Thiru Arooran Sugars Ltd Directors Report.

Dear

Shareholders,

Your Directors present their 62nd Annual Report on the working of the Company for the year ended March 31, 2018.

($ in millions)
2017-18 2016-17
Profit / (Loss) before Interest & Depreciation (290.19) 262.02
Less : Interest and Finance Charges 269.08 260.34
Depreciation 75.65 75.98
Profit / (Loss) before Tax (634.92) (74.30)
Less : Provision for Taxation
- Deferred Tax (182.12) (25.49)
Profit / (Loss) after Tax (452.80) (48.81)

In terms of Section 133 of the Companies Act, 2013 and Rule 7 of the Companies (Accounts) Rules, 2014, the Company had followed the Companies (Accounting Standards) Rules, 2006 and Indian GAAP, up to the Financial Year. Pursuant to the Notification dated February 16, 2015 issued by the Ministry of Corporate Affairs, the Company has adopted the Indian Accounting Standards (Ind AS) from the Financial Year 2017-18 (with a transition date of April 01, 2016) and reworked the Financial Statements for the previous Financial Year 2016-17 for comparative information. Fair value of certain financial instruments and employee costs relating to defined benefit obligations are the areas which had an impact due to transition to Ind AS.

Dividend :

In view of the loss for the year, no dividend is being recommended.

Share Capital :

The paid up Equity Share Capital of the Company as on March 31, 2018 was $ 113.17 million. During the year under review, there was no change in Share Capital.

Company Performance :

The operations for the period under report reflect the performance of the Sugar and Distillery Divisions. During the year, the performance of the Sugar Division was impacted by uneconomical realisations on sale of sugar, reduced availability of sugarcane, apart from lower recovery of sugar and lower production of Alcohol due to reduced availability of raw material viz. Molasses. In view of the aforesaid factors, the Company has reported Loss after Tax of $ 452.80 million as against $ 48.81 million for the previous year.

Sugar:

The performance of the Sugar Division, as in the previous year, continued to be impacted by severe drought conditions in the command area of both the sugar mills. Due to reduced availability of sugarcane in the command area of the sugar unit at A Chittur, there was no crushing operation in the Unit during the sugar season 2017-18. The aggregate quantity of sugarcane crushed by both the factories during the year was substantially lower at 1.81 lakh MTs as against 6.00 lakh MTs crushed during the previous year. The sugar recovery was also affected by the draught and was lower at 7.64% as against 7.93% recorded in the previous year.

The Government of India had fixed the Fair and Remunerative Price (FRP) of sugarcane for 2016-17 season at $ 2,300/- per MT linked to average recovery of 9.5%, which translated to an FRP of $ 2,300/- per MT for both the Tirumandankudi and the A. Chittur units. The Company had announced cane price of $ 2,425/- per MT for both the units, as against the State Advised Price (SAP) of $ 2,750/- per MT linked to average recovery of 9.5%. However, the Company has also borne the entire cost of cane transport, the additional burden of which worked out to $ 126/- per MT.

As against production of 47,504 MTs of sugar during the previous year, production for the year under review aggregated to 25,667 MTs which includes sugar produced by processing imported raw sugar.

Distillery:

During the year under review, alcohol production was lower at 6,067 KL as compared to 9,719 KL during the previous year. Average realisation on sale of alcohol during the year was higher at $ 49/- per litre as against $ 46/- per litre in the previous year.

Prospects for the 2017-18 season:

Sugar:

The Government of India has fixed the Fair and Remunerative Price (FRP) of sugarcane for 2017-18 season at $ 2,550/- per MT linked to a basic recovery rate average recovery of 9.5%, which translates to an FRP of

$ 2,550/- per MT for both the Tirumandankudi and the A

Chittur units. The State Government has discontinued the policy of announcing State Advised Price (SAP) and has, instead opted for the revenue sharing of price fixation model from 2017-18 sugar season, broadly based on the recommendation of the Dr Rangarajan Committee. However, even under this new dispenstation, the State Government has mandated that the cost of cane transport must be borne by the sugar mills.

The sugar mills in the private sector in Tamil Nadu have refused pay the State Advised price (SAP) announced by the State Government since the 2013-14 sugar season and had paid either the FRP or agreed price which may be higher than FRP but lower than the SAP. Particulars of the cane price paid by the Sugar Units at Tirumandankudi and A Chittur are as under:

$ per MT
Sugar Season FRP SAP Price paid
2013-14 2,100 2,550 2,250
2014-15 2,200 2,550 2,300
2015-16 2,300 2,750 2,300
2016-17 2,300 2,750 2,425

The price paid as above is in addition to the cost of cane transport borne by the Company. Pursuant to the persistent demand from the cane growers, the Company along with other sugar companies in the State, has agreed to pay additional cane price of $ 40/- per MT for each of the aforesaid sugar seasons starting from 2013-14 to 2016-17.

