as against the national average thatis cruising towards 11%. The double whammy of an abhorrent sugar recovery and appallingcapacity utilization has ineluctably posed an existential crisis for the TN mills.

The State Government alive to and appreciative of the current plight of TN sugarmills has commendably come out with slew of support measures to bail the industry out ofthe imbroglio. This includes discontinuance of SAP backed by a transitional productionincentive support to farmers transport subsidy of '100/ tonne of cane from SS 2018-19higher subsidy for drip and micro irrigation and aggressive promotion of SustainableSugarcane Initiative (SSI) programme.

The Sweet Bloom project under the ‘Industry-Research Institute collaboration' ison course with the new cane variety Co11015 portending to be the harbinger promisinghigher yield and recovery. Commercial scale planting of this variety is now being givenincreasing impetus in the current sugar season. Besides there is continuing thrust indeveloping additional varieties.

As regards Cogeneration TN mills remain clueless on the timing of realization of powerdues from TANGEDCO. After considerable pile up it was benefitted by the one-time bulkpayment in April 2020 with the backstopping from TN Government that extended a specialloan package to TANGEDCO for this purpose. Again with TANGEDCO availing the firstinstalment of one-time funding package from Central Govt TN mills received lump sumpayment in December 2020. In both the occasions TANGEDCO could make payments only on thestrength of external funding through Central/State support. Worrisomely there are stillwhopping power dues pending for more than 15 months as of now. Notwithstanding themandatory force of electricity regulations and tariff orders issued thereunder thatincludes specific provision for interest/ late payment surcharge in the case of delayedpayment bagasse based cogeneration units are often left in the lurch in the realizationof dues with principal eternally delayed and interest effectively denied.

Company's performance

Sugarcane crushing moved up marginally during the year thanks to improved yield andincreased spot registration and supply the latter in response to company's prompt caneprice payment all through the year. Adverse weather however mauled and mowed down sugarrecovery during our special season in the second quarter. It however rebounded tonormative levels on start of our main season in Dec'20. Given the right age and varietalmix and considering the cane quality improvement measures quintessentially launched by thecompany last year the sudden and steep recovery fall during part of the year is bafflingthat can only be attributed to extraneous factors and in particular adverse weather.

In contrast to strident stock drawdown last year we were confronted with higher sugarinventory build up this time owing to overall supply glut in the market. Bagasse salevolume more than halved by dint of Covid induced downturn in the paper industry deprivingthe company extra earnings through cost effective bio-fuel switch. The company abstainedfrom standalone power generation during off-season weighed by unviable returns primarilycaused by the inordinate delay in realization. As a combined effect the turnover for theyear has declined by about 18%.

The company in its Silver Jubilee is happy to reckon and rejoice the silver lining inkey areas of its performance. Cane crushing for the year has gainfully crossed the 6 lakhtonne mark after 7 years. Auxiliary consumption is down to the lowest ever since thecommissioning of Cogeneration Plant in 2012. Operational efficiency was optimal withrecord low total loss in sugar. MAEQ swap fetched us a fair premium while the bufferstock subsidy of Central Government and transport subsidy of TN Government benevolentlyboosted other operating income. REC sales virtually dried up from July 2020 due tosuspension of trading in the power exchanges by the interim order of APTEL. The companyhas become zero debt by end of first quarter while temporary surplus funds are beingparked in Bank FDs pending capex spend on our ethanol project.

Riding on all round excellence and exuberance in operating performance our PBIDTthough lower than last year has been the second highest in over a decade. PBT and PATpredictably followed suit. Overall the operating and financial performance of the companyfor FY 2020-21 under extant external environment is eminently creditable.

Tax litigation

The Erode sugar mill undertaking of erstwhile Ponni Sugars and Chemicals Ltd wastransferred to your company pursuant to the Scheme of Arrangement sanctioned by the HighCourt of Madras in 2001. The effective date of transfer was 1st April 1999 for anaggregate consideration of '75 crores. The Scheme as approved by all stakeholders in theExplanatory Statement clearly and expressly spelt out that this Scheme of Arrangement isnot one of demerger under the Income Tax Act 1961. The Tax Department however chose totreat the Scheme as one of demerger under the Income tax Act and consequently sought torestrict our depreciation claim based on the written down value of the assets in the handsof the transferor company.

