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Directors' Report
Your Directors present their 18th Annual Report and the audited financial statements for FY 2013/14.
     2013-14      2012-13
Physical Performance
Cane Crushed (Tonnes) 436103 653498
Sugar Recovery (%) 9.64 9.98
Sugar produced (Tonnes) 41781 65270
Power produced (Lakh kwh) 380.04 448.25
Financial Performance(Rs. crores)
Turnover  173.72 219.11
Profit  Before Interest, Depreciation & Tax 6.74 29.28
Profit  / (Loss)  Before Tax (2.81) 12.16
Profit / (Loss) After Tax (4.78) 19.11
Surplus From Previous Year


Amount available for appropriation 24.44


Transfer to General Reserve - 10.00
Proposed dividend 0.51 1.29
Dividend Tax 0.09 0.22
Balance carried forward 23.84 29.22


Your Directors recommend a dividend of Rs. 0.60 per Equity Share of Rs. 10 each for the financial year ended 31st March 2014.

Sugar Industry Overview


World sugar production for the fourth consecutive season would be recording a net surplus in 2013/14 despite witnessing the first fall in the sugar output after 2008/09. Adverse weather conditions in Brazil helped check an otherwise unabated rise in world production. Early estimates by global analysts portend to a potent and plausible net deficit to dawn in 2014/15 in the world sugar balance. It might however bring little succor to sugar producers, since the surfeit in sugar stocks at an all time high quantum may pan out to queer the pitch and quell meaningful scope for a rise in sugar prices.

 Indian sugar production during 2013/14 exhibiting a demonstrable correlation with the global trend and defying its traditional pattern of trade cycles is well poised to mark its fourth consecutive year of surplus. Industry was desperate to ship a sizeable slice of its surplus into the world markets, buoyed by a weakening rupee and sudden rebound in global prices. Due to high cane prices inflicted upon the industry by the indulgence of State Governments and consequent loss of competitive edge in the global market, it was critical for the sugar producers to receive timely export promotion support to kick-start the exports. After much vacillation, the Central Government announced raw sugar export subsidy of Rs.3300 per tonne in February 2014. However, the endless delay in recalibrating the subsidy amount at bi-monthly intervals in accord with the approved policy and eventually its egregious reduction in defiance of the notified scheme has come as a rude shock. In effect, targeted inventory correction is bound to boomerang, chocking the already constrained cash flows of the sugar companies in the process.

 Sugar prices in India largely remained at unviable levels throughout the year and across regions, weighed by successive years of high production, slothful slowdown in exports and resultant supply overhang. Indeed, average realization dipped despicably further down from previous year, while cane prices shot up under Government dictum. It is thus no wonder that operating margins not just evaporated but naggingly turned negative, squeezing the cash flows of sugar companies and inexorably leading to cane price arrears at an alarming level.

Cane Prrice Conundrum

The sure-shot remedy to rid the industry of the recurring turbulence and turmoil at sickening intervals is to take forward the sugar policy reforms to their logical end on a holistic approach. No doubt, sugar sector reforms received a booster dose in April, 2013 with the Central Government implementing Dr C Rangarajan Committee recommendations on the sugar side. However State Governments continue to turn a Nelson’s eye to the other major recommendation on the sugarcane side, viz. moving towards long term linkage of sugarcane price to realization from sale of sugar and its by-products. Karnataka and Maharashtra have of course made some tentative start by endeavouring to push requisite legislative backup, but an objective and decisive pursuit for rationalizing cane price looks elusive yet.

 While so, the Fair & Remunerative Price (FRP) of sugarcane for 2013/14 sugar season has been hiked by Central Government by a whopping 24% from Rs. 1700 to Rs. 2100 per tonne. State Advised Price in Tamil Nadu, that is recommendatory in nature, has in turn been hiked from Rs. 2350 to Rs. 2650 per tonne disregarding in limine the numerous representations made by the industry on its current plight. Private sector sugar mills in the State have volunteered to pay a cane price in excess of the mandatory FRP to protect farmers’ earnings at last year level despite hefty fall in sugar prices. They have however collectively voiced their consternation and concern to the State Government that paying any higher price at this juncture would be contingent and solely dependent upon direct State support or subsidy to the farmer. They have further impressed on the need for early embracement of formula based pricing under the revenue sharing model.