As per the new pricing policy announced by the State Government based on the revenue sharing model, farmers are assured of FRP as well as a share in profit which would accrue to the sugar mill, over and above the FRP. In order to facilitate acceptance of this revenue sharing model of price fixation by farmers, the State Government has announced payment of the difference between SAP for 2016-17, viz., $ 2,750/- per MT and the price to be paid under the new pricing policy as transitional production incentive directly payable by the Government to the farmers. Besides, The Company has also agreed to pay additional price of $ 125/- per MT over and the above FRP of $ 2,550/- for 2017-18 season.

The severe drought conditions prevailing across the State have not only taken a heavy toll on cane yields and cane availability for the 2017-18 season, but also severely impacted planting of cane for supply during the 2018-19 season.

Sugar production in the country during the 2017-18 season is estimated around 32.5 million MTs and the domestic offtake is projected around 25.4 million MTs. Considering the opening stock of 38.8 million MTs and 0.2 million MTs, of white sugar produced from imported raws, the closing stock is estimated at around 10.72 million MTs. This closing stock of 10.72 million MTs, which constitutes around 42% of the annual consumption, and the estimated production of 35.0 - 35.5 million MTs of sugar in the ensuing 2018-19 sugar season, project a gloomy outlook for the sugar mills for the current year and for the year ahead.

Distillery:

The steep decline in cane crushing in the State, during the 2017-18 season, has had a significant impact on molasses and alcohol prices. Reduced availability of molasses, lower offtake of alcohol and liberal grant of permission for import of alcohol from other States are expected to adversely impact the performance of the Distillery during the current Financial Year.

Government Policies:

• Scrapping export duty on raw and refined sugar - duty reduced from 20% to nil.

• Increase in the duty on sugar import - 40% to 50% in January 2017 and to 100% in February 2018

• Import of raw sugar upto 5 lakh MTs at nil customs duty

• Import of additional 3 lakh MTs of raw sugar under TRQ at 25% of import duty

• Stock holding limit imposed on sugar mills to stabilize sugar price

• Fixation of minimum sale price for sugar at $ 2,900/-per qtl by amending the Essential Commodities Act,1955.

Subsidiary and Associate Companies:

The Subsidiary Company viz. Terra Energy Ltd recorded a turnover of $ 302.96 million and reported a Loss of

$ 113.90 million for the year as against a turnover of

$ 191.52 million and Profit of $ 14.49 million for the previous year. The Associate Company viz. Shree Ambika Sugars Ltd recorded a turnover of $ 1,870.10 million and reported Loss before Tax of $ 1,112.04 million for the year as against a turnover of $ 3,742.67 million and Loss before Tax of $ 168.78 million for the previous year.

Consolidated Financial Statements:

The Consolidated Financial Statements of the Company prepared, in terms of Section 129 of the Companies Act, 2013 read with the Companies (Accounts), Rules, 2014 and as per SEBI (Listing of Obligations and Disclosure Requirements) Regulations, 2016, together with a separate statement containing the salient features of the financial performance of the Subsidiary and Associate Companies and the Report of the Auditors thereof, form part of the Annual Report.

As required under Section 136 of the Companies Act, 2013, the Annual Report of the Company containing its standalone and consolidated financial statements and the Annual Accounts of the Subsidiary Company and the related detailed information have been placed on the website of the Company: www.tasugars.in.

The audited financial statements of the Subsidiary and Associate Companies will be available for inspection by any shareholder at the Registered Office of the Company during the business hours upto the date of the Annual General Meeting. A copy of the audited financial statements of the Subsidiary and Associate Companies will be made available to the shareholders of the Company on receipt of request.

Directors and Key Managerial Personnel: i) Mrs Malathi Ram Tyagarajan who retired by rotation on September 30, 2018 pursuant to Section 152 of the Companies Act, 2013, has been appointed as Additional Director of the Company with effect from October 01, 2018. Pursuant to Section 161 of the Companies Act, she vacates the office at the ensuing Annual General Meeting (AGM) of the Company.

Notice has been received from one of the members of the Company, proposing the name of Mrs Malathi Ram Tyagarajan for appointment as the Director of the Company, liable to retire by rotation. The Company has received declarations from the Independent Directors confirming that they meet the criteria of independence as stipulated under Section 149(6) of the Companies Act, 2013. In terms of Section 149 of the Companies Act, 2013, the Company has a woman Director on its Board.

ii) Mr. R Vijayaraghavan who was appointed as a Non Executive Independent Director of the Company at the 58th Annual General Meeting (AGM) held on September 29, 2014, in compliance with Section 149 of the Companies Act, 2013, for a term of three consecutive years from September 29, 2014, has resigned from the Board for personal reasons effective July 30, 2018. The Board wishes to place on record its appreciation of the valuable services rendered by him during his tenure as a Director of the Company and as a member of the various Boards Committees. The Company has initiated steps for appointment of an Independent Director in the vacancy caused by the resignation by Mr R Vijayaraghavan within the time limit as stipulated under the Companies Act, 2017 and the SEBI (Listing of Obligations and Disclosure Requirements) Regulations 2015.

iii) Mr Vikram Vijayaraghavan was appointed as Additional Director of the Company with effect from August 13, 2018 by the Board of Directors. He has vacated office at the close of September 30, 2018 in terms Section 161 of the Companies Act, 2013.

