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Directors Report of Ponni Sugars (Erode) Ltd.

Mar 31, 2017

The Board is pleased to present the 21st Annual Report and the audited financial statements for FY 2016/17.

2016-17

2015-16

Physical Performance

Cane crushed (tonnes)

562974

441211

Sugar recovery (%)

9.47

9.76

Sugar produced (tonnes)

53620

43030

Power produced (lakh kwh)

765

479

Financial Performance (Rs. crores)

Turnover

261.32

175.27

Profit Before Interest, Depreciation &Tax

39.85

3.23

Profit Before Tax

21.64

2.62

Profit After Tax

15.19

1.90

Transfer to Reserves

Your Directors have proposed to transfer Rs.10 crores to General Reserve.

Dividend

Your Directors recommend a dividend of Rs.2.50 per Equity Share of Rs.10 each for the financial year ended 31st March 2017. This is subject to the approval of shareholders at the ensuing Annual General Meeting (AGM) to be held on August 02, 2017.

Sugar Industry Overview

World sugar production during 2016-17 though moved marginally up YoY yet limped and languished behind consumption growth, leaving a large deficit for the second year in a row. The concomitant combined drawdown in global inventories in the twin deficit years has pushed stock to consumption ratio to below seemingly critical level which is also the lowest since 2011-12. The palpable decline in global production and stock correction has been principally caused by a whopping 20% fall in Indian production.

As a result, raw sugar prices gained momentum since April 2016 and touched a high of 23.3 c/ lb in September that marked a fresh four year peak since mid July 2012. Sugar has been the star performer of 2016 in the commodities basket ending the year by about 30% higher. The price rise fuelled on expectations of huge import demand from India however was frustrated and faced considerable correction in the later months due to the delay, deferral and downward revision in the Indian demand and heavy selling by Funds. It fell to 15.43 c/lb in April 2017, the lowest daily price for 12 months.

Indian sugar production succumbed under scorched weather for the second season in succession and more severely during 2016-17. The domino effect of drought caused by deficiency in rainfall in Maharashtra and Peninsular India plunged cane growth and plummeted sugar production rather steeply. The State of UP was a solitary exception to this pan Indian phenomenon with a resonant 28% rise in sugar production. Concurrently, sugar consumption witnessed de-growth due partly to demonetization transiently trammeling demand; yet projected stocks at close of season would be at perilously close to comfort levels.

Trade houses and refiners sensing business prospects to bring in large volume of imported sugar turned aggressive and unobtrusively over-pitching the impending shortage orchestrated for duty-free import. The Government unmoved by such sophism showed commendable foresight and restraint, giving due weightage to industry’s passionate plea on the issue. After all, it is too early to forget that indiscriminate imports in the past have invariably come to inflict incalculable damage to the domestic industry as well as local sugarcane farmers. The Government has finally chosen the right timing, volume and modus operandi for calibrated duty-free import of raw sugar as buffer to reassure domestic availability and ensure price stability.

Sugar prices in the country staged a robust recovery during FY 2016-17 and for most part ruled at remunerative levels. The rebound in sugar prices that for years stayed suppressed is an overdue and welcome relief to the industry. Yet it must be recognized that current sugar prices just allow the industry to recover its cost of production and recoup the humongous losses suffered in the recent past. In this context, it is gratifying to observe that the Government, alive to this reality and economic rationale, has refrained from knee-jerk reactions for correcting the price for sugar that clearly is at correct level.

Government Policies

The Central Government foreclosed the export window by scrapping the Minimum Indicative Export Quota (MIEQ) in May 2016 and imposed 20% export duty on sugar exports in June 2016. It simultaneously scrapped the production subsidy scheme, overlooking the legitimate accrued rights of TN sugar mills for subsidy in respect of special season cane crushing. In fact, TN mills have suffered larger losses on fulfilling MIEQ relying on the compensatory production subsidy from Government that now stands forfeited by the sudden change in policy.

The Central Government amended the Exim Policy in April 2017 for allowing duty-free import of raw sugar. It specified zone wise Tariff Rate Quota (TRQ) and distributed it to individual sugar mills. This is meant to take care of marginal shortfall in sugar availability in respective zones.

Goods and Services Tax (GST) is perceived as a game changer towards indirect tax levy and administration. While the basic legal structure for GST is now firmly in place, actual roll out is expected any time soon. In the rate structure finalized by GST Council that is subject to further vetting before reaching finality, the GST rate is 5% for sugar and sugarcane. The by-products, namely, bagasse and pressmud hitherto totally exempt would now attract 5%, while GST on molasses is 28%. GST will largely subsume multitude of Central and State levies but potable alcohol and electricity are kept outside of GST that would bring in complexities for sugar industry in availing input tax credit.