Company Performance

As feared in the last year report, drought situation further deteriorated during FY 2013/14 in Tamil Nadu across regions and more woefully in the western part of the State where our sugar mill is situate. Recurrent deficiency in monsoon, poor storage in Mettur reservoir, muted flow in river Cauvery and deterrent depletion in water table have together caused severe water stress and dealt a lethal blow to agriculture. As a result, we were faced with a formidable fall in cane area, reduced recourse to ratoon cane and deplorable dip in sugarcane yield. In the end, we had to reckon with and reconcile to a rueful state of cane supply that was diminutive in volume, deficient in quality and chequered in daily arrivals. Our sugar production in turn slided by 36% YoY touching all-time low in the bargain.

 Sugar sale volume declined by 26% under sluggish market conditions and due to lower production. Sugar prices mostly ruled below cost of production. Amidst all round adversities, molasses price threw us the lifeline with its sharp and more than two-fold rise. Lower cane crushing resulted in corresponding reduced bagasse availability, crippling overall power production to lower level, though FY 2013/14 marks the first full year of operation for our Cogen plant. Towards end of the main crushing season, our Cogen Boiler failed to further exacerbate our problems and we have initiated remedial steps to bring it back to operations at an early date.

 The company has thus faced the severest of challenges from all spheres during FY 2013/14, barring the uptick in molasses price. Its operating performance was marred and maligned by the unprecedented water stress conditions in its command area for cane. Raw sugar route to supplement sugar production remained shut due to negative price parity. It had to just remain a mute spectator of exogenous imponderables, while in continuous pursuit of cost optimization measures.

 The company has changed the method of depreciation during the year in its bid to move towards the new prescription under the Companies Act, 2013 for writingoff depreciable assets over their specified useful life. Its effect is disclosed in Note-30 to the Financial Statements in accord with applicable Accounting Standard.

The company has posted a Net Loss after tax of Rs 478 lakhs for the year as against profit of Rs. 1911 lakhs in the previous year under these daunting circumstances.


 The Central Government has come out with a ‘Scheme for Extending Financial Assistance to Sugar Undertakings 2014’ towards addressing the humongous cash deficits faced by sugar mills leading to a horrendous rise in sugarcane arrears. Under this, sugar companies can avail soft Loan from their banks equivalent to excise duty paid or payable on their past three seasons’ production. This amount shall be exclusively used for payment of past cane arrears or current cane dues. Interest upto 12% on this Bank Loan is eligible for interest subvention. The Loan carries a moratorium of two years with a repayment schedule of three years thereafter.

 We have been one of the earliest amongst all our peers to get swift sanction of this soft Loan facility from our Lead Bank, ie., Bank of India. Your Board wishes to convey its deep sense of appreciation for the expeditious processing, timely sanction and speedy disbursement of the Loan by Bank of India. We have fully cleared our cane dues with the help of this Loan.

 The company remains relatively comfortable on working capital position and ICRA has reaffirmed its rating for both Long Term and Short Term borrowings. Its prudent decision to prepay part of the Cogen debt last year has come to its rescue to tide over the tenuous state of its cash flow in the current year.

Legal cases

We continue to suffer considerable hardship with Rs. 6.9 crores of undisbursed subsidy and Rs. 2.2 crores of unpaid differential levy sugar price for 2010/11 season under freeze on account of the long standing dispute with the Sugar Development Fund (SDF), despite favourable verdict from the High Court of Madras. The other side though has gone on appeal before the Division Bench continues to withhold these sums despite the absence of any interim stay order. We have been constantly pursuing through our counsel for early hearing and disposal of this case.

 As stated in last year report, we have been hard hit by the reduction in regulatory tariff for bagasse based power. The Tamil Nadu Electricity Regulatory Commission (TNERC) has fixed tariff for same at Rs. 3.76 per kwh under the 2012 tariff order as against Rs. 4.37 per kwh under their 2009 tariff order. On appeal, the Appellate Tribunal for Electricity (APTEL) has since upheld our contention on two of the major grounds impacting tariff fixation norms, namely, capital cost and bagasse price. APTEL has directed the TNERC to refix the tariff in the light of observations made in its order. Meantime, the sugar industry has filed a Review Petition on some issues and decision of APTEL on same is awaited, though arguments have been concluded. We are thus encountering some delay in getting the revised tariff order but the contours of the Appellate order give us the hope to look for a meaningful rise in the applicable tariff for our Cogen power.


