COMPANY PROFILE
Your Company is engaged in the business of manufacture of Sugar, and Potable/Industrial
Alcohol (including Ethanol). The operations are spread across two locations, viz., at
Tirumandankudi in Thanjavur District and at A.Chittur in Cuddalore District. The
Management presents its report on the industry and Companys performance and future
prospects.
INDUSTRY PROFILE:
GLOBAL SCENARIO:
After two consecutive years of deficit in 2015-16 and 2016-17, the global sugar balance
for 2017-18 is now estimated at a 10 million plus MTs. Raw value, surplus, on the strength
of massive production increases in India, Thailand, and the EU, which have more than
offset the huge decline in Brazil. This has resulted in a huge increase in stock levels,
pushing stock to consumption ration close to 40%.
With 2018-19 also projected to register a surplus of around 5 million MTs, the outlook
for world market prices has been distinctly bearish. The prices of raw sugar futures have
however been rallied after hitting 10- year lows in August, on report of drought / dry
weather and low yields in key cane and beet growing regions of the world.
INDIAN SCENARIO:
The steep decline in production to 20.2 million MTs during the 2016-17 sugar season and
the calibrated imports under Tariff rate Quota for defict regions instead of imports under
Open General Licence, enabled sugar prices to recover to viable levels, providing much
needed and long awaited relief to the sugar mills. This breather for the industry turned
out to be short lived as the 2017-18 production exceeded the original estimate of 25.0
million MTs and is now estimated at 32.5 million MTs. Sugar prices crashed as the season
progressed and the Government of India was compelled to introduce various regulations to
maintain domestic sugar prices and to ensure to export of the surplus sugar so as to avoid
huge build-up of cane price arrears. Even with enforcement of all these regulations, the
sugar prices are still ruling below breakeven levels and with an equally large surplus on
the anvil for the 2018-19 season, the outlook for industry appears to be none too bright
unless the export drive and the ethanol policy, which enables diversion of surplus sugar
for ethanol prouction are successful in achieving the targets set.
| INDIAN SUGAR BALANCE |
|
|
|
|
(mm MTs) |
|
2016-17 |
2017-18 (E) |
| Opening Stock |
7.75 |
3.85 |
| Production |
20.20 |
32.50 |
| Imports * |
0.45 |
0.20 |
| Total Availability |
28.49 |
36.58 |
| Offtake |
|
|
| - Internal |
24.56 |
25.40 |
| - Exports |
0.50 |
0.46 |
| Total Offtake |
24.61 |
25.86 |
| Closing Stock |
3.88 |
10.72 |
| % of Internal offtake |
15.80 |
42.20 |
* WHITE FROM RAWS
Source: ISMA
GOVERNMENT POLICIES (FY 2017-18)
Sugar:
• The Government of India increased import duty on sugar from 40% to 50% in July
2017 and further to 100% in February 2018. In April 2017, the Directorate General of
Foreign Trade (DGFT) amended the Foreign Trade Policy to permit Tariff Rate Quota (TRQ)
for import of 5 lakhs MTs of raw sugar at zero percent basic customs duty. An additional
TRQ of 3 lakh MTs of raw sugar was announced in September 2017.
• Stock holding limits on the sugar trade were withdrawn in December 2017.
• Minimum Stock levels for sugar mills were mandated for end of February and March
2018.
• Minimum Indicate Export Quota (MIEQ) was notified millwise in March 2018 for the
2017-18 sugar season, aggregating to 20 lakh MTs.
• Export Tax of 20% was removed in March 2018.
Sugarcane:
• The Government of India announced Fair and Remunerative Price (FRP) for 2017-18
season at
$ 255/- per quintal linked to average recovery 9.5% as against $ 230/- per quintal for
2015-16 and 2016-17 seasons.
• The Government of Tamil Nadu has announced that with effect from the 2017-18
season onwards, the sugarcane price would be fixed on the basisi revenue sharing as
envisaged vy the Dr. Ranagarajan Committee Report and that the same would replace the
State Advised Price (SAP). In addition, the sugar nills would be mandated to bear the cost
of transportation from filed to factory.
To facilitate the transition from SAP to the revenue sharing formula, the State
Government would reimburse the farmer for any shortfall in price realization under the new
formula with reference to the last announced SAP of $ 2750/- per MT for 2016-17.