As required under Regulation 36 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015, details of the qualification, age, experience etc. of Mrs Malathi Ram Tyagarajan are furnished in the Notice convening the forthcoming Annual General Meeting.

iv) Pursuant to Section 203 of the Companies Act, 2013, the Board has, on the recommendation of the Nomination and Remueration Committee appointed Mr C S Sathiyanarayanan as the Chief Financial Officer with effect from June 12, 2018 in the vacancy caused by the resignation of Mr R R Karthikeyan who was the Company Secretary and Chief Financial Officer of the Company till April 30, 2018.

Mr Sathiyanarayanan is a Member of the Institute of Cost and Works Accountants of India and has the requisite knowledge and experience for being the Chief Financial Officer of the Comapny, having held responsable positions relating to the finance function in the Group Companies since July, 2003.

Directors Responsibility Statement:

Pursuant to Section 134(5) the Directors confirm: i) that in the preparation of the Annual Accounts for the Year ended March 31, 2018, the applicable accounting standards have been followed along with proper explanation relating to material departures; ii) that the Directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent, so as to give a true and fair view of the state of affairs of the Company as on March 31, 2018 and of the Loss of the Company for the year ended on that date; iii) that the Directors have taken proper and sufficient care for the maintenance of adequate accounting records, in accordance with the provisions of the Companies Act, 2013, for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; iv) that the Directors have prepared the annual accounts on a going concern basis; v) that the Directors have laid down internal financial controls to be followed by the Company and that the said internal financial controls are adequate and are operating effectively; and vi) that the Directors have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems are adequate and operating effectively.

Corporate Governance and Management Discussion and Analysis Reports:

The Corporate Governance and Management Discussion and Analysis Reports form an integral part of this Report and are set out as Annexures I and II to this Report. The Certificate from the Secretarial Auditors of the Company, certifying compliance of conditions of Corporate Governance stipulated in SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, is also annexed to the Report on Corporate Governance.

Fixed Deposits:

The Company has discontinued acceptance of deposits from the public since April 01, 2014. As on the date of this Report, the Company has unclaimed deposits aggregating to $ 0.25 million.

Auditors

Statutory Auditors:

M/s. Guru & Ram, LLP Chartered Accountants, Chennai (Firm Registration No.09723S/S200039), were appointed as the Statutory Auditors of the Company at the 61st Annual General Meeting for a term of five years, to hold office from the conclusion of the 61st Annual General Meeting until the conclusion of the 66th Annual General Meeting, on such remuneration as may be fixed by the Board of Directors, on the recommendation of the Audit Committee, from time to time. The aforesaid appointment is subject to ratification at every Annual General Meeting, as provided under the Companies Act, 2013. Pursuant to the Companies (Amendment) Act, 2017 which came into force with effect from May 07, 2018, the requirement of ratification of the appointment at every Annual General Meeting has been dispensed with. Accordingly, no ratification is required and M/s Guru & Ram LLP would continue as Statutory Auditors of the Company until the conclusion of the 66th Annual General Meeting.

The Auditors Report for the year ended March 31, 2018 does not contain any qualification or adverse remark and the same is attached with the Annual Report. However it draws attention on material uncertainty related to the presumption of going concern. The Board of Directors state that the Company has reached the current difficult situation on account of several factors, which are substantially outside the control of the Management. The Board of Directors recognizes the need to raise substantial long term funding to support the Company, as well as its Subsidiary Company, Terra Energy Ltd. Similarly, the Associate Company, Shree Ambika Sugars Ltd is also seeking to raise long term funds. Once the Company is successful in raising long term funds, the business plans of the Company as well as those of Shree Ambika Sugars Ltd are robust enough to tide over the business and financial issues.

Cost Auditors:

As per the Companies (Cost Records and Audit) Rules, 2014, the Companys cost accounting records are subject to Cost Audit. The Board of Directors, on the recommendation of the Audit Committee, has appointed M/s. Vaasan Co., Cost Accountants, as the Cost Auditor to audit the cost accounting records maintained by the Company for the Financial Year 2018-19, on a remuneration of $ 75,000/-, exclusive of reimbursement of travel and out-of-pocket expenses that they may incur in connection with the audit. The Company has received certificate from M/s. Vaasan Co., confirming their eligibility, as required under Section 141 of the Companies Act, 2013. As required under the Companies Act, 2013, a resolution seeking ratification of the Shareholders, for payment of remuneration as above as approved by the Board of Directors, is included in the Notice convening the Annual General Meeting.

