ponni sugars erode ltd share price Directors report


Your Board is pleased to present its 27th Annual Report and the audited financial statements for FY 2022/23.

2022-23 2021-22
Physical Performance
Cane crushed (tonnes) 921849 646407
Sugar recovery (%) 9.94 9.84
Sugar produced (tonnes) 91326 63555
Power produced (lakh kwh) 1213 875
Financial Performance (Rs crores)
Total Income 450 295
Profit Before Interest, Depreciation &Tax 56 43
Profit Before Tax 48 36
Profit After Tax 38 29

Dividend

Your Board has recommended a dividend of Rs 6.50/- (Rupees six and paise fifty only) per equity share of Rs 10 each for the financial year ended 31st March 2023, subject to the approval of shareholders at the ensuing Annual General Meeting.

Transfer to General Reserves

Your Board has proposed to transfer Rs 25 crores to General Reserve.

Company performance

The company, thanks to its fervid focus on fresh planting and fervent thrust on cane variety and quality, has been able to achieve steady and stupendous surge in cane crushing over the last five years. Our cane volume this year pierced the 9 lakh tonne mark only for the second time since inception that just missed the peak by a whisker. Sugar recovery stayed buoyant that is blissfully the best amongst private mills in the State. Power production and sales zoomed to zenith, though on the flip side our power production in excess of normative PLF gets penalized by a lower tariff rate. Several of our key operating parameters this year were the best in over a decade. Turnover transcended to a crescendo, convincingly crossing Rs 400 crores marks for the first time. Our operating performance for FY 2022-23 was thus healthy and heart-warmingly on a high sounding note.

We did have our share of problems and were confronted with host of headwinds that in regular and recurring occurrence impeded our plans and operations. Harvest labour challenge both in terms of availability and affordability is ever escalating and fast threatening to pose existential crisis. While mechanization is the sure shot way forward, its pick up is slow and penetration narrow owing to fragmented land holding, undulated terrain, rocky subsoil and huge share of ratoon crops that were planted earlier in narrow rows. This vexatious issue has since taken centre stage with ISMA focussing on macro level challenges. It is all the more relevant and pressing for Tamil Nadu to take the lead, meet the challenge head on and double down efforts to bring in 30-40% of its cane area under mechanical harvesting in the next couple of years. Government, industry research institutions and other stakeholders must act in unison and with unitary focus to resolutely resolve the imbroglio.

Sugar prices hovered around Rs 3500/ qtl till Nov ?21 but thereafter crashed by Rs 100-150/ qtl. Restricting exports when the world market was bullish and prices ruling at a premium to local market proved party pooper, feeding to the bearish sentiments in the domestic market. As against all round cost escalations, we were to reconcile to a near static sugar price and negative correction in both molasses and power prices. Under such an adverse turn of market, it is all the more creditable for the company to come out with dazzling results for the year.

Our cogen operations encountered egregious cost pressures with rollicking rise in the price of every species of fuel. As if to add fuel to fire, the extended monsoon this time decidedly disrupted the daily flow of external bio-fuel and distorted fuel efficiency norms due to higher moisture, escalating our steam cost. While so, the power tariff revision due from 1st April ?22 is yet elusive and excruciatingly evasive, with the Regulator not acting on its own consultation paper issued for this purpose more than a year ago. Further, our power tariff for Feb & Mar ?23 denuded by 34% by dint of our annual production crossing the normative PLF. All these have contrived to capriciously cripple our power margin.

REC entitlement and trading through regulatory interventions has been receiving periodical shocks, of late. The latest Rules now seek to disqualify captive consumption of renewable energy from saleable REC entitlement. While the capital investment in cogen project was incentivised on the premise of a premium pricing for the renewable energy plus REC benefits, mid-course corrections like these are unarguably unjustified and patently opposed to the principle of promissory estoppel. For the present, our future revenue prospects from this source would appear a mirage.

Government of India in June ?22 brought in a legislative change to tackle power sector woes and perpetuating payment crisis. It inter alia contemplates liquidation of old outstanding dues from State Discoms to the power producers. While the underlying intent and ultimate objective is for sure unexceptionable, its remedial prescription would seem painfully perverted. In allowing a long tenure of 48 EMIs for paying the past dues, it has instantaneously chocked the liquidity of power producers. Much worse, it permits such long tenure for debt servicing at zero interest. In the process, the defaulting party stands to gain, while the gullible power producer, for no fault of him, is saddled with instant liquidity stress and implicit financial loss. In this bargain, TANGEDCO dues of Rs 48 crores to our company has been made payable in 48 EMIs. On the positive side, we now receive these EMI dues in time, besides our current dues for monthly power supplies getting settled with short delay.

