Riga Sugar Company Ltd Management Discussions

Your Directors have pleasure in presenting their Report and audited Accounts of the Company for the financial year ended 31st March, 2016.

FINANCIAL & OPERATIONAL RESULTS		(Rs. in Lacs)
	Financial Year 31st March, 2016	Financial Year 31st March, 2015
FINANCIAL RESULTS
(a) Gross Turnover	18,536.84	18,949.35
(b) Operating Profit Before Finance Cost & Depreciation	1,337.09	561.56
(c) Finance Cost	1,435.34	1,607.46
(d) Cash Accruals	(98.25)	(1,045.90)
(e) Depreciation &Amortization	408.27	396.01
(f) Profit (Loss) before extraordinary items	(506.52)	(1,441.91)
(g) Extraordinary Item of Exp./ Income	-	-
(h) Profit (Loss) Before Tax	(506.52)	(1,441.91)
(i) Provision forTax
-Deferred Tax	(278.63)	(401.82)
- income Tax of earlier year	0.82	-
(j) Profit (Loss) After Tax	(228.71)	(1,040.09)
(k) Balance Brought Forward from last year	(1937.20)	(897.11)
(I) Profit (Loss) Carried Forward to Balance Sheet	(2,165.91)	(1,937.20)

DIVIDEND:

In view of losses company is unable to pay Dividend.

OPERATIONAL RESULTS

Sugar Unit ;

The comparative figures in regard to duration of season, cane crush, sugar recovery and production for the year ended 31st March, 2016 vis-a-vis previous financial year ended 31st March, 2015 in respect of the Sugar Factory of your Company are given below:-

	Financial Year 31st March, 2016	Financial Year 31st March, 2015
1. Duration of crushing (gross days)	96	131
2. Cane crushed (Lac Qtls.)	36.45	52.35
3. Recovery (%)	9.38	8.62
4. Production (Lac Qtls.)	3.42	4.51

The net sales of sugar unit slightly decreased from Rs.138 Cr. to Rs 137 Cr..

Afterfive years of continuous surplus production and stock, which led to free fall ofsugarprice, the downtrend in sugar price halted from December, 2015 onward. But throughout for first 8 months period the sugar prices were ruling much below the cost of production. The sugar price touched such a low once up on that it could not even cover the cost of cane, leave alone the cost of production.

Sensing that during 2015-16 there will be lower production of sugar in country the price started moving upward. Not only the production of sugarwas lower in India, but there was deficit worldwide, dueyoAI-Nino which faces drought situation. The decision of the central government for compulsory export of sugar gave another boost to the price of sugar in the country. Your company could capitalize the improved price of sugar during last quarter of the financial year by selling stock of previous season, which kept deliberately in anticipation of better price. But overall the company could not make up the losses on sugar incurred on major part of the year and thus average realisation was lower than cost of production.

The FRP forthe season 2015-16 were increased by Central Government from Rs. 220 perqtl. to Rs. 230 per qtl. linked with basic recovery of 9.5%. In Bihar the cane Price forthe season 2015-16 were increased to Rs. 260 per qtl. for normal varieties, Rs. 250 per qtl. for lower varieties and Rs. 270 for premium Variety. Transport rebate on out center cane remains at Rs. 15 per qtls.

Relief by Bihar Government

The state government of Bihar realized the severe problems being faced by the sugar industry and thus continued the relief measures announced last season. The Bihargovernment exempted purchase tax (Rs. 1.75 perqtl.), reduced ZDC Commission (Rs. 4.00 per qtl.), and extended cash subsidy of Rs 16.75 perqtl.of sugarcane for season 2015-16 also. The above steps of state government has resulted into financial saving/benefit/relief to the company to the extent of Rs 8.20 Crores on cane crush of 36.45 Lacs Qtl. Howeverthis reprieve proved insufficient in view ofwide gap between average sugar price realization and cost of production during the financial year.

The molasses price in Bihar during the year maintained at Rs. 287.50 per qtl.