The Cost Audit Report for the year ended March 31, 2017 was filed by the Cost Auditor within the stipulated deadline.

Secretarial Auditors:

Pursuant to Section 204 of the Companies Act,2013, the Board of Directors has appointed M/s. R Sridharan and Associates, Practising Company Secretaries, as the Secretarial Auditor, to carry out the Secretarial Audit for the Financial Year 2017-18. The Secretarial Audit Report of M/s. R Sridharan and Associates is annexed as Annexure III to the Report. The said Report does not contain any qualification or adverse remark.

Internal Financial Controls and their adequacy:

The Company has put adequate systems and procedures in place to ensure internal financial controls with reference to financial statements. The Companys internal auditors carry out regular checks on the adequacy of the internal financial controls.

DISCLOSURES:

Information on conservation of energy, technology absorption, foreign exchange earnings and outgo.

Information on conservation of energy, technology absorption, foreign exchange earnings and outgo are given in the Annexure IV to this Report, pursuant to Section

134(3)(m) of the Companies Act, 2013 read with the Companies (Accounts) Rules 2014.

Corporate Social Responsibility

Section 135 of the Companies Act, 2013 has mandated companies having minimum net worth of $ 500 crores or turnover of Rs.1000 crores or a net profit of $ 5 crores during any financial year to constitute a Corporate Social Responsibility Committee of the Board. As the Company does not meet any of the aforesaid stipulations, it remains outside the purview of Section 135 of the Companies Act, 2013 and accordingly, is not required to make any disclosure in terms of the aforesaid Section.

Annual Return

Annual Return in the prescribed form has been posted in the website of the Company: www.tasugars.in, as required under Section 134(3)(a) of the Companies Act, 2013 read with the Companies (Accounts) Rules 2014.

Employees remuneration

The Company does not have any employee drawing remuneration in excess of the limit specified under Section 197 of the Companies Act, 2013 read with the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. Details, as required under Section 197(12), are given in the Annexure V to this Report.

Details of Related Party Transactions

All Related Party Transactions (RPTs) entered into during the financial year were on arms length basis and were in the ordinary course of business. All RPTs are placed before the Audit Committee and the Board for approval. Prior omnibus approval of the Audit Committee is obtained for the transactions which are foreseeable and repetitive in nature. Particulars of contracts or arrangements with Related Party referred to in Section 188 (1) of the Companies Act, 2013 read with the Companies (Accounts) Rules, 2014 is furnished in Form AOC-2 (Annexure - VI)

Audit Committee

The Audit Committee comprises Mr V Thirupathi, as Chairman and Mr Vikram Vijayaraghavan and Mr R V Tyagarajan, as Members.

Details of Loans / Guarantees / Investments made

The Company has not given any loan or any guarantee or made any investments during the financial year under review, in terms of Section 186 of the Companies Act, 2013.

Other disclosures:

There were no significant or material orders passed by the Regulators or Courts or Tribunals which impact the going concern status and the Companys operations in future.

There is no change in the nature of business of the Company during the year under review. There are no material changes and commitments in the business operations of the Company during the period from the close of the Financial Year 2017-18 to the date of this Report. During Financial Year 2015-16, the Company has availed Trade / Export Advance USD 35.35 million ($ 234.21 crores) to be adjusted against the value of sugar exported/ to be exported over a period of time. The aforesaid advance is secured by Export Performance Bank Guarantees issued by the Consortium of Banks. Due to reduced availability of sugarcane during the current sugar year, the Company could not export the specified quantity of sugar as per the terms of the contract entered into with Cargill International Trading Pte Ltd (CITPL), and consequently, CITPL has invoked the Bank Guarantees for the outstanding Trade Advance. The Banks which have issued the guarantees have paid the amount claimed by CITPL aggregating to USD 30.93 million equivalent to $ 225.56 crores. The Consortium of Banks has issued notice to the Company requesting immediate repayment of the said amount. The Company is in discussion with the Consortium of Banks for resolving the issue.

There are no other material changes and commitments in the business operations of the Company during the period from close of the Financial year to the date of this Report. During the year under review, there were no complaints/ cases filed pursuant to the provisions of Sexual Harassment of Women at Workplace (Prevention, Prohibitions and Redressal) Act, 2013.

Acknowledgement :

Your Directors wish to place on record their sincere thanks and appreciation to the Shareholders, Sugarcane Growers, Employees, Bankers, and also the Central and State Governments for their continued cooperation and support.

On behalf of the Board

R V Tyagarajan

Chairman and Managing Director September 30, 2018