Sugarcane pricing continues to remain the gravest of challenges for all stakeholders including Government. Global practices, Expert Committee reports and CACP recommendations succinctly suggest and unequivocally underpin the imperative for linking sugarcane price to realization from sugar and primary by-products or in the alternative to a marginally higher percentage of realization only from sugar. Sugar industry has no qualms if the Central or State Governments desire to dole out a higher guaranteed price for sugarcane in the interest of downtrodden farmers. It only emphasizes that such empathized price in excess of what is economically permissible under the revenue sharing formula can and must come only by way of direct Government subsidy to farmers. For this, CACP has time and again stressed on the strategic need for setting up a Price Stabilization Fund that would decisively address the disequilibrium between sugar and sugarcane prices. In its absence, both the industry and cane farmers are periodically caught in a vortex when muted sugar prices under market forces mutilate sugar mills’ cash flows and mount cane arrears to the distress of farmers. Sooner this fundamental flaw is corrected, the better for putting the industry on a sustainable platform and make it globally competitive.

Company’s performance

The company crushed 28% higher volume of cane and produced 25% higher volume of sugar during the current financial year. While the delayed start of crushing last year spilled over sizeable quantum of cane to current year, the company was further forced to fore-draw part of cane meant for the next year to avert total perishal thereof. These have doubtless boosted current year performance. Nonetheless, the company can take legitimate credit for being able to operate during one of the most difficult and challenging times at reasonable capacity utilization. It beefed up the bio-fuel mix in power production, leveraging on viable regulatory tariff and environment clearance obtained for the full capacity of Cogen plant at 19 MW. Indeed, the company exported 526 lakh units of power to State Grid during the year, the highest since the commissioning of Cogen plant.

Backed by higher volumes in sugar and power sales and buoyed by the strong rebound in sugar prices, turnover for the year revved up by 49%. Improved efficiencies in operating both the sugar and power plants and tight cost control measures assiduously pursued together helped the company achieve Profit Before Tax of Rs.21.64 crores for the year as against the modest Rs.2.62 crores in the previous year.

Finance & Legal

The Board’s Report in the last year drew reference to the favourable orders obtained from the Division Bench of High Court of Madras on the decade old dispute with Sugar Development Fund (SDF). Despite the decision, in principle, taken by SDF for not appealing against the said High Court order, the company was faced with status quo for too long on subsidy disbursement. After repetitive representations, the company filed a fresh Writ Petition and the High Court of Madras by its 12th January 2017 order ruled in favour of the company with a deadline of three weeks for the Government to release pending subsidies.

Pursuant to the above, the company could receive settlement of old claims for buffer stock subsidies and current claim for production subsidy. However the Government has rejected the transport subsidy claim for Rs.4.16 crores, citing budgetary constraints and closure of the scheme. In fact, on this reasoning claims of several other sugar companies had already got negated. In view of this, the company has derecognized this subsidy so disallowed by the Government in the financial statements of the current year, considering the uncertainty on realization thereof. However, SISMA-TN of which the company is a member has filed a Writ Petition on this issue in the High Court of Madras to pursue available legal remedy that has since been admitted and notice ordered on the Central Government.

It has indeed come as a huge relief to the company that the Central Government have since conceded ground and decisively delinked our company from the entity that earlier owned the Erode sugar mill. This marks a significant qualitative shift in their stance that would henceforth put our company on par with its peers through the green channel in respect of all Government Schemes.

The company has also received from TANGEDCO the arrears towards power tariff revision dues pending for over 12 months by end of the current financial year. It however continues to witness considerable time delay for realizing monthly bills. Here again, the problem is commonly faced by every sugar company in the State and the choked cash flows in turn come in the way of timely payment of cane price.

Outlook for 2017-18

Sugar mills in Tamil Nadu for long enjoyed an enviable record for operating a long sugar season, while farmers on their part were benefitted by the highest sugarcane yield in the country. In stark contrast to the distributed rainfall that the State received all along during both the southwest and northeast monsoon, of late it gets neither. Recurring monsoon failure has become a ‘new normal’ and this year the shortfall in northeast monsoon has the dubious distinction of being the highest in 140 years. No wonder, fresh cane planting is in a forlorn state, while ratoon crops are wilting under woefully water-stressed conditions. As a result, cane area has shrunk, cane productivity stunted, sugar recovery scuttled and overall operations strangulated. It is feared that sugar production in the State would be reduced in the coming season to its lowest in three decades.

Our company would be no exception to this traumatic trend. Its cane sugar production in FY 2017-18 is feared to decline by more than half YoY While sugar prices should hopefully stay at remunerative levels, tangible gains there from would get pared by parlously low volume of cane sugar production and sale. The normal monsoon forecast for South this year leaves a ray of hope for things to turn better. There is no gainsaying that we remain singularly dependent on this phenomenon that is central to galvanise fresh cane planting and gain the lost ground.

To supplement sugar production under extant cane constraints, the company planned to process raw sugar using the limited window for duty-free imports. It applied for an allocation of 15000 MTs but could secure TRQ allotment of only 6269 MTs. This would be processed along with cane sugar during the special season that is currently on.

In sum, the marked recovery in profit performance achieved during FY 2016-17 would seem short-lived as the company is faced with formidable production and financial challenges in FY 2017-18. It would however steadfastly remain focused to weather the storm and take sustained efforts towards improving operational efficiencies, though meaningful relief has to come mercifully from monsoon resumption.

