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Ponni Sugars (Erode) Ltd.

You can view full text of the latest Director's Report for the company.
Market Cap. (₹) 110.32 Cr. P/BV 0.40 Book Value (₹) 317.35
52 Week High/Low (₹) 189/102 FV/ML 10/1 P/E(X) 33.03
Bookclosure 25/07/2018 EPS (₹) 3.88 Div Yield (%) 0.78
Year End :2018-03 

The Board is pleased to present the 22nd Annual Report and the audited financial statements for FY 2017/18.



Physical Performance

Cane crushed (tonnes)



Sugar recovery (%)



Sugar produced (tonnes)



Power produced (lakh kwh)



Financial Performance (Rs. crores)

Total Income



Profit Before

Interest, Depreciation &Tax



Profit Before Exceptional Items & Tax



Profit Before Tax



Profit After Tax



The company hitherto was following the Companies (Accounting Standards) Rules, 2006 and Indian GAAP It has now adopted the Indian Accounting Standards (Ind AS) from FY 2017-18 as mandated and reworked the financial statements for FY 2016-17 for presenting comparative information. Accordingly, the financial statements for current year including comparative figures of previous year are based on Ind AS and in accordance with the recognition and measurement principles stated therein as well as other accounting principles generally accepted in India. While this has no major impact for the Statement of Profit & Loss, there is and would be periodical impact for “Other Comprehensive Income” in measuring and restating investments at fair value.


Your Directors recommend a dividend of Rs.1.00 per Equity Share of Rs.10 each for the financial year ended 31st March 2018. This is subject to the approval of shareholders at the ensuing Annual General Meeting (AGM) to be held on 25th July, 2018.

Sugar Industry Overview

World sugar production has rebounded strongly during 2017-18 season after two years of deficit phase on the back of massive production gains in India, EU, Thailand and China. In particular, the strident rise in India (60%) and Thailand (50%) clocking a new peak for them has catapulted world production to all time high. Despite the recent resurgence in world oil prices driving Brazil to divert higher share of cane for ethanol, global sugar production is predicated to be sizeably in surplus during the ensuing 2018-19 season as well. The twin surplus years together contributing to about 10-15 mln tonnes of excess production have devastatingly dampened market sentiments, exerting excruciating pressure on world sugar prices that have fallen by 28% during the year. Current NY11 prices for raws at 11 cents/ lb are a two and half year low and below cost of production to the most efficient producers.

Indian sugar production was presaged to poignantly rise in 2017-18 on the back of good monsoon; yet, the quantum of increase proved early estimates eventually incorrect. Sugar production forecast originally pegged at 251 lakh tonnes in Sep’17 had to be successively revised significantly upward at regular intervals owing to record high productivity of cane crop witnessed under optimal climatic conditions in Maharashtra and Karnataka. Sugar production for the season is slated to surpass all earlier records and scale to 315-320 lakh tonnes. This marks a monstrous rebound from 203 lakh tonnes produced in the previous season and is markedly much in excess of our domestic consumption requirement hovering around 250 lakh tonnes. With normal monsoon forecast, sugar production during 2018-19 season should score further higher, though it is too early to hazard a guess on the quantum thereof.

It is hence obvious, bountiful sugar production in the two consecutive sugar seasons would throw up a bloated surplus of about 15 mln tonnes for India, devoid of disposal options. The high cost of cane mandated on Indian sugar producers translates to high cost of sugar, unwittingly making it outright uncompetitive for liquidation in the global market.

It is hence no wonder, sugar prices all over the country have been under a free fall by a whopping 25% since the start of current season. Presently they are at levels way below the average cost of production. While so, TN mills are more unviably placed, being confronted with abhorrent fall in cane availability that has crippled their productive operations at 20-25% of capacity and concurrently more than tripled the fixed cost per unit of production. Firefighting measures attempted in fits and starts by the Central Government have so far failed to stem the tide and reverse negative market sentiments that remain deep-rooted. Meantime, sugarcane price arrears have scaled to dizzy heights causing at once significant stress to sugar millers and distress to cane farmers.