The Bihar Government during theyear extended soft loan to the sugar factories of the State for the purpose of clearance of cane price arrears forthe season 2014-15.The soft loan has moratorium of 1 year and repayment thereof in equal installment in 5 years with interest subvention upto 12% in first yearand upto 10% in next 5 years. The company availed soft loan of Rs 16.78 crores and used the entire amount toward clearance of cane price to the farmers.

Due to negative outlookof sugar industry the Bank downgraded the rating of sugar companies and thus cost of funds increased. Therefore lower sales realization and increase of interest burden impacted the profitability of the company and industry.

Distillery Unit

	Financial Year 31st March, 2016	Financial Year 31st March, 2015
1. Production of Industrial Alcohol (Lac BL)	95.24	130.82
2. Sale of Industrial Alcohol/Transfer for Country Liquor (Lac BL)	64.04	111.73
3. Supply of Ethanol (Lac BL)	13.29	7.20

The Rectified Spirit price which was revised by the Bihar Government last year at Rs 35.80 per BL continued this year.

Ethanol

The company participated in Tender floated by Oil Marketing Companies (OMC) and got LOI for supply of ethanol to the depot ofOMC in Bihar, Jharkhand and West Bengal. The state government of Biharfrom 1st April 2016 ban the production, consumption and supply of Alcohol in all forms i.e country liquor and IMFL in the state. The admixing of Ethanol with Petrol has also been increased from 5% to 10% at same Depot. Thus the company applied forfull quantity of expected production in distillery as Ethanol to be supplied to all marketing companies.

There is fixed price policy of Ethanol i.e Rs. 48.50 per BL within 100 km, Rs 49.00 per BL within 100-300 km and 49.50 per BL beyond 300 km.

Country liquor

The state government of Biharfrom 1 stApril 2016 ban the production, consumption and supply of Alcohol in all forms i.e country liquor and lMFL. Thus the companys exclusive License for manufacture and supply of Country Liquor in Pet Bottle to Bihar State Beverage Corporation Limited for a period of 5 years starting from 1st April, 2014 in Muzzafarpur Zone were cancelled and Manufacturing Depot of country liquor were closed and surrendered on 31 st march 2016 and was sealed by the Excise Department of Bihar.

SEGMENT-WISE PERFORMANCE:

During the reporting period sugar segment contributed 76 percent of net sales of the company whereas Distillery accounted for 24 percent. The company identified two business segments in line with the Accounting Standard on Segment Reporting, Segment- wise Revenue, Results and Capital Employed as stated in Note No.32 of financial statement enclosed with the Annual Report.

INDUSTRY STRUCTURE & POLICY

Structure

Sugar Industry, is seasonal in nature and directly dependenton monsoon foravailabiiity of adequate sugar cane. India is the largest consumerand second largest prod ucerofsugar in the world, contributing over 15 percent of the worlds sugar production through over 600 sugar factories situated in different parts of the country. The sugar Industry is the largest agro based industry in India. This industry also provides valuable by-products like bagasse, molasses and press mud. The availability of these by-products had led to setting up ofAlcohol/Ethanol/co-generation of Powerand Organic Manure plants. Over 5 Crore farmers, large number of agricultural labourer are involved in sugarcane cultivation and its harvesting operations. The growth of sugar industry has a powerful impact on the rural economy. Integrated Sugar Industry (comprising sugar, molasses, alcohol, powerand bio-fertilizer) enjoys annual turnoverof about Rs. 85,000 Crore and contribute about Rs.3,000 crore to the Central Government Exchequer by way of central excise duty every year beside state taxes on sugarcane and hefty taxes collected by state as excise and VAT on sale of spirit in the state which run an estimated Rs. 10,000 crores annually. Since sugar industry is in loss income tax is not being paid present, butthe cola and confectioneries, Biscuit, Ice-cream company are making huge profit due to lower cost of sugar and thus paying higher IncomeTax. Sugar Industry accelerates rural developmentthrough farm employmentaswell as business opportunities in transport and communication.