General

The Government of Tamil Nadu has been announcing State Advised Price (SAP) for cane that in terms of the Hon’ble Supreme Court ruling is purely recommendatory in nature for our State. Nonetheless, it gives rise to unrealistic expectation for the farmer and creates fissures in relationship. While the industry in a state of immiseration since 2013-14 sugar season volunteered to pay a cane price that is higher than the statutory Fair and Remunerative Price but below the arbitrary SAP the differential for the four sugar seasons since then has become hugely contentious. The private industry has strongly pleaded and continues to stress its inability to shoulder additional financial burden on this score. The State Government has since initiated tripartite meetings to resolve this imbroglio.

The company currently follows the Companies (Accounting Standards) Rules 2006 and Indian GAAP It is now required to switch over to the new Accounting Standard, namely Indian Accounting Standards, in short IndAS, from FY 2017-18. It also needs to rework the financial statements for FY 2016-17 for presenting comparative information beginning the first quarter report on financial results under SEBI Regulations. The company has initiated requisite steps for the smooth transitioning and foresees no major impact for its top-line or bottom-line by reason of migrating to IndAS.

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.

(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.

(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.

There are no material changes and commitments in the business operations of the company since the close of the financial year on 31st March 2017 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 Section 135 of the Companies Act, 2013 for FY 2016-17, though no mandatory spending is required by reason of average loss suffered in the preceding three financial years. Its CSR report is furnished 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 Annex -7 to the 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 at the Registered Office of the company.

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.

Directors

The present term of Mr N Ramanathan, Managing Director ended on 31st March 2017. 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 2017. Consent of the members is being sought for his appointment and remuneration, including minimum remuneration at this meeting.

Ms Bharti Chhotubhai Pithawalla retires by rotation at this meeting and being eligible offers herself for reappointment.

Auditors

M/s R Subramanian And Company LLP Chennai (Firm Regn. No.S200041) shall cease to hold office at the conclusion of this 21st Annual General Meeting having regard to the provisions of Section 139(2) of the Companies Act, 2013. Your Board wish to place on record the excellent professional services received from them all along.

Your Board on the recommendations of the Audit Committee has proposed the appointment of M/s S.Viswanathan LLP (Regn. No.004770S/ S.200025) as auditors for a term of five years from the conclusion of this meeting. Necessary resolution for their appointment is placed for the approval of shareholders.

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).

Acknowledgement

Your company continues to receive good support from Central and State Governments, Banks and Financial Institutions, Customers and Suppliers. It enjoys commendable relationship with the cane growers. Your Board wish to convey its deep sense of appreciation and commendation for their unstinted support.

Your Directors also acknowledge the understanding and co-operation shown by the employees at all levels and wish to place on record the continuing patronage received from the shareholders.

For Board of Directors

Chennai N Gopala Ratnam

30th May 2017 Chairman


Mar 31, 2015

Dear Members,

The Board is pleased to present the 19th Annual Report and the audited financial statements for FY 2014/15.

2014-15 2013-14

Physical Performance

Cane crushed (tonnes) 454701 436103

Sugar recovery (%) 9.75 9.64

Sugar produced (tonnes) 44288 41781

Power produced (lakh kwh) 444.39 380.04

Financial Performance (Rs. crores)

Turnover 163.40 173.72

Profit Before Interest, (3.58) 6.74

Depreciation &Tax

Profit/ (Loss) Before Tax (5.43) (2.81)

Profit / (Loss) After Tax (3.65) (4.78)

Surplus from Previous Year 23.84 29.22

Amount available for 20.19 24.44

appropriation

Appropriations

Transfer to General Reserve -- --

Proposed Dividend -- 0.51

Dividend Tax -- 0.09

Balance carried forward 20.19 23.84

Dividend

No Dividend has been recommended by the Board in view of losses suffered by the Company in FY 2014-15.

Sugar Industry Overview

Both world sugar production and stock are poised to reach an all time high level, recording the fifth consecutive year of net surplus in 2014/15. Higher crops in India and the EU counterbalanced smaller output in Brazil and China. World sugar prices continue to remain under bearish pressure from surplus fundamentals and white sugar prices fell to their lowest in six years. Global prices are indeed down by more than 50% in three years, albeit witnessing some intermittent corrections. With increasing sugar output predicted in major producing countries, there appears little respite from receding sugar prices till credible evidence comes in place for meaningful inventory correction. World market thus looks to ruefully remain in bear''s firm grip in the near term.

Indian sugar production following closely the global trend has recorded an unchecked upsurge, leading to a fifth consecutive year of sugar surplus in 2014/15. Still worse, early estimates would seem to portend the proclivity for perilous rise in 2015/16 as well. The prolonged delay on the part of Government in announcing export subsidies (which finally came in February 2015) coupled with the frenetic fall in global prices decisively dented the prospects for sugar exports towards addressing the mounting stockpile. It now looks the current season would end with an alarming inventory in excess of 90 lac tonnes that is clearly some 30 lakh tonnes in excess of normative levels.