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 is contained in the ‘Management Discussion and Analysis Report’ enclosed hereto that forms an integral part of this Report.

Outlook for 2014-15

Sugar Season 2014/15 might witness near parity to modest deficit in sugar balance both in the domestic and global arena, leaving little scope for inventory correction. Sugar prices may hence remain range bound unless triggered by extreme weather conditions like imminent threat of El-Nino factor.

 Sugar mills in Tamil Nadu face the double whammy under the continued onslaught of drought. On the one hand, sugar production in the State has fallen by about 50% in a matter of just two years leading to gross under- recovery of fixed costs. On the other, the neighbouring States of Karnataka and Maharashtra benefitted by benevolent rainfall and bolstered sugar recovery would be able to sustain and further step up their sugar production. Necessarily their surplus would be flowing into our markets, dampening the scope for rebound in local prices.

 Your company is thus unenviably placed to combat multiplicity of challenges on several of its fronts during FY 2014/15 as well. It has hitherto been able to withstand these mounting pressures on the strength of past good performance and reserves built over time. It is now in dire need than ever before to place all its bets on a munificent rainfall this monsoon and copious water-flow in river Cauvery for reinvigorating cane cultivation in its area and reinjecting viability and sustainability of its operations.

Companies Act, 2013 

The Companies Act, 2013 has since been enacted and most provisions have come into operation from 1st April, 2014. It is in line with global economic environment and lays great emphasis on improved corporate governance. It envisages an effective role for the appointment and empowerment of independent directors and enunciates a code for them to follow. It conceives of structured constitution of a number of Committees and enhances shareholder’s role. It grants professional immunity to independent directors and mandates rotation of auditors. It also embraces emerging technology by advocating and permitting video conferencing for Board meetings and electronic voting for shareholders. Our company is fully committed to these core principles and well geared for due compliance thereof.

 As regards financial statements, Ministry of Corporate Affairs has clarified by General Circular 08/2014 dated 4th April, 2014 that the requirements of the new Act for the preparation of financial statements (and attachments thereto), the Auditor’s Report and Directors’ Report would apply only in respect of financial years commencing on or after 1st April, 2014. Accordingly our financial statements, Directors’ Report and Auditor’s Report presented herein are based on the provisions contained in the Companies Act, 1956.

 Appointment of auditors and independent directors now being proposed at this Annual General Meeting are in compliance of Companies Act, 2013. Ordinary resolutions earlier passed for authorizing borrowings and creation of security now require shareholder approval by Special Resolution. All these have been duly taken care of in the resolutions proposed for this meeting.

 Members have been extended electronic voting facility in compliance of Section 108 of the Companies Act, 2013.


The present term of Mr N Ramanathan, Managing Director ended on 31st March, 2014. Your directors, in recognition of his committed role and valued contribution, have reappointed him as Managing Director for a further period of three years from 1st April, 2014. Consent of the members is being sought for his appointment and remuneration, including minimum remuneration, by way of Special Resolution at this meeting.

 Mr Bimal Poddar retires by rotation at this meeting and being eligible offers himself for reappointment.

 As regards independent directors, their respective appointments have been proposed for a fixed tenure of five years but restricted to 31st March, 2019 having regard to the transitory provisions for the continuance of existing independent directors. Upon their appointment as independent directors at this meeting, they would retire only at the end of tenure on 31st March, 2019 and they would not be counted for reckoning the directors to retire by rotation in terms of Section 149 of the Companies Act, 2013

Directors' Responsibility Statement

Your Directors, in terms of Section 134(5) of the Companies Act, 2013, confirm that:

(i) all applicable accounting standards have been followed in the preparation of the annual accounts;

(ii) your 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 as of 31st March, 2014 and of the Loss of the Company for the year ended that date;

(iii) proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

(iv) the annual accounts have been prepared on a going concern basis;

(v) had laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively; and

(vi) had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

No employee of the Company was in receipt of remuneration during the Financial Year 2013/14 in excess of the sum prescribed under Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975. Employee relations remained cordial.