Considering the huge tax implications our company filed writ petitions in respect ofvarious assessment years from time to time before the Hon'ble High Court of Madras. Wehave strongly contended that the Scheme of Arrangement under the Companies Act if andwhen sanctioned by the High Court following the procedures prescribed therein is ajudgement ‘in rem' and hence binding on all including the tax department. The Hon'bleHigh Court in its judgement of October 2020 and December 2020 upheld our contention andquashed the assessment proceedings of all the years on this issue. It also directed thetax department to take further course of proceedings taking into consideration thefindings of the High Court of Madras in its judgement.

The company has all along felt that its case is well founded and on strong legalfooting. Accordingly it did not recognize the tax/ interest implications in its financialstatements but only disclosed the pending litigation in the ‘Notes to the financialstatements'. The High Court ruling has removed a lingering uncertainty a Damocles' swordthat has come as huge relief. The company has taken up with the tax department for passingrevised assessment orders giving effect to the judgement of the High Court.

Ethanol Project

As regards the ethanol project the company had secured in June'19 in-principleapproval from the Central Government for interest subvention support whose validity hassince been extended till December 2021. The key to the launch of ethanol project isenvironment clearance at the present sugar mill location as an integral part thereof. TheState Expert Appraisal Committee (SEAC) in June 2020 considered our proposal to set up a45 KLPD Distillery-cum-Ethanol plant. It has conveyed the decision to recommend ourproposal for the grant of Terms of Reference (ToR) subject to the conditions laid downtherein. This includes obtaining State Government approval for the location of theproject. We had earlier received similar approvals for our expansion and cogenerationprojects nonetheless the process does involve long time frame. We have filed requisiteonline application for this in January 2021 and are in constant pursuit of same.

Covid-19 impact

The Covid-19 pandemic dealt a devastating blow to trade and industry most mercilesslyin Q-1 of FY 2020-21. Sugar industry was thankfully lesser impacted. Our factory had to beabruptly closed for about a month forcing the left over cane to be crushed during peaksummer month at lamentably low recovery. Given the gravest nature of lockdown conditionswe have less to complain.

On our part we restarted the factory soon upon the first phase of relaxation inlockdown conditions. Since then we have had no Covid induced interruption to ouroperations. We steadfastly follow the Standard Operating Procedure (SOP) prescribed byboth the Central and State Governments effectively ensuring the safety of all ouremployees. With the advent of vaccines and extension of its eligibility progressivelydiluting the age criterion we have taken proactive steps to enthuse and enable all oureligible employees and their family to have the jab in company organized vaccine centres.

The resurgence of Covid-19 with its variants since March'21 is no doubt alarming andworrisome. With vastly improved health infrastructure and better preparedness there isfervent hope that the situation would soon come under control. In any event this islikely to have far less impact on the economy compared to last year when the country wasgrossly unprepared and under- equipped. Your company hopefully would remain immune fromany significant adverse business impact.

Outlook for FY 2021-22

With normal monsoon forecast by IMD for the third year in a row and stable area undersugarcane sugar production outlook for the country is sure to leave a large surplus in SS2021-22. Export and ethanol duly backed by Government sops would again be the anodyne tohelp mitigate the supply glut. Sugar fundamentals portend little promise for any big pushin price uptick while the MSP revision that is long overdue should bring succour tosouring sugar prices.

Water storage in the Mettur reservoir has been comfortable in the last couple of years.Monsoon was normal barring the shortfall witnessed in parts of our operational area. Thecompany has come out with promotional measures and financial sops to bolster cane areasupplying free seeds and extending subsidy for ratoon yield improvement. As expectedthere is encouraging response to these measures evidenced by improved cane arearegistration.