While so, sugarcane price continues to accelerate and ascend by abhorrent hikes, determined devoid of economic rationale, by the Central and State Governments. With sugar prices tottering and tumbling to their six-year low, there is clear evidence of an incessant and increasing inverse co-relation between sugar and sugarcane prices. Sugar mills have in fact been losing Rs. 600-800/ tonne of cane in 2014/15 season all over the country. This has not only eroded the profitability and net cash accruals of the industry pushing it to near bankruptcy but also led to cane price arrears to a horrendous all-time high of Rs.21000 crores. Yet the farmer is firmly rooted in cane and reluctant to switch crops, unlike the swift response shown in the past, to bring in desired correction to bloated sugar stocks. Evidently, the disproportionately high price for sugarcane fixed on extraneous considerations has come to effectively distort comparable returns from competing crops and make sugarcane the singular choice of the cane grower. The unholy combination of controlled pricing for raw material and market driven prices for the end product inevitably leads to a stratospheric imbalance and poses a structural challenge to the long term sustainability of this core industry.

Government measures

The Central Government, alive to the gravity of challenges being faced by the industry and the consequent hardship caused to farmers in the form of huge unpaid cane dues has since come out with certain ameliorative measures. After the belated export subsidy that frustratingly failed to enthuse exports, it has increased the import duty on sugar, restricted the scope for duty-free import of raw sugar that sneaks into the domestic market and boosted the ethanol blend programme with fiscal incentive. It is also actively considering the request of the industry on strategic sugar reserve that would help infuse immediate cash flow for clearing cane dues and prop-up market sentiment to propel a rebound in sugar prices.

While these short term measures are at best palliative and no doubt welcome, the long term remedy lies in decisively linking sugarcane price to realization from sugar and its by- products. This is vital to send timely signals to the farmer on his crop choice and avert excessive demand-supply disequilibrium. This is best achieved by implementing the recommendations of Dr C Rangarajan Committee and following the suggestion of CACP in its sugarcane pricing report for 2015-16 season that advocates a ''Sugarcane Price Stabilization Fund'' so as to protect the minimum floor price for the benefit of the farmer.

Most of the leading sugarcane and sugar producing States have also come to the rescue of trailing sugar industry in the last couple of years through tax sops and directly subsidizing part of sugarcane price. Plenitude of representations have however failed to trigger similar supportive measures from the Government of Tamil Nadu. While so, the State Government while exempting purchase tax on sugarcane has imposed VAT on sugar from 1st November 2014. In the absence of VAT impost in the neighbouring competing States, this new levy as the proverbial last straw has dealt a lethal blow by further eroding our competitiveness and strangulating sugar off- take. State intervention is also urgently required to promote ethanol production and fix a viable tariff for bagasse based cogeneration compatible with the remunerative rates prevailing in other States. It is fervently hoped that the State Government would soon come to address these vexatious issues and come to the rescue of this agro based industry.

Company Performance

The company continues to face formidable adversity from the severity of drought in its command area of operation for the third successive year. While sugar production in the State of Tamil Nadu is slated to fall by a whopping 50% in the last four years due to recurring monsoon failure, the problem is all the more acute in our plant location. Mercifully the improved power supply for irrigation helped in a swift rebound in sugarcane yield perking up our crushing volume in a painful year also with a modicum of rise in sugar recovery. In striking contrast to its enviable record of operating long sugar seasons, crushing days during the year crumbled to the lowest figure, falling below 180 days.

Sugar off-take was sorely sluggish in the context of sliding sugar prices and muted market sentiment. Indeed, sugar prices throughout the year ruled below cost of production as a pan-industry phenomenon. Neither raw sugar import to spruce up our capacity utilization nor sugar exports to deplete stock levels was viable under extant price parity between global and domestic markets. Molasses price however remained buoyant during most part of the year. Power tariff revision following the favourable ruling obtained from Appellate Tribunal for Electricity (APTEL) still remains elusive. Despite APTEL upholding several of our contentions and remanding the issue to Tamil Nadu Electricity Regulatory Commission (TNERC) for revised tariff fixation within a definitive deadline, there is little perceptible progress on this till date.

Suffering thus as a silent victim of a hostile external environment, the company on its part unleashed a slew of internal cost cutting measures to combat current adversities. It has proactively pegged cane price for the year at 2013-14 season level in line with other private sector sugar mills, by collectively challenging the enforcement of State Advised Price that is only recommendatory in nature in Tamil Nadu. It has optimized on the chemical consumption and achieved improved efficiencies in its Cogen plant. Employee cost increase is essentially attributable to the industry-wide wage revision and steep hike in Dearness Allowance during the year. Capex and Repairs budgets have been considerably pruned compatible with our constricted cash flow.

The company has changed the method of depreciation during the year pursuant to the dictates of the Companies Act, 2013 to the Financial Statements. It continues to re- estimate provisions made on an ongoing basis and has during the year written down trade payables. These are treated and disclosed as exceptional items in the Financial Statements.