Corporate Governance
A separate section on Corporate Governance is included in the Annual Report and the certificate from the Company’s Auditors confirming the compliance of conditions on Corporate Governance as stipulated under Clause 49 of the Listing Agreement of the Stock Exchanges is annexed thereto.

Conservation of Energy etc
Information relating to conservation of energy, technology absorption and foreign exchange earnings and outgo, as required under Section 217(1)(e) of the Companies Act, 1956 read with the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 is given in the Annexure hereto.

M/s Maharaj N R Suresh And Co and M/s R Subramanian and Company retire at this meeting and are eligible for reappointment. Section 139 of the Companies Act, 2013 now mandates appointment of auditors for a fixed tenure of five years. It also provides for mandatory rotation of auditors and allows a three year transitory time for its compliance. It is accordingly proposed to appoint the retiring statutory auditors in the manner stated in the Notice for the Annual General Meeting.

Cost Audit
M/s S Mahadevan & Co, Cost Accountants have been the Cost Auditors of the company since FY 2006/07. Section 148 of the Companies Act, 2013 empowers the Central Government to order cost audit. While draft Rules issued sought to cover our Sugar and Cogen segments, final Rules are yet to be released. In order that continuity is maintained, our company proposes to appoint M/s S Mahadevan & Co, Cost Accountants to do the cost audit for FY 2014/15. Ratification for their remuneration is being sought from members as proposed in the Notice for Annual General Meeting.

Secretarial Audit
Our company has been undertaking Secretarial Audit on voluntary basis. Dr B Ravi, Practicing Company Secretary has done the Secretarial Audit for FY 2013/14. His report confirms due compliance of the company of the extant prescriptions under various Corporate Laws and SEBI Regulations as well as the provisions of the Listing Agreement.
 Secretarial Audit is now mandatory under Section 204 of the Companies Act, 2013 for listed companies. Our company would ensure due compliance of this and in time for FY 2014/15.

Your Board conveys its appreciation to the cane growers for their commitment towards cultivating cane, braving the challenges of drought and disruption in power supply. Your directors commend the understanding and cooperation of employees at all levels during a difficult year. Your directors wish to record the unequivocal support received from Banks in full appreciation of the current distress situation faced by the industry and our company and taking a well considered long term view of its functioning. Above all, your directors wish to thank the shareholders for their continued support to the management.
  For Board of Directors
Chennai N Gopala Ratnam
29th May 2014 Chairman

Information as required under section 217(1)(e) of the Companies Act, 1956 read with the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988

A.        Conservation of Energy:

a) Energy Conservation measures taken:

   (i) Double steam entry provision for 1000m2 evaporator body

  (ii) Modification of one evaporator body to work as third effect of quintuple system

  (iii) Reduction of MVC cooling water pump motor capacity

b) Additional Investment proposals, if any, being implemented for reduction of steam and energy:

  (i) Usage of second body evaporator condensate for super heated wash water system

  (ii) Reduced usage of process chemicals with modified process to improve working of evaporator section

  (iii) Revamping and relocation of injection water pumps

  (iv) Improved surplus hot water cooling system at ETP

c) Impact of measures at (a) and (b) above for reduction of energy consumption and consequent impact on the cost of production of goods:

Reduction in energy consumption :

           Power 300 units per day
           Steam 20 tonnes per day

d) Total energy consumption and energy per unit of production are given in Form A.

B.  Technology Absorption:

e) Efforts made in Technology absorption are given in Form B.

C.  Foreign Exchange earnings and outgo:   

f) Activities relating to exports, initiatives taken to increase exports, development of new export markets for products and services and export plans: Sugar exports are driven by Government policy and the production cycle of sugar business. Due to unremunerative global prices, no export was made during the year under review.

g) Total foreign exchange used and earned.