Sugar has been declared as an essential commodity under the Essential Commodities Act, 1955. Under Sugarcane (Control) Order, 1966, the Government of India fixes cane price called Fair and Remunerative Price (FRP) for sugarcane every year based on the recommendations of the Commission on Agricultural Costs & Prices. However many state government fixes higher cane price for the sugar factories in their state.

Sugar Cycle

The Indian sugar industry is characterized by cycle of high and low sugar production. This cycle of 3-4 years is broadly of two types viz. Natural comprising climatic variation, water availability and pest attacks. The other is induced cyclicality which have sequence like - higher sugar production and accumulation of stock - decline in sugar prices & profitability-higher sugarcane arrears--decline in area undercultivation & Lower cane production --lower sugar production-lower sugar availability and stock and thus increase in sugar prices — improved profitability & low cane arrears-higher cane production -highersugar production and so on. Every time the cyclicality reaches its low government have to step in to provide Fiscal support in the form of Export subsidy, Buffer Stock creation, Interest Free Loans etc. This cycle has broken and India is having higher production of sugarfor previous five consecutive years.

The fundamental problem of the Indian Sugar Industry is that there is no parity between the price of raw material i.e. sugarcane and its finished goods of sugari.e. Illogical intervention of state government cause wide economical distortation in sugar industry. In almost all major sugar producing countries of the world the price of cane paid to the farmers depends on realization from sugar.

Distillery & Ethanol

In Bihar since ban has been imposed on production .consumption and sale of potable from 1 stApril 2016, now the distilleries can only produce Ethanol and supply the same to oil marketing companies in any State of India. However the movement and price of Molasses is controlled by State Government.

Co-Gen of Power

The Company has set-up co-generation Plant for producing additional 3 MW of Electricity and has started supplying power to state electricity substation from 14th January 2016. This forward integration will contribute to the profitability of the company.

Bio-CompostFertiliser

The company is using distillery effluent and press mud from sugar and other agricultural waste to produce bio-compost which is very cost efficient. Thus the company apart from treatment of effluent and zero discharge adding value. In October, 2015 Fertiliser Control Order, 1985 were amended by Ministry of Agriculture, Government of India and included Bio-enriched organic manure under FCO. Accordingly the company applied for Registration of Bio-compostwith Ministry of Agriculture as per requirement of CPCB.

Pollution Control- Zero Discharge Company

The Sugar and Distillery factories of the company are Zero Discharge Plants as per norms of Central Pollution Control Board and Ministry of Forest and Environment. The company treat the entire solid waste generated from Sugar factory which is generated in the form of Press-mud and liquid generated from Distillery in the form of spent wash for production of Bio-Compost. For this the company has set-up Digesters, RO, Lagoon and Bio-compost facilities on more than 17 Acres of Land. The Digesters is capable of generating bio-gas which is replacement of fossil fuel. The Bio-compost produced is rich in all organic nutrients required for fertility of the land. The said bio-compost is sold to farmers who supply sugarcane to company and also to other farmers and even used in Tea Gardens of Assam and Darjeeling. Further the clean water generated from RO is used in the plant for various purposes.

Thus the company is not only zero discharge company, but is also generating economic value from such waste products and rejuvenating thefarm land through use of organic fertilizer. The company has been awarded IS0 14000:2004 in recognition of the organizations Environmental Management System.

As per new norms of CPCB , the company is installing Multi Effect Evaporator (MEE),which will reduce the quantity of effluent generation substantially and thus the achieving of Zero Discharge as per new norms of CPCB will be further strengthen.

During the year a complaint was filed with National Green Tribunal (NGT) by one individual person against distillery of the company. After through submission of facts and figures by the company the Honble NGT directed for inspection by CPCB. CPCB after detailed inspection found that company is following Zero discharge norms and thus the matter was disposed off.

CANE & SUGAR POLICY

• The Fair and Remunerative Price (FRP) price of sugarcane for the season 2015-16 was fixed atRs. 230 perqtl. (last year Rs.220) linked with basic recovery of 9.5% , subject to premium of Rs.2.42 perqtl. for every 0.1% increase.