The company has suffered a net loss of Rs. 365 lacs for the year as against the loss of Rs. 478 lacs in the previous year in the backdrop of daunting challenges enumerated above.

Finance

The company has had to fully utilize its working capital limits and further take recourse to temporary additional borrowings during the year for being able to pay the committed cane price. Foreseeing the financial challenges ahead, it has consciously pre-paid term loan installments due till end of March 2016 to Canara Bank. It continues to enjoy the goodwill and support of its working capital banks.

Undue delay and erratic time schedule in realizing the dues from TANGEDCO for the committed power supply under the long term PPA continues to pose redoubtable challenge to our tenuous cash flow. Levy sugar price differential of Rs. 2.2 crores pertaining to 2009-10 season still remains unrealized from FCI, despite No Due Certificate issued during the year by Sugar Development Fund (SDF).

The company has suffered for long due to the unlawful withholding of subsidy amount of Rs. 6.9 crores by SDF on the specious plea that loan dues of erstwhile Ponni Sugars and Chemicals Ltd would be treated as default by our company. The Hon''ble High Court of Madras decided the issue in our favour in 2010 and the Writ Appeal challenging this verdict has also been now dismissed by the Division Bench in April 2015 It shall be our endeavour to engage with SDF and realize these dues without further legal hassles particularly in the current context of the extremely distressed state in which the sugar industry is placed.

Outlook for 2015-16

There is little evidence both in the domestic and global markets for an early restoration of demand-supply equilibrium and consequent recovery in sugar prices. Barring unforeseen pressures brought about by extreme weather conditions, sugar prices might continue to remain subdued in the near term.

We have witnessed comparatively improved rainfall in our area during the year, though far below our long term average. Planting area in response has recorded commensurate rise. It is however too early days to celebrate as we are still critically dependent on the benevolence of monsoon for being able to fully regain the cane area lost solely on the ground of ground water shortage.

It is thus deeply distressing at this juncture that your company is faced with plentitude of problems and multitude of challenges for the third year in a row brought about by deficient monsoon, depleted water table, depressed market conditions and diminutive power tariff. Much of the problem is industry centric and it is some comfort that your company is relatively better placed as compared to most of its peers. It should hence be able to strike it early as and when the industry turnaround is on the anvil.

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 Clause 49 of the Listing Agreement with the Stock Exchanges, 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.

Section 134(3) of the Companies Act, 2013 requires the Board''s report to include several additional contents and disclosures compared to the earlier Law. Most of them have accordingly been made in the Corporate Governance report at the appropriate 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.

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 loss 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.

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 provided 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.

There are no material changes and commitments in the business operations of the company since the close of the financial year on 31st March 2015 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)

Section 135 of the Companies Act, 2013 has imposed CSR mandate on companies having minimum threshold limit of net worth, turnover or net profit as prescribed. Since the company does not meet any one of these criterion, it remains outside the purview of Sec.135 and consequently the reporting requirements thereunder do not at present apply to us.

The company however as a responsible corporate citizen has constituted a CSR Committee and formulated a CSR policy. Its CSR report on voluntary basis is furnished in Annx-6 forming part of this report.

Particulars of Employees

The information required pursuant to Section 197 read with Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is furnished in Annx- 7.

Adequacy of Internal Financial Control with refer- ence 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.

Directors

Mr Arun G Bijur retires by rotation at this meeting and being eligible offers himself for reappointment.

All the independent directors have given the declaration that they met the criteria on independence as laid down under Section 149(6) of the Companies Act, 2013 and Clause 49 of the Listing Agreement. The performance evaluation of independent directors has been done by the entire Board of Directors, excluding the director being evaluated at its 25th March 2015 meeting. The Board on the basis of such performance evaluation determined to continue the term of appointment of all the independent directors who have been appointed by the company at its 18th AGM for a fixed tenure till 31st March 2019.

Auditors

M/s Maharaj N R Suresh And Co. and M/s R Subramanian And Company have been appointed as statutory auditors of the company till the conclusion of 20th and 21st AGM respectively subject to ratification by members at every AGM. Accordingly requisite resolution for ratifying their appointment is proposed in the manner stated in the Notice for the 19th AGM.

Particulars of statutory auditors, cost auditors, internal auditors and the secretarial audit 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).

Acknowledgement

Your Board thanks the various Central and State Government Departments, Banks and Financial Institutions, customers and suppliers for their continued support. In particular, your directors desire to place on record the deep understanding shown and the unstinted co-operation extended by our cane growers during the current difficult time. Your directors also commend the committed contribution of its employees and the unequivocal support received from the shareholders.

For Board of Directors

Chennai N Gopala Ratnam 29th May 2015 Chairman


Mar 31, 2013

The Directors present their 17th Annual Report and the audited financial statements for financial year ended 2012-13.