                                 (Rupees in Lakhs)











Form for disclosures of particulars with respect to Conservation of Energy

Current Year

Previous Year

(A) Power and fuel Consumption

   1 Electricity

         a) Purchased Units (kwh lakhs)



             Total amount (Rs lakhs)



              Rate/Unit (Rs/kwh)



          b) Own generation 



              ii) Through steam turbine/Generator



              Units(kwh lakhs)



              Units per tonne of fuel (kwh)*



              Cost/Unit (Rs/kwh)



  2 Coal



              Quantity (tonnes)



              Total Cost (Rs lakhs)



              Average Rate (Rs/t)



  3 Bio Fuels



              Quantity (tonnes)



              Total Cost (Rs lakhs)



              Average Rate (Rs/t)



  4 Bagasse



              Quantity (tonnes)



              Total Cost (Rs lakhs)



              Average Rate (Rs/t)



(B) Consumption per unit of production:



                  Total in-house consumption units (Kwh lakhs)



              Product-Sugar (t)






   *(Bio Fuels/Baggase calculated on Coal equivalent weight basis)

   Note : Figures for the previous year have been regrouped, whenever necessary.


Form B (Rule 2)


Form for disclosure of particulars with respect to Technology Absorption.

(A) Research & Development (R&D) (Rs. Lakhs)  -  Nil    

(B) Technology absorption,adaptation & innovation:
(i) An attempt was made to produce low ICUMSA sugar with less sulphur content by suitable modification of process with the existing set up of machineries. Improved sugar quality and reduction in chemical consumption could be achieved besides certain intangible benefits in operations.

For Board of Directors


N Gopala Ratnam

29th May 2014





Industry structure and development

World Sugar

Sugar is produced in over 120 countries from beet or cane. Overtime, the relevant share of cane sugar has galloped from 56% during 1960s to 81.7% during 2013/14 by reason of growing sugar production out of cane in tropical countries.
 Global sugar production has outpaced consumption for the fourth consecutive season in 2013/14. Higher sugar production in Thailand and Pakistan largely neutralized the fall in output in Brazil, European Union and India. World sugar prices during April 2013 – March 2014 on a monthly average basis oscillated in a narrow band between 15.63 c/ lb (US cents/ pound) in January 2014 and 17.90 c/ lb in March 2014 in the NY11 ICE markets.
 Brazil is the dominant sugar producer and exporter, while Thailand is the second largest sugar exporter. India is steadfastly placed as the second largest sugar producer and the numero uno sugar consumer in the world but is just an occasional and marginal player in the global trade.

Indian Sugar

The Indian sugar industry is characterized by the coexistence of private, cooperative and public sector. It is inherently inclusive, supporting over 50 million farmers and their families. It is rural centric and hence a key driver of village level wealth creation. Sugar is India’s second largest agro-based industry after Textiles. It has tremendous transformational opportunities to meet food, fuel and power needs in an environment friendly manner.
 Sugarcane and sugar production are seasonal with more than 90% happening in the winter months of November to March. Sugarcane use for production of sugar has steadily increased over time in preference to alternative sweeteners. Maharashtra and UP are the dominant sugar producing States while of late Karnataka has significantly stepped up its production. In contrast, sugar production in Tamil Nadu is of late on a discernible decline due to the recurrence of drought, drying up of rivers, poor storage in reservoirs and resultant repressive water shortage.
 Indian sugar production has strikingly outstripped consumption since 2010/11 for four consecutive seasons, while it may move closer to consumption in 2014/ 15. The high level of sugar stocks concomitant with constricted scope for exports has unarguably led to a sharp fall in the domestic sugar prices. Indeed, sugar prices for several quarters have been ruling below cost of production across regions.
 While so, State Governments remain unrelented in their bid to push sugarcane prices unidirectionally upward, devoid of economic rationale. CRISIL Research Report of June 2013 has underpinned the galloping rise in sugarcane prices far in excess of rise in sugar prices during the last three seasons, inimically impacting industry viability. It is feared in such scenario that sugarcane arrears could mount to a record ` 12000 crores, led by Uttar Pradesh and Karnataka, by the end of 2013/14 season.
Government Policies

(i) Sugar reforms

 The Central Government in April 2013 following the recommendations of Dr C Rangarajan Committee decided on the sugar sector reforms. It scrapped the levy obligation in respect of sugar produced from October 2012 and dismantled the release mechanism from April 2013.