Our financial performance during the year was bolstered by one-time gains in the form of interest credits for past power dues and swapping our export quota. In the end, both our PBT and PAT strikingly shot up by over 30% year on year. For the record, PBT is the second best in the annals of the company while our PAT has scaled to an all-time high. Indeed, the company that operates in a seasonal industry has shown positive results for the past 17 successive quarters that per se is praiseworthy.

The company completed phase-1 of the Energy Efficiency Project on a capital outlay of Rs 12 crores. This has helped us realise the targeted reduction in energy consumption. It has now planned to embark on phase-2 of the project that involves capex of Rs 5 crores. This would be completed by Nov ‘23. These projects are in entirety financed out of internal accruals.

Ethanol Project

Ethanol Blended Petrol (EBP) programme has been a great success story in India and a gainful game changer for the sugar industry. The country has achieved 10% blend in quick time and is well poised to reach 20% blend by 2024-25. The Government is encouraging new capacities simultaneously from scores of feed stocks including damaged food grains.

Our company was one of the early movers to conceive a 45 KLPD Distillery-cum-ethanol plant in June 2019 and obtain interest subvention support therefor. However, we continue to encounter obstacles in obtaining environment clearance. Ethanol production is increasingly coming from B-heavy molasses and sugarcane juice as opposed to earlier production entirely emanating from C-molasses. It is hence imperative that our ethanol plant is housed within the sugar mill complex as an integral part thereof. Further, the project for its long term sustainability shall in its configuration have a flexible product mix compatible with market dynamics. While Government of Tamil Nadu in Oct ?21 relaxed the locational restriction for ethanol, it was not explicitly extended to cover the production of other allied products like ENA and RS.

It is gratifying to observe that the ‘Ethanol Blending Policy 2023? of the TN Government released in March ?23 seeks to comprehensively address the multifarious issues involved in ethanol projects. In particular, it mandates the ‘consent to operate? issued by the pollution authority to specifically cover ENA, RS etc. It is hoped that in sync with this policy, our project should now be able to get requisite environment clearance.

While so, the interest subvention support granted by GoI for a term loan component of Rs 58 crores has since expired. We remain uncertain on its continuance that in turn will have a major bearing on the ethanol project viability. When once requisite environment clearance is secured, we should be able to take a call on the ethanol project based on extant viability assessment.

Outlook for FY 2023-24

Monsoon forecast has been varyingly assessed by IMD and the other private player. There is growing concern and consensus that El Nino factor would more likely impact the southwest monsoon, both for its adequacy and efficacy, after the country received four successive years of bountiful monsoon. This would have a considerable bearing on all India sugar production outlook for the next season and Government policy stance, in particular, on sugar exports.

Sugarcane area and yield have been showing decent uptick in Tamil Nadu and sugar production would nearly double this season compared to the trough it touched five years ago. High cost of sugarcane cultivation stemming from an abominable rise in farm labour cost coupled with the re-emergence of competing crops enjoying better remunerative prices has thrown a spanner in works to halt this progress. Fresh cane planting has taken a severe beating throughout the State, though the ratoon support should for now come as a good buffer to guard against a steep fall in State?s next year sugar production. Adverting to and aligning with this adverse trend, our company too is faced with muted growth in fresh cane planting. Considering overall cane availability in Tamil Nadu, it looks more likely that our sugar production next year would suffer a decline, though the degree of decline may not be too deep.

Sugar prices have significantly strengthened in the global markets of late that have an indirect influence on our domestic prices. We expect sugar realization to meaningfully move up that should help neutralize the impact of lower sugar production. Understandably, there could be no repeat of the ‘one off? gains that boosted our ultimate bottom-line in FY 2022-23. In all, we expect a correction and climb-down in our profits in FY 2023-24 from the current peak; yet it would be satisfyingly strong on a normative scale, barring the unforeseen.

Management Discussion and Analysis Report

A detailed discussion on the industry structure (dealing with world sugar and Indian sugar) as well as on the financial and operational performance of the company is contained in the ‘Management Discussion and Analysis Report? that forms an integral part of this Report (Annx-1).

Corporate Governance

Pursuant to Regulation 34(3) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (SEBI- LODR), Corporate Governance Report together with the certificate from the company?s auditors confirming the compliance of conditions of Corporate Governance is given in Annx-2. The Corporate Governance Report also includes contents and disclosures required under Section 134(3) of the Companies Act, 2013 at relevant places that forms an integral 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 2021-22 has been placed on the website of the company www.ponnisugars.com. The same will be done for FY 2022-23 after conclusion of the 27th AGM.