2012-13 2011-12

Physical Performance

Cane crushed (tonnes) 653498 745644

Sugar recovery (%) 9.98 10.21

Sugar produced (tonnes) 65270 76464

Power produced (lakh kwh) 448.25 -

Financial Performance (Rs. crores)

Turnover 211.12 265.62

Profit Before Tax 12.16 26.12

Profit After Tax 19.11 17.79

Surplus from Previous Year 21.62 21.33

Amount available for appropriation 40.73 39.12

Appropriations:

Transfer to General Reserve 10.00 15.00

Proposed Dividend 1.29 2.15

Dividend Tax 0.22 0.35

Balance carried forward 29.22 21.62

Dividend

Your Directors recommend a dividend of Rs. 1.50 per Equity Share of Rs. 10 each for the financial year ended 31st March 2013.

Sugar Industry Overview

World sugar production is poised to outpace consumption in 2012/13 for the third year in a row, touching an all time high of 182 million tonnes. Brazil, the top producer, would record a massive recovery under normal weather to boost global surplus to the highest in a quinquennium. This has come to mark the end of low stock environment, one of the main market characteristics since 2008/09.

Weighed by supply overhang, sugar prices have been caught in the quagmire of continuous climb down. After touching a peak of 24 c/lb in July 2012, raw sugar drifted downward to hit a 34 month low at 16.81 c/lb in May 2013. Leading trade houses and commodity analysts in the global arena have in this macro scenario predicted the bearish trends in world sugar prices to persist in the near term.

India yet again fumbled and floundered during 2011/12 to capitalize on buoyant world sugar prices. By restricting and rationing export quotas, we were lackadaisical to let go a golden opportunity to pare inventories through aggressive exports at lucrative world prices. As a result, we are now over-burdened with huge sugar stocks hitting a 5 year high mark with little scope for its liquidation at the current juncture where export price parity is palpably negative.

As feared, domestic sugar prices have crumbled and continually crashed during 2012/13 sugar season. After peaking to Rs. 3800/ qtl in August 2012, ex-factory prices in Tamil Nadu currently rule below Rs. 3000/ qtl - too sharp a slide in too short a period. Meantime, sugarcane prices have been hiked significantly both by the Centre and State. As a result, sugar margins have got stridently squeezed and turned strikingly negative for most producers. Little wonder, sugarcane arrears have mounted more steeply in States that mandated an abominable hike in cane prices.

Sugar Decontrol

The Central Government has finally taken the crucial decision to liberate the sugar sector from the clutches of excruciating controls. Pursuant to the recommendations of Dr C Rangarajan Committee made in October 2012, CCEA on 4th April 2013 decided to do away with levy obligation for sugar produced from October 2012. While Government would continue with PDS sugar for BPL families, the subsidy burden would henceforth shift from the industry to the Government. Further, sugar release mechanism has been dismantled to confer greater freedom on industry for managing its cash flows. This indeed is a watershed decision to bring about greater certainty, stability and rationality into the system and has the potential to propel the sugar sector to higher growth trajectory.

The decontrol move is well begun but is just half-done. The reforms have conscientiously covered the sugar-side in a comprehensive and conclusive manner but consciously shied away from addressing the sugarcane-side. The Centre has pragmatically left certain major decisions to States like linking sugarcane price to realization from sugar, cane area reservation and minimum distance criteria between two sugar mills and pushed ahead with only the first phase of reforms. It is however imperative that a long term formula on cane price with linkage to revenues from sugar and its by-products is evolved soon to decisively address the cyclicality in sugar production and build a long term relationship between the industry and the cane farmers.

Company performance

The operations of the Company during the year were painfully punctuated, rather punctured, by the onslaught of acute drought that engulfed the entirety of its operational area. Total failure of monsoon, low level of water in the Mettur reservoir, poor flow in river Cauvery, depleted water table and disruptive power supply have together come to inimically impact irrigation and strikingly shatter the very base of cane cultivation. As a result, cane area and average yield fell steeply that cut our cane volumes by 12%. Sugar recovery too suffered by reason of poor cane quality. Raw sugar import to supplement sugar production was unviable under extant price parity.

The Cogeneration Project was commercially commissioned from 1st September 2012. We produced 448 lakh kwh in the new Cogen plant and exported 338 lakh kwh to State Grid under the long term Power Purchase Agreement. We were however hard hit by the steep reduction in the tariff fixed at Rs. 3.76/ kwh under the 2012 Tariff Order by the Tamil Nadu Electricity Regulatory Commission as against Rs. 4.37/ kwh under their 2009 Tariff Order. While the tariff is cost based and every element of cost has conceivably gone up considerably in the last 3 years, the drastic downward reduction by the Regulator has rather come as a bolt from blue. We have challenged this tariff order, along with other sugar companies in the State, before the Appellate Tribunal for Electricity. The hearing is complete and the Appellate order is awaited.

Sugar sale volume declined by 33% under sluggish market conditions, leading to larger inventory build-up to our discomfiture. Indeed, we have recorded negative top- line growth despite the commissioning of a new revenue stream ie. Cogen project during the year.