 Mandatory packing of sugar in gunny bags was reduced from 100% to 40% for the year upto 2012/13 upto 30th June 2013. This was further reduced to 20% for the Jute Year 1st July 2013 to 30th June 2014.

(ii) Support measures

 Import duty on sugar was hiked from 10% to 15% from July 2013 to discourage indiscriminate sugar imports. Industry has however been pleading for a higher rate of import duty, having regard to its high cost structure by reason of arbitrarily high level of sugarcane price thrust on the Indian producers.

 Government of India unveiled a ‘Scheme for Extending Financial Assistance to Sugar Undertakings 2014’ to infuse liquidity into sugar companies and help clear sugarcane dues to farmers. Sugar companies are entitled to receive soft Loan from their Banks under this Scheme equivalent to excise duty paid or payable for the last three sugar seasons’ production. It has two years moratorium and three years repayment schedule with interest subvention benefit upto 12%.

 Government of India notified on 28th February 2014 amendment to Sugar Development Fund Rules. By this, it offered a subsidy of ` 3300 per tonne for raw sugar production and export with an inbuilt provision to recalibrate the subsidy amount every two months based on dollarrupee parity. It however made a volte face to arbitrarily reduce the subsidy to ` 2277 per tonne in its Notification G.S.R.326(E) dated 7th May 2014 while the strengthening rupee would warrant only an upward revision as per the approved policy.

(iii) Cane price

The Central Government hiked the Fair & Remunerative Price (FRP) for sugarcane for Sugar Season 2013/14 by a hefty 24% from Rs. 170 to Rs. 210 per qtl linked to a basic recovery of 9.5%. It has however moderated the rise for sugar season 2014/15 to Rs. 220 per qtl.

 Government of Tamil Nadu announced State Advised Price (SAP) for 2013/14 season at Rs.2550 per tonne (Previous Year Rs. 2250 per tonne) linked to 9.5% recovery. In addition, transport charges from field to factory have to be borne in full by the sugar mills. Private sector mills in the State have appealed for suitable Government subsidy and other support measures for being able to pay such a high SAP not backed by prevalent sugar prices. Meantime they have committed to protect last year cane price in the interest of farmers despite negative price parity.

Opportunities and Threats

 India has low per capita consumption with growing income. Its farm productivity has virtually remained stagnant for decades. There is thus immense scope for hiking production to meet growing demand and capture export markets.

 Sugar business is intrinsically cyclical. Market sentiments move disproportionate to demand-supply parity causing volatile change in product pricing. Cogeneration and Ethanol bring much desired value addition to by-products and help soften the inimical impact of sugar cycles.

 Sugarcane availability is critically dependent upon conducivity of nature. Repeated monsoon failure and poor storage of water in Mettur reservoir catering to our command area pose a severe challenge to agriculture in our neighbourhood, impacting cane cultivation in the process. Unscheduled power tripping disrupting irrigation schedule continues to remain a major impediment. Drip irrigation is only slowly catching up due to its high capital outlay, glitches in getting Government subsidy and draconian deficiency in water resources not enough to meet even the minimal drip requirement for cultivation.

 In view of fragmented capacity and high input costs, India suffers systemic uncompetitiveness in the world market. As a result, sugar exports often times have to rely on the crutches of Government support measures.


Segment-wise or product-wise performance

The Company is engaged in two segments, namely Sugar and Cogen. The segment-wise performance of the Company for the year is as under:

Sugar (tonnes)

Cogen (Lakhs Unit)









Operating Profit


Rs. Lakhs



Rs. Lakhs





World sugar balance is slated for a marginal correction in 2014/15 marketing year, but the heavy stock pile could play spoil shot impeding the scope for appreciable price recovery in the global market. Nature may however play havoc to upset current forecast, as the threat of El-Nino has already raised the ripples prompting analysts all over to second guess the probability of its occurrence and intensity for impact on the cane crop.
 Sugar prices would hence appear to remain range bound in the domestic market as well in 2014/15. In addition, sugar mills in Tamil Nadu and our company in particular will have to combat the crueling shortfall in sugarcane availability under continuing drought conditions. Accordingly 2014/15 could prove to be one of the most challenging years for the sugar sector.