COMPANY PERFORMANCE: SEGMENT-WISE
| Products |
UoM |
2016-17 |
2017-18 |
| SUGAR : |
|
|
|
| Cane Crushed |
MTs |
6,00,048 |
1,80,909 |
| Sugar Production |
MTs |
47,504 |
25,667 |
| Sugar Sales |
|
|
|
| - Domestic |
MTs |
54,761 |
41,213 |
| - Export |
MTs |
– |
– |
| - Total |
MTs |
54,761 |
41,213 |
| Molasses Production |
MTs |
31,930 |
|
| ALCOHOL |
|
|
|
| - Production |
KL |
9,719 |
6,067 |
| - Sales |
KL |
9,107 |
8,097 |
| Bio Fertilizers |
|
|
|
| - Sales |
$ in million |
4.30 |
2.01 |
RISKS AND CONCERNS:
The management cautions that the risks and concerns outlined herein are by no means
exhaustive and merely highlight the salient among them. Investors are advised to exercise
due diligence in assessing the various risk factors associated with the industry and your
Company.
The sugar industry in India is highly vulnerable to policy as well as climate induced
cyclical fluctuations and hence fraught with several risks of varying magnitude. Some of
the inherent business risks and the mitigation measures initiated therefor by your Company
are outlined hereunder:
a) Raw Material Risks:
Adequate availability of quality sugarcane and cost thereof affects both the sugar as
well as the distillery operations. While the quality of sugarcane varies with climatic
conditions as well as agronomic practices adopted by the farmer, the quantum of sugarcane
available is determined by the relative attractiveness of sugarcane to the farmer as
compared to other remunerative crops and also the availability of adequate water for
irrigation. Even when adequate ground water is available, uninterrupted power supply from
the grid is required for pumping such water for irrigation. The cost of sugarcane itself
is determined by the Fair and Remunerative Price fixed by the Central and the State
Advised Price announced by State Governments, as also the taxes and duties levied on
sugarcane. Another major factor affecting sugarcane cultivation is the availability and
cost of harvest labour, which is increasingly becoming a scarce resource due to alternate
employment opportunities.
To mitigate these raw material related risks, your Company, besides ensuring a
remunerative cane price, provides subsidies to farmers for drip irrigation, ratoon
management, full reimbursement of cane transport cost, and full/part reimbursement of
seed/ seed transport cost, apart from providing assistance in obtaining crop loans for
cultivation. Your Company also provides a variety of extension services to educate the
farmers about the latest agronomic practices, apart from providing assistance for sinking
of borewells, adoption of drip irrigation, mechanised ratoon management and development of
link road infrastructure. Of late, your Company has given special focus to promotion of
mechanisation of all agricultural operations including cane harvesting. Assistance is also
provided to farmers for obtaining electricity connections and loans for sinking of wells
and borewells.
b) Product Risks:
Post decontrol, sugar prices are determined by the interplay of domestic demand and
supply as well as Government policies on export and import, and the erstwhile controls on
sale and distribution of sugar have been removed. On the other hand, alcohol prices and
distribution continue to be directly or indirectly controlled by the State Government to
varying degrees, especially through regulation of export and import of molasses and
alcohol. The impact of domestic and global market forces and regulatory changes are beyond
the control of the Company. To mitigate these product related risks, your Company is
constantly exploring the possibilities for hedging sugar price risk in the domestic and
international commodity futures markets in respect of domestic sales and exports/imports,
respectively, apart from providing flexibility in producing and packing to customer
specifications for export. As regards alcohol, the strategy has been to provide for
adequate storage capacities to enable sale at the opportune time and avoid distress sale.
c) Regulatory Risk:
Sugar and alcohol are subject to a range of direct and indirect controls by both the
Central and State Governments, encompassing the entire gamut of sugarcane pricing,
sugarcane command area reservation, location of new sugar mills, sugar packing and
storage, sale and movement of molasses and alcohol, export/import of sugar, molasses and
alcohol etc.