Sugar prices rose sharply during the second quarter but relentlessly receded from the third quarter onwards. Molasses price too remained stubbornly subdued throughout the year. Sugar segment had therefore to reckon with negative margins for most part of the year.

In the end, our PBT has declined by more than half YoY. PAT however has moved modestly due to beneficial deferred tax impact of Cogen project. Considering the enormity of external challenges brought about by the severity of drought and sluggishness of sugar market, our overall performance should be regarded reasonable and satisfactory.

Finance

Your Company conceived the Cogen project on a Debt- Equity mix of 2:1. It however prudently deployed the surplus generated in the last two years to prune debt and finally completed the project on a Debt-Equity of 1:2. It further prepaid seven quarterly instalments due from April 2013. As a result, the Company would have a manageable debt servicing burden during times of formidable financial adversity.

Interest rates that went up sharply during FY 2011-12 have shown no appreciable decline later despite RBI coming out with marginal cuts in policy rates. Interest cost has considerably surged for the Company due to the commissioning of Cogen Project and higher working capital borrowings to finance inventory build-up. Your Company has received timely sanction of additional or ad hoc working capital facilities from its bankers on cost effective terms for this purpose.

Power supply from Cogen segment is entirely made to TANGEDCO under the long term Power Purchase Agreement. We however face long and undue delay in the settlement of bills. In fact, bills for energy supplied throughout the year have remained outstanding at the close of the year. We are now getting paid after a delay of 8-10 months. Cogen units in the State in the meantime suffer silently and significantly on account of both liquidity crunch and additional interest cost.

Legal cases

There has been no tangible progress during the year on our longstanding dispute with Sugar Development Fund (SDF). The High Court of Madras in November 2010 has held in our favour that loans extended by SDF to the erstwhile Ponni Sugars and Chemicals Ltd could not be recovered from another Company, ie. our Company. The Appeal filed before the Division Bench by SDF challenging this ruling was admitted and stay granted in October 2011.

In this bargain, your Company suffers liquidity stress with the blocking of Rs. 6.9 crores of undisbursed subsidy and Rs. 2.2 crores of differential levy sugar price for 2009-10 season. In addition, eligible concessional loan for Cogen Project remains unsanctioned. We earnestly hope for early resolution of this contentious issue in the coming year.

Investment

As mentioned in the last year Report, your Company had invested Rs. 12.50 crores in 62.50 lac Equity Shares of Rs.10 each in SPB Papers Ltd. The merger of this company with Seshasayee Paper & Boards Ltd (SPB) has since been sanctioned by the High Court of Madras on 26th April 2013. Accordingly, your Company would receive one Equity Share of SPB for every 11 Equity Shares held in SPB Papers Ltd.

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 2013-14

World sugar balance would record a surplus for the fourth year in succession in 2013/14, a feat not witnessed for over two decades. The only redeeming feature is the strong ethanol price parity that would prompt Brazil divert a larger share of cane from sugar to ethanol production to correspondingly slice the size of surging sugar surplus. With export availability outweighing demand, world prices would remain bearish, virtually shutting the export window for the high cost Indian sugar.

Indian Meteorological Department has predicted a normal monsoon for 2013 for the country as a whole but a sub-par rainfall in the southern parts that include Tamil Nadu. With likely steep fall in cane area in Maharashtra, Indian sugar production would decline by about 10% during 2013/14 sugar season. This is still adequate to meet local off-take, thereby limiting meaningful scope for inventory draw-down. Accordingly, local sugar prices should only remain range bound under continual supply side pressures.

Meanwhile, there was advance signaling by Centre in hiking Fair and Remunerative Price for sugarcane for 2013-14 by a hefty 24% (Rs. 170 to 210 per quintal). State Governments are generally prone to give pro-rata or higher hikes and hence cane pricing risk looms large on the industry.

With persistent drought, sugar production in Tamil Nadu is on the throes of steep decline and the industry may hardly operate at 50% of its potent capacity. Your Company has been the hardest hit on this front, with fresh cane planting having virtually come to nought and ratoon crops wilting under woeful water shortage.

There are thus clearly more negatives and little positives for the sugar industry in general and your Company in particular in the coming year. Your Company is poised to face the severest of challenge in recent times on cane availability, sugar recovery and margins. It has of course no choice but to play a patient waiting game till the resumption of monsoon and restoration of water flow in river Cauvery for the turnaround of its production prospects. In the meantime, its strong fundamentals should stand in good stead for battling the near term challenges.

Directors

Mr N Gopala Ratnam, Mr Arun G Bijur and Dr L M Ramakrishnan, directors of your Company retire by rotation at this meeting and being eligible offer themselves for reappointment.

Mrs Bharti Chhotubhai Pithawalla was appointed as additional director on 1st February 2013. She is the spouse of Mr C K Pithawalla, one of the founder promoters of the Company. She will retire at this meeting in accordance with Section 260 of the Companies Act, 1956. Notice u/s 257 has been received for her appointment as director liable to retire by rotation. Approval of members has been sought for same at this meeting.