Risks and Concerns 

The management cautions that the risks outlined below are not exhaustive and are for information purposes only. Investors are requested to exercise their own judgment in assessing various risks associated with the industry and the Company.

Sugar industry being agro based and vulnerable to commodity cycles is fraught with several risks. It has to source sugarcane from its neighbourhood and out of command area where growth and availability would depend on monsoon and water flow in the river. Cogen tariff is determined by the Regulator for supply to Tamil Nadu Generation and Distribution Corpn. Ltd (TANGEDCO) under a long term Power Purchase Agreement. The rate may vary widely from prevailing market rates. Despite recent liberalization by Centre, there are continuing controls on cane area reservation as well as fixation of cane price by State Governments. The growing mismatch between free market prices for end product and Government controlled price for inputs poses a persistent and grave concern.


Risk mitigation 

The Company has built excellent relationship over the years with the local farming community. It has diversified into Cogen. It has of course no control over agro-climatic risks and regulatory interventions.

Risk specific to the company 

Erode Sugar Mill is squeezed for land in its factory area militating against major expansion or diversification plans. It is also surrounded by other sugar mills that limits scope for major cane area expansion. Of late, its command area for cane has become increasingly susceptible to water stress.

 Distillery licensing is subject to State discretion. Standalone Distillery faces local resistance on perceived threat of pollution.

The Company has a long standing unresolved dispute with Sugar Development Fund, blocking release of subsidies and sanction of fresh loans.

Internal Control Systems and their adequacy

The Company has proper and effective internal control systems commensurate with its nature of business and size of operations to ensure that all controls and procedures function satisfactorily at all times and all policies are duly complied with as required. These are considered adequate to reasonably safeguard its assets against loss or misappropriation through unauthorized or unintended use.

There is adequate and effective internal audit system that employs periodic checks on on-going process. The Audit Committee of the Board of Directors regularly reviews the effectiveness of internal control system in order to ensure due and proper implementation and due compliance with applicable laws, accounting standards and regulatory guidelines.

Human Resources 

The Company employs 99 seasonal and 220 non-seasonal employees. Industry-wide wage settlement expired on 31st March 2013 and renewal talks are yet to begin. Industry relations remained cordial throughout the year.

Discussion on Financial Performance with respect to Operational Performance 

Operating Performance


Year ended
Year ended
Number of days



Average crushing rate (tcd)



Cane crushed (t)



Recovery (%)



Sugar Produced (t)



Power Production (lakh kwh)




Cane availability and quality were severely dented by acute drought conditions in the operational area. As a result, cane volume and sugar recovery declined. Raw sugar import to improve capacity utilization could not be pursued due to unviable market conditions.

 Power production was impacted due to reduced bagasse production, high cost of alternative bio-fuel and unremunerative power tariff.

Financial Performance

Turnover declined by 21% due to fall in sugar production and lower sugar price. Robust rise in molasses price partially came to our rescue. Operating margin declined by 77% Year on Year.

 Interest cost shot up sizeably due to higher working capital utilization and full year impact for Cogen Loan. Depreciation method has been changed uniformly to Straightline Method for both Sugar and Cogen segments during the current year as detailed in Note 30 to the Financial Statements.

 In the end, the company has suffered a Net Loss after tax of Rs. 478 lakhs as against PAT of Rs. 1911 lakhs in the previous year. Its operations were decimated by drought and marred by adverse market conditions thereby rendering its overall financial performance unsatisfactory.


2013 - 14

2012 - 13

PBIDT to Sales (%)



PBT to Sales (%)



PBT to Net Worth (%)



Return on Capital Employed (%)



Earnings (PAT) per Share (Rs)



Interest Coverage (times)



Debt-Equity (times)



Current Ratio (times)



Net Worth per Share (Rs)



Price earning ratio (times)



Cautionary Statement 
Statements made in this Report describing industry outlook as well as Company’s plans, projections and expectations may constitute ‘forward looking statements’ within the meaning of applicable laws and regulations. Actual results may differ materially from those either expressed or implied.
  For Board of Directors
Chennai N Gopala Ratnam
29th May 2014 Chairman