• The central government announced MIEQ (Minimum Indicative Export Quota) of4.00 Millions forthe sugar season 2015-16 which was pro-rated amongst all sugar factories with an objective to export surplus stock of sugar from domestic market. The Cane price subsidy of Rs. 4.50 perqtl. of cane also announced to those who can fulfill export quota of at least 80% under MIEQ and 80% fulfillment of ethanol supply. .

• Cane cess on sugar sale was increased from Rs. 24 perqtl. to Rs. 124 perqtl with effect from 1st February, 2016 with an aim to create fund with the Sugar Development Fund to facilitates timely payment to farmers in case of exigencies.

• In May, 2016 the Government directed the state for imposition of stock holding limits on sugar traders so as to control the hoarding and spiraling sugar price and also withdraw sugar output subsidy of Rs 4.50/kg to mills.

• After over three years of making 5% of ethanol blending with petrol mandatory, India is set to achieve this target for the first time during the current sugarcane crushing season, that is, by the end of September 2016. OMC has been allowed to mix upto 10% ethanol with Petrol. The government has setan aggressive targetto 20% in 2017 in line with major sugar producing countries. The central government replaced the policy of procurement of ethanol for blending programme from Tender based to fixed Price and waived the excise duty of 12.50% on ethanol intended for blending for 2015-16.

OPPORTUNITIES AND THREATS

OPPORTUNITIES

Sugar

India is largest consumer and second largest producer of sugar in the world. The consumption of Sugar is on increaseing trend with the increase in consumption of cold drink biscuits. Confectioneries and Halwais which constituts 70% of total consumption and rest 30% by ordinary direct consumers. There are huge scope for further increase in demand as India is still lagging behind from many advanced countries in respect of per capita consumption of sugar. Thus there are opportunity in production and consumption of higher quantity of sugar in coming period.

Distillery

The mandatory provision of ethanol doping of 5% and its increase to 10% will have strong support for growth of sugar industry. Ethanol production improves oil security and contributes to environmental protection. The Government is further considering to increase the ethanol mixing with petrol at 20% and also mixing with Diesel. Thus coming years the Ethanol is going to be major driver for growth of sugar industry in the country.

Power

Sugar Industry offer immense scope for renewal energy project on co-generation basis, which provide clean energy. Due to this the increased demand of surplus bagasse has added imputes to revenue generation.

Bio-Compost Fertiliser

The bio-compost and vermi-compost fertilizers being produced by the company has got immense scope of demand in all major agriculture cultivation as it not only preserve the soil from excessive use of chemical fertilizer but also increase its fertility.

THREATS

• No linkage of Sugar Price with cane price

• Unreasonable increase in cane price in comparison to sugar selling price. -

• The sugar sector is exposed to political intervention.

• Natural Calamity

FUTURE PROSPECTS/OUTLOOK

The sugar year 2015-16 opened with a stock of 91 lac M/T against 75 lac M/T in 2014-15. The production for the season 201516 expected at 251 Lac M/T against 283 lac MT during previous season. The domestic consumption of sugar for 2015-16 expected at 256 lac M/T against 256 Lac M/T last year. The export of sugar for 2015-16 is expected at 16 Lac M/T atjainst 11 Lacs MTIast year, which is basically shipment against advance license import. The closing stock thus estimated at 70 Lac MT against 91 Lac MT last year, which is about 3 months domestic consumption.

The central government replaced the policy for procurement of ethanol for blending programme from tender based to fixed price and increased the blending to 10% by OMC. These measure would not only save valuable foreign exchange for the government, but would go a long way in encouraging the sugar industry in getting improved price of ethanol realization on long term basis.

Prices of by-products such as bagasse and molasses continue to remain remunerative driven by healthy demand by consuming sectors such as power, paper and ethanol. Reasonable realizations for ethanol result in improved returns from by-products. Forward integration into distilleries, power generation, bio-fertilisers gives value addition. Asignificant part of profitability of the integrated sugar mills comes from by-products. It is believed that forward integration will remain crucial for improving profitability and riding thorough the cyclicity of the sugar industry.