Such regulatory risks emanate from Government policy and legislation and are beyond the
control of the Company. While your Company complies with all regulatory requirements, it
proactively represents to Government both directly and through the industry associations
on various regulatory issues which have a significant bearing on its operations and future
prospects.
d) Financing Risk:
Sugar is a seasonal industry requiring storage of the finished product over an extended
period of time, whereas, the cane dues, which constitute nearly 65-70% of the cost of
production, have to be discharged within 14 days as per law. Thus, the major financing
risk relates to sourcing adequate working capital, apart from finding sufficient funds for
capital expenditure for modernisation and expansion. Related thereto are the interest rate
risks attached to such financing, which derive from the general movement of interest rates
in the economy and especially the prime lending rate fixed by various Banks and Financial
Institutions from time to time. Overlaid on these is the added risk from currency
fluctuations in the case of exports/imports and loans contracted in foreign currencies,
and consequential risks from any attendant hedging transactions.
To mitigate these risks, your Company, which enjoys a sound reputation and good rating
with the Banks and Financial Institutions, strives to focus on low cost financing options
and minimising inventory levels to reduce working capital requirements. Likewise, only
essential capital expenditures are undertaken and that too only after in-depth analysis.
Hedging transactions are undertaken as and when deemed necessary, but only within prudent
limits and constant monitoring and control.
INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY :
Your company has adequate systems and internal controls to safeguard the assets of the
Company and to ensure maintenance of proper accounting records. Computerised information
systems are available to capture, present and analyse the data for management information
and decision making. The Company has successfully implemented an ERP system and the same
is fully operational now. There is also an internal audit system in place which reviews
the key business processes and controls and also test checks on routine transactions and
reports deviations. Besides, the Audit Committee also periodically reviews the functioning
of the entire system.
FINANCIAL PERFORMANCE:
Please see disclosures in the Directors Report. The financial performance of the
Company is dependent on factors like cane price fixation, domestic demand supply balance,
Government policies on export/import etc. over which it has no control. On account of the
increase in price paid for cane, notwithstanding lower realisation on the sale of sugar,
the Company reported loss for the year under review. Reserves and Surplus decreased from $
933.49 million on March 31, 2017 to $ 433.54 million on March 31, 2018.
INDUSTRIAL RELATIONS:
Industrial relations at your Company continue to be cordial. The Company has continued
its efforts to rationalise the deployment of manpower while ensuring at the same time that
adequate number of professionals is positioned at all levels and in every discipline. The
total manpower employed by your Company aggregates to 464.
On behalf of the Board
R V Tyagarajan
Chairman and Managing Director September 30, 2018
Pursuant to Section 204(1) of the Companies Act,2013 and Rule 9 of the Companies
(Appointment and Remuneration of Managerial Personnel) Rules, 2014]
To,
The Members,
M/s.Thiru Arooran Sugars Limited,
Eldorado Building, 112, Uttamar Gandhi Salai, Nungambakkam, Chennai - 600 034
We have conducted the secretarial audit of the compliance of applicable statutory
provisions and the adherence to good corporate practices by Thiru Arooran Sugars
Limited, [Corporate Identity No. L15421TN1954PLC002915] (hereinafter referred to as
"Company"). Secretarial Audit was conducted in a manner that provided us a
reasonable basis for evaluating the corporate conducts/statutory compliances and
expressing our opinion thereon.
Based on our verification of Companys books, papers, minute books, forms and returns
filed and other records maintained by the Company and also the information provided by the
Company, its officers, agents and authorized representatives during the conduct of
secretarial audit, we hereby report that in our opinion, the Company has, during the audit
period covering the financial year ended on 31st March, 2018 complied with the statutory
provisions listed hereunder and also that the Company has proper Board-processes and
compliance mechanism in place to the extent, in the manner and subject to the reporting
made hereinafter:
We have examined the books, papers, minute books, forms and returns filed and other
records maintained by the Company for the financial year ended on 31st March, 2018
according to the provisions of:
(i) The Companies Act, 2013 (the Act) and the rules made there under and the Companies
Act, 1956 (to the extent applicable);
(ii) The Securities Contracts (Regulation) Act, 1956 (SCRA) and the rules made there
under;
(iii) The Depositories Act, 1996 and the Regulations and Bye-laws framed there under;
(iv) During the year under review, the Company has not dealt with the matters relating
to Foreign Direct Investment, Overseas Direct Investment and External Commercial
Borrowings under Foreign Exchange Management Act, 1999 (FEMA) and hence, the question of