The structural problem for the industry, discussed ad nauseam, is readily traceable to the discernible disconnect between the price for sugarcane and sugar. The inverse cost-realization structure inflicted on sugar producers is avowedly antithetic to the basic economic tenets and hence unarguably unsustainable. The problem is further accentuated by the disproportionately higher increase handed out by the Government for cane crop compared to other competing crops. This effectively checkmates the desired correction required for restoring demand-supply equilibrium. In the process, we end up with huge stocks of high cost sugar that is clearly out-priced and uncompetitive in the world market.

Switching between sugar and ethanol like Brazil is no doubt a credible option but it hinges on a long term promotional policy, in particular a remunerative price for ethanol produced from high cost cane. The Government is also dragging its foot in establishing a Price Stabilization Fund as recommended by CACP over the last couple of years as an elegant and pragmatic way to avert cane price arrears. Unless and until the fundamental challenge is firmly faced, decisively dealt and resolutely resolved, band-aid solutions would hardly help address the incipient sickness in the industry.

Company's performance

The fall in cane volume for the company during the current year is in line with the forecast made in last year’s report. However our prescient bet, both on normalcy of monsoon and stability in sugar prices, proved miserably misplaced. We were overwhelmed by yet another year of abysmal failure in north-east monsoon in our command area that disrupted cane farming, depressed the cane yield, depleted the sucrose content and decimated our plant performance. We fell formidably short in all these vital factors that are central to optimal operational performance and key drivers of enterprise profitability.

Having regard to the above, we have the dubious record of lowest cane crush, sugar recovery, sugar production and sale for FY 2017-18 in a decade and more. This is despite supplementing our sugar production by over 20% through raw sugar import notified in April 2017 at zero percent customs duty under TRQ facility. We however had to surrender our second quota notified in September 2017 (that came with a concessional customs duty of 25%), foreseeing domestic price vulnerability, a decision that in retrospect proved right. As a corollary to low cane crush, power production that largely depends on captive bagasse too tripped and dropped by 28% despite stepping up outsourced bio-fuel in the mix, while the high cost of coal made it an unviable fuel option for the year.

Sugar prices were quite supportive during the first half but witnessed a cataclysmic crash in the second half of the year, weighed by strong negative fundamentals and stronger negative sentiments. Molasses price was mercifully the sole saving grace, though its benefit was limited, confined to the low production level achieved. The regulatory power tariff is ex facie remunerative but we are more often miffed by the inordinate delay in payment of power bills that is clearly transgressive of extant regulatory dictum. While this immediately chokes our cash flows, the implicit interest cost eventually wipes out our margin in full.

During the year, we were benefitted by the uptick in REC off-take in the Power Exchanges, thanks to stricter enforcement of RPO mandate by several States. We could also secure refund of purchase tax from the State Government referable to the double incidence of duty during transition from VAT to GST. Dividend income from investments also nearly doubled. These have helped in no mean measure to buttress our finances.

Amidst all-round adversities, notable policy change from TN Government on sugarcane pricing is indeed a redeeming feature. As mentioned in earlier Reports, private sector sugar mills in the State were opposed to State Advised Price (SAP) since 2013-14 sugar season that was arbitrarily fixed and often times well beyond their financial capacity. SAP being recommendatory, private mills negotiated and paid cane price for each sugar season from 2013-14 to 201617 that is above the statutory Fair & Remunerative Price (FRP) but below the SAP Nonetheless, strident agitations and persistent protests by cane farmers pressing for payment of SAP was a thorn in the flesh. The logjam was finally broken with most stakeholders sincerely coming forward to strike a pragmatic and workable solution to this vexatious issue. While the State Government discontinued SAP for cane beginning 2017-18 season and ushered in a Revenue Sharing model as suggested by Dr Rangarajan Committee, private mills and their cane farmers were committed to reach a one-time settlement on the SAP claims of all the past four years.

Accordingly, our company had series of meetings with the representatives of cane growers and agreed to pay additional cane price of Rs.87.50 per tonne for each of the four seasons from 2013-14 to 2016-17. Of the total financial commitment of Rs.15.61 crores, Rs.11.58 crores that is referable to cane purchases of previous years is disclosed as an ‘exceptional item’ in these financial statements. No doubt, this would significantly intimidate our near term cash flows at a critical juncture. Nonetheless, driven by prudence and expediency, we took the call with the clear and cardinal objective to regain the confidence of and rebuild goodwill with our cane growers that is too critical to long term sustainability of our operations.