(ii) Directors? Responsibility Statement

Pursuant to Section 134(3)(c) of the Companies Act,2013 (the Act) with respect to the Directors

Responsibility Statement, your Board confirms that:

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

(b) the directors have selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the financial year and of the profit of the company for that period;

(c) the directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets 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 the company and that said internal financial controls are adequate and were operating effectively; and

(f) the directors have devised proper systems to ensure compliance with the provisions of 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 make investment 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 Related Party Transactions (RPTs) and the policy formulated by the Board on Material RPTs. During the FY 2022-23, the aggregate of RPTs with one of its promoters viz. Seshasayee Paper and Boards Limited (SPB) exceeded the materiality threshold as stipulated under the SEBI-LODR. Anticipating same, prior approval was obtained through ordinary resolution passed by shareholders through postal ballot on 30.12.2022 wherein all the related parties abstained from voting as per the mandate.

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 is given in 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 the company that has occurred since 31st March 2023 to the date of this report.

(vi) Conservation of Energy etc.

Information relating to conservation of energy, technology absorption and foreign exchange 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 Section 135 of the Companies Act, 2013 for FY 2022-23. The CSR report in the prescribed form as amended is given in Annx-5 that forms part of this report.

(viii) Public deposit

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

(ix) Adverse orders

No significant or material order has been passed by the regulators or courts or tribunals impacting the going concern status of the company and the company?s operations in 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 work flow and approvals are routed through this system.

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

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

4) The Board of Directors have adopted various policies like Related Party Transactions Policy and Whistle Blower Policy and put in place budgetary control and monitoring measures for ensuring the orderly and efficient conduct of the business of the company, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records and the timely preparation of reliable financial information.

(xi) Insolvency and Bankruptcy Code, 2016

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

(xii) Valuation difference

The company has not done any one time settlement with Banks or Financial Institutions.

(xiii) Particulars of Employees

The Statement of Disclosure of Remuneration under Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 ("Rules") is appended as Annx-6 to this Report.

Directors and KMPs

Mr.N.Gopala Ratnam (DIN:00001945) retires by rotation at the ensuing 27th Annual General Meeting and being eligible, offers himself for reappointment that would be through Special Resolution. Due disclosure and rationale for his reappointment are furnished in the statement pursuant to Section 102(1) of the Companies Act, 2013 attached to the AGM Notice.

Dr L M Ramakrishnan (DIN: 00001978), as Vice Chairman and Independent Director of the Company completed his second term of office and ceased to be a director of the company from close of 30th September 2022 in accordance with the special resolution passed by shareholders through postal ballot on 29.03.2019. He was associated with the company and the Erode sugar mill for close to four decades. The Board places on record the valued contribution of Dr L M Ramakrishnan to the company?s growth and standing.

Mr P Manoharan (DIN: 09706869) was appointed as an additional director in the category of independent director from 01.10.2022 by the Board of Directors at their meeting held on 17.09.2022. Shareholders vide special resolution passed through postal ballot on 30.10.2022 appointed Mr P Manoharan as an Independent Director of the

Company, not liable to retire by rotation and to hold office for a fixed term of five (5) years from 01.10.2022 to 30.09.2027.

Mr N Ramanathan (DIN: 00001033) has been reappointed as Managing Director of the company for a further tenure of 3 years from 01.04.2023 by the Board of Directors of the company at their meeting held on 27th January 2023. Shareholders in turn have approved the reappointment of Managing Director and the terms thereof vide special resolution passed through postal ballot on 12.03.2023.

Mr R Madhusudhan has been appointed as Company Secretary and Compliance officer by the Board of Directors with effect from 19.07.2022; concurrently Mr N Ramanathan ceased to be Company Secretary from that date but continues in his role as the Managing Director of the Company.

Auditors

M/s S Viswanathan LLP (Firm Regn.No.004770S/S200025) were appointed as statutory auditors for the second term of five years, in the 26th AGM. Accordingly, their term will expire at the conclusion of the 31st AGM.

Particulars of statutory auditors, cost auditors, internal auditors and the secretarial auditors have been given in the Corporate Governance Report that forms an integral part of this report. Secretarial Audit Report as required by Section 204(1) of the Companies Act, 2013 is attached (Annx-7).

Acknowledgement

We convey our sincere appreciation and thanks to the Central Government, Government of Tamil Nadu, Banks, customers and suppliers for their understanding and support. We commend the continuing commitment and concerted cooperation shown by our extended family of sugarcane farmers who have weathered daunting challenge and in quick time expanded the area under sugarcane.

Your company has been able to achieve commendable results, thanks to the committed contribution of its employees in all ranks. The Board, above all, would like to thank our valued shareholders for their persistent patronage.

For Board of Directors
Chennai N Gopala Ratnam
28th April 2023 Chairman
DIN:00001945