We look towards marginally higher volume of cane crushing and improved sugar recoverygoing by current crop conditions. Monsoon performance is of course critical. Barringimponderables we remain sanguine for repeat of a reasonably good performance in FY2021-22 as well.

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 of the company is containedin the ‘Management Discussion and Analysis Report' that forms an integral part ofthis Report (Annx-1).

Corporate Governance

Pursuant to Regulation 34(3) of SEBI (Listing Obligations and Disclosure Requirements)Regulations 2015 Corporate Governance Report together with the certificate from thecompany's auditors confirming the compliance of conditions of Corporate Governance isgiven in Annx-2. The Corporate Governance Report also includes contents and disclosuresrequired under Section 134(3) of the Companies Act 2013 at relevant places that forms anintegral part of this report.

Disclosures / Confirmation

In deference to Section 134 of the Act read with Rule 8 of the Companies (Accounts)Rules 2014 disclosures / confirmation are made as below:

(i) Annual Return

A copy of annual return for FY 2020-21 will be placed on the website of the companywww.ponnisugars.com after conclusion of the 25th AGM.

(ii) Directors' Responsibility Statement

Pursuant to Section 134(3)(c) of the Companies Act 2013 (the Act) with respect to theDirectors Responsibility 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.

(iii) 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.

(iv) 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-3).

(v) 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 2021 to the date of this report.

(vi) 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-4.

(vii) Corporate Social Responsibility (CSR)

The company is covered under the mandate of Sec.135 of the Companies Act 2013 for FY2020-21. Pursuant to the amendment effective January 2021 where CSR obligation is below'50 lacs such companies are exempt from the requirement to have a separate CSR Committee.Instead the Board shall directly discharge the responsibility of the CSR.

Considering the fact that the company's CSR obligation for FY 2020-21 was below thethreshold limit the CSR Committee was dissolved by the Board of Directors from January2021. However the company's CSR obligation for FY 2021-22 would be in excess of '50 lacsthereby necessitating the need for CSR Committee again. Accordingly the CSR Committee hasbeen reconstituted from April 2021.

The CSR report in the prescribed form is given in Annx-5 that forms part of thisreport.

(viii) Public deposit

The company does not accept public deposits and there is no amount outstanding at thebeginning or end of the year.

(ix) Adverse orders

No significant or material order has been passed by the regulators or courts ortribunals impacting the going concern status of the company and the company's operationsin future.

(x) 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.

(xi) Insolvency and Bankruptcy Code 2016

No application has been made or proceeding pending under the Insolvency and BankruptcyCode 2016 in respect of the company.

(xii) Valuation difference

The company has done no one time settlement with Banks or Financial Institutions.

(xiii) 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 Annx-6 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.

Directors

Mr Bimal K Poddar retires by rotation at this meeting and being eligible offershimself for reappointment.

All the independent directors of the company have registered their names in theDatabank of Indian Institute of Corporate Affairs and they have all been exempt from therequirement of written test under Rule 6 (4) of the Companies (Appointment andQualifications of Directors) Rules 2014.

There was no appointment (other than the reappointments made in the normal course atthe 24th AGM) or resignation of director or key managerial personnel during the year.

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 nofraud reported by auditors under Section 143(12) of the Companies Act 2013.

Particulars of statutory auditors cost auditors internal auditors and the secretarialauditors 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-7).

Acknowledgement

We are thankful to the Central Government Banks customers and suppliers for theirunderstanding and support. We gratefully acknowledge and commend the timely support of theGovernment of Tamil Nadu in alleviating the travails of the industry in testing times. Weconvey deep appreciation to our extended family of sugarcane growers for their continuingcommitment to grow and supply cane readily embracing new varieties and improvedcultivation practices.

Your company has been able to achieve commendable results thanks to the committedcontribution of its employees in all ranks. The Board above all wishes to thank thevalued shareholders for their untrammelled patronage.

For Board of Directors
Erode N Gopala Ratnam
7th May 2021 Chairman

.