While our operations were profitable in the first half of the financial year, we were overwhelmed in the later part by the double whammy of sub-optimal plant operations (caused by drought) and sledge-hammering in sugar prices (triggered by market). In these trying circumstances, it is good comfort that our company has ended the year profitably, albeit at a modest level, after absorbing the negative fallout of the exceptional items.

Outlook for FY 2018-19

While the company experienced mixed fortunes in the year passed, it is in for greater turbulence and graver challenge in FY 2018-19. We are staring at an all time low cane availability, while raw sugar route is ruled out. The buffer by way of low cost sugar stocks and REC carry over stood by us last year that now stands exhausted. Sugar prices hold little promise for rebound both in domestic and global arena. The road ahead thus looks daunting and depressive.

We are currently focused on our own and along with our peer group in developing new varieties of cane that are drought resistant and sucrose rich. We are also redoubling our efforts in rejuvenating and revitalizing existing good cane varieties, promoting drip irrigation and improving cultivation methods. The threat of SAP is now firmly behind us, with the State Government embracing the revenue sharing model. We are however dominantly dependent upon resumption of normal monsoon in our command area and improved water storage in Mettur reservoir for meaningful resurgence in cane planting. Having endured bad monsoon for too long, we remain sanguine that the law of average would kick in this time to our rescue.

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’ 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, Corporate Governance Report together with the certificate from the company’s auditors confirming the compliance of conditions on Corporate Governance is given in Annx-2. The Corporate Governance Report also includes several additional contents and disclosures required under Section 134(3) of the Companies Act, 2013 at relevant places that forms an integral part of this report.

Extract of Annual Return

The details forming part of the extract of the Annual Return in Form MGT-9 is given in Annx-3.

Directors’ Responsibility Statement

Pursuant to Section 134(3)(c) of the Companies Act, 2013 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.

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.

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. 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 (Annx-4).

Material changes and commitments

There is no change in the nature of business of the company during the year.

The company has entered into a material commitment for one-time settlement of past SAP claim of cane price in May 2018 and its effect has been duly considered in the financial statements for the year. There is no other material change or commitment in the business operations of the company since the closure of 31st March 2018 to the date of this report.

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-5.

Corporate Social Responsibility (CSR)

The company is covered under the mandate of Section 135 of the Companies Act, 2013 for FY 2017-18. This year’s CSR report in the prescribed form is in Annx-6 that forms part of this report.

Particulars of Employees

The Statement of Disclosure of Remuneration under Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 (“Rules”), is appended as Annexure -7 to this Report.

The information as per Rule 5(2) of the Rules, forms part of this report. However as per first proviso to Section 136(1) of the Act and second proviso of Rule 5(2) of the Rules, the Report and Financial Statements are being sent to the members of the Company excluding the statement of particulars of employees under Rule 5(2) of the Rules. Any member interested in obtaining a copy of the said statement may write to the Company Secretary.

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.


Ms Bharti C Pithawalla pursuant to disqualification suffered u/s 167(2) vacated her office of directorship in the company effective 27th October 2017 in accordance with Section 167 of the Act. The Board wish to place on record the valuable contribution received during her tenure as director.

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


M/s S.Viswanathan LLP (Firm Regn.No.004770S/S200025) were appointed as statutory auditors by shareholders in the 21st AGM for a term of five years till the conclusion of the 26th Annual General Meeting of the company on such remuneration fixed by the Board of Directors on the recommendation of Audit Committee from time to time. This was subject to ratification by members at every AGM, if so required by the Companies Act, 2013. The requirement for annual ratification at AGM has since been dispensed with by the Companies (Amendment) Act, 2017 effective 7th May 2018. Accordingly no ratification is required henceforth and the statutory auditors would continue in the normal course till the conclusion of 26th 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-8).


Your company is benefitted by the understanding shown and support received from Central and State Governments, Banks and Financial Institutions, customers and suppliers. It is grateful to the large number of cane growers for their continued commitment to grow and supply cane under extreme drought conditions.

The Board further wish to acknowledge the commitment shown by employees at all levels during current tough times and place on record the continuing patronage received from its shareholders

For Board of Directors

Chennai N Gopala Ratnam

25th May 2018 Chairman

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