Committee of the Board

The details of composition of Audit Committee and other committees of the Board of Directors alongwith the attendance thereof is provided in the Corporate Governance Report forming part hereof.

Audit Committee

The Audit Committee comprises Mr. Sarad Jha as its Chairman with Mr. Suyesh Borar and Mr. S.K.Goenka as members. All recommendations of the Audit Committee were accepted by the Board.

Information pursuant to Section 134 of the Companies Act, 2013

a. Extract of the annual return as provided under Section 92(3) of Companies Act, 2013 is enclosed -Annexure I

b. Nine meetings of the Board of Directors of the Company were held during the year on 29.05.2015, 04.07.2015, 08.08.2015, 17 10.2015, 30.10.2015, 09.11.2015, 10.12.2015,11.02.2016 and 20.02.2016.

c. All the Independent Directors of the company have furnished declarations that they satisfy the requirement of Section 149 (6) of the Companies Act, 2013.

d. Relevant extracts of the Companys policy on directors appointment and remuneration including criteria for determining qualifications, positive attributes, independence of a director and other matters provided in section 178(3) of Companies Act, 2013 is enclosed-Annexure II. We affirm that the remuneration paid to the Directors is as per terms laid out in the Nomination and Remuneration Policy of the company.

e. There is no qualification, reservation or adverse remark or disclaimer made by the auditor in his report and by Company Secretary in practice in the secretarial audit report and hence no explanations or comments by the Board are required.

f. The details of Loans, Guaranteesand Investmentcoveredundertheprovisionsofsection 186 of the Companies Act, 2013 are given in the notes to the Financial Statements and also enclosed as Annexure-lll.

g. There has been no materially-significant related party transactions made by the company with the promoters, the directors, the Key Managerial Personnel which may be in conflict with the interest of the company at large. The company has formulated a policy on Related Party Transactions and also on dealing with Related Party Transactions. The policy is disclosed on the website of the company (www.rigasugar.com ). All related party transactions are placed before the Audit Committee has also received approval from the Board. Your Directors draw attention of the members the Note No. 33 to the financial statement which set out Related Party Disclosures.

h. Details of conservation of energy, technology absorption, foreign exchange earnings and outgo as prescribed vide Rule 8(3) of Companies (Accounts) Rules 2014 is enclosed - Annexure IV.

i. The company has laid down policy on risk assessment and minimization procedures and the same is periodically reviewed by the Board. The Policy facilitates in identification of risk at appropriate time and ensure necessary steps to be taken to mitigate the risk. Brief details of risks and concerns are given in this Board Report.

j. The Corporate Social Responsibility Committee has formulated and recommended to the Board a Corporate Social Responsibility Policy (CSR Policy) indicating the activities of the company.

The Annual Report on CSR activities is not annexed herewith due to non- applicability of relevant provisions to the company due to losses.

k. In compliance with the Companies Act, 2013 and Regulation 17of the Listing Regulations, during the yearthe Board adopted a mechanism for evaluating its performance as well as that of its Committee and Individual directors, including the Chairman of the Board.

The evaluation of Independent was carried out by the entire Board and that of the chairman and Non-I ndependent directors were carried out by the Independent directors.

The Directors were satisfied with the evaluation results, which reflected the overall engagement of the Board and its committee with the company.

RISK AND CONCERN

SUGAR

(a) Delay in evolving a rational Sugarcane Pricing Policy having link with sugar price is detrimental to growth of the industry.

(b) The output of sugar, an agro-based product, is influenced by climatic vagaries. .

(c) Sugar Industry being cyclic in nature, the growth is hampered during downtrend.

DISTILLERY

(a) Inconsistent policy of the government in the implementation of the Ethanol Blending Programme is matter of concern.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

Your Company has adequate systems and internal control procedures to safeguard the assets of the company and to ensure maintenance of proper accounting records. There is also an Internal Audit System in place which reviews the key business and controls and also test checks on routine transactions and reports deviations. Besides, an Audit Committee periodically reviews the functioning of the entire system.