Directors'' Responsibility Statement

Your Directors, in terms of Section 217(2AA) of the Companies Act 1956, 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 2013 and of the Profit 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; and

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

Employees

No employee of the Company was in receipt of remuneration during the financial year 2012-13 in excess of the sum prescribed under Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975.

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) read with the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 is given in the Annexure hereto.

Auditors

M/s Maharaj N R Suresh And Co. and M/s R Subramanian and Company, Chartered Accountants, retire at this meeting and are eligible for reappointment pursuant to Section 224 of the Companies Act, 1956.

Cost Audit

Cost Audit for the year has to be undertaken for both Sugar and Cogen segments. Cost Audit Report for the year would be filed with the Central Government in due course. M/s S Mahadevan & Co., Cost Accountants have been reappointed as Cost Auditors for 2013-14.

Secretarial Audit

Secretarial Audit is not mandatory but as a measure of good corporate governance practice, the Board of Directors appointed Mr B Ravi, Practising Company Secretary to conduct the Secretarial Audit. The Secretarial Audit Report for the financial year ended 31st March 2013 confirms due compliance by the Company of extant Corporate Laws and SEBI Regulations and the provisions of the Listing Agreement with Stock Exchanges.

Appreciation

Your Board records its deep sense of appreciation to the cane cultivators who have shown their solidarity of support for the Company despite being in distress under drought conditions. Your Directors commend the committed performance of employees at all levels during a difficult year. Your Directors convey appreciation to the banks for their timely support and also to customers, suppliers. 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 2013 Chairman


Mar 31, 2012

The Directors present their 16th Annual Report and the audited statement of accounts for the year ended 31st March 2012. In accordance with the changes brought about by the revised Schedule VI to the Companies Act, 1956, the financial statements have been presented in the new format.

2011-12 2010-11

Physical Performance (tonnes)

Cane crushe 745644 628613

Sugar produced 76464 76870

Financial Performance (Rs.crores)

Turnover 265.62 269.48

Profit before Exceptional Items 28.24 13.53

Profit Before Tax 26.12 27.64

Profit After Tax 17.79 18.61

Surplus from Previous Year 21.33 14.72

Amount available for appropriation 39.12 33.33

Appropriations:

Transfer to General Reserve 15.00 10.00

Proposed Dividend 2.15 1.72

Dividend Tax 0.35 0.28

Balance carried forward 21.62 21.33

Dividend

Your Directors recommend a dividend of Rs 2.50 per Equity Share of Rs.10 each for the financial year ended 31st March 2012.

Sugar Industry Overview

In line with the infamous cyclicality, Indian sugar production scorecard recorded its second successive year of surplus production. Significantly, the surplus was so sizeable as to pose a serious threat to destabilize and decimate domestic price equilibrium. Fortuitously for us, Brazilian sugar production fell for the first time in a decade that provided a ready platform and presented a premium pricing for India to export and stay clear off its surplus.

World sugar markets were highly volatile during 2011. ISA Daily price for raw sugar peaked to 32.57 c/lb at the beginning of February 2011, the highest daily quote for more than 30 years. It then dreadfully drifted to a low of 20.89 c/lb in May but commenced its second bullish upward move during July and August to nearly breach 30 c/lb. It later lost all the gains and current prices are just a tad over 20 c/lb.

The underlying volatility unarguably underscores the importance and imperative for real-time response by swiftly timing our exports in tune with market dynamics. However the vacillating policy stance of the Government in permitting piecemeal quotas in trickles and tranches decisively dented the prospects of Indian exporters and deplorably deprived them of the rare opportunity to optimally ride on buoyant world sugar prices.

For the first time, the Government introduced during the year mill-wise quota for OGL sugar exports. While this system could work during times of huge price differential between the world and domestic markets, it soon turned out to be a damp squib delaying and discouraging exports. Only by May 2012, Government finally bit the bullet and decided to dismantle the quota system to place sugar on OGL in its true sense.

Curiously, no sooner did the Food Ministry lift the quota restrictions on sugar exports, the Commerce Ministry hurried to impose the ceiling. Similarly export releases were dispensed with by Sugar Directorate but Registration Certificate was mandated by DGFT. OGL Sugar thus remains an oxymoron. Meantime, global prices have considerably corrected and contracted, resulting in steady erosion and near extinction of the premium on exports. Still there is little escape from India exporting its surplus in the interest of instant liquidity and domestic price stability.

Supply overhang was feared at the start of the year to disrupt and derail domestic prices considerably. Exports came in handy to soften and stem the down-slide and help sustain local prices at reasonable levels.

Reliable database is the touchstone for sound decision making. Sugar production and stock estimates had often times suffered wild variance in the past, distorting and debilitating the decision making process. Increasing recourse to state-of-the-art technology can considerably help address this deficiency. In this endeavour, sugar industry has for the first time engaged a professional agency to undertake Satellite mapping of cane area for sugar season 2011-12 and early results are highly promising. Similarly the Government has put in place an SMS based weekly reporting followed by a web-based system for monthly reporting by each sugar mill. These measures must help in real time and reliable data flow and