complying with the provisions of FEMA and the rules and regulations made there under does
not arise;
(v) The following Regulations and Guidelines prescribed under the Securities and
Exchange Board of India Act, 1992 (SEBI Act):-
a) The Securities and Exchange Board of India (Substantial Acquisition of Shares and
Takeovers) Regulations, 2011;
b) The Securities and Exchange Board of India (Prohibition of Insider Trading)
Regulations, 2015;
c) The Company has not issued any securities during the year under review and hence the
question of compliance of the provisions of the Securities and Exchange Board of India
(Issue of Capital and Disclosure Requirements) Regulations, 2009 does not arise;
d) The Company has not formulated any Scheme of ESOP/ESPS and hence the requirement of
compliance of the provisions of the Securities and Exchange Board of India (Share Based
Employee Benefits) Regulations, 2014 does not arise;
e) The Company has not issued any debentures during the period under review, hence the
compliance of the provisions of the Securities and Exchange Board of India (Issue and
Listing of Debt Securities) Regulations, 2008 is not applicable; f) The Securities and
Exchange Board of India (Registrars to an Issue and Share Transfer Agents) Regulations,
1993 regarding the Companies Act and dealing with client;
g) During the year under review, the Company has not delisted its Securities from any
of the Stock Exchanges in which it is listed and hence the compliance of the provisions of
the Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009
is not applicable; and
h) The Company has not bought back any Securities during the period under review and
hence the question of complying with the provisions of the Securities and Exchange Board
of India (Buyback of Securities) Regulations, 1998 does not arise;
Based on the information provided by the Company, its officers and authorised
representatives during the conduct of audit, and also review of Compliance Certificate(s)
issued by the Company Secretary and Internal Audit Reports taken on record by the Board of
Directors at their meeting(s), we are of the opinion that the management has adequate
systems and processes commensurate with its size and operations, to monitor and ensure
compliance with rules, regulations, guidelines, etc. prescribed under various laws which
are applicable to the Company and categorized under the following major heads/groups:
a. Factories Act,1948;
b. Acts and rules relating to Sugar industries including The Sugar Cess Act, 1982, The
Sugar Development Fund Act, 1982, The Sugar(Packing & Marking) Order, 1970, The Sugar
Cane Control Order, 1966, The Tamil Nadu Molasses Control and Regulation Rules, 1958, The
Tamil Nadu Distillery Rules, 1981;
c. Labour laws and other incidental laws related to labour and employees appointed by
the Company including those on contractual basis as relating to wages, gratuity,
prevention of sexual harassment, provident fund, insurance, compensation etc.;
d. Acts relating to consumer protection including The Competition Act, 2002; e. Acts
and Rules prescribed under prevention and control of pollution; f. Acts and Rules relating
to Environmental protection and energy conservation; g. Acts and Rules relating to
explosives, Boilers etc., and h. Other local laws as applicable to various plants and
offices.
We further report that compliance of applicable financial laws including
direct and indirect tax laws by the company has not been reviewed in this audit since the
same has been subject to review by statutory auditors and other designated professionals.
We have also examined compliance with the applicable clauses of the following:
(i) The Secretarial Standards on General and Board Meetings specified by the Institute
of Company Secretaries of India.
(ii) The Uniform Listing Agreement entered into with the BSE Limited and the National
Stock Exchange of India Limited pursuant to the provisions of the SEBI (Listing
Obligations and Disclosure Requirements) Regulations, 2015.
During the period under review, the Company has complied with the provisions of the
Act, Rules, Regulations, Guidelines, Standards, etc. mentioned above.
We further report that
The Board of Directors of the Company is constituted with proper balance of Executive
Directors, Non-Executive Directors and Independent Directors. No change had taken place in
the Board of Directors during the period under review.
Adequate notice is given to all directors to schedule the Board Meetings, agenda and
detailed notes on agenda were sent at least seven days in advance, and a system exists for
seeking and obtaining further information and clarifications on the agenda items before
the meeting and for meaningful participation at the meeting.
All decisions were carried through with the consent of all the Directors/Committee
Members present and hence the question of recording the dissent of the members does not
arise. However, in the minutes of the General Meeting, the members who voted against have
been properly recorded.
We further report that there are adequate systems and processes in the Company
commensurate with the size and operations of the company to monitor and ensure compliance
with applicable laws, rules, regulations and guidelines.
For R.SRIDHARAN & ASSOCIATES
Company Secretaries
CS R.SRIDHARAN
CP No. 3239 FCS No. 4775
Place : Chennai
Date : 14th August, 2018
+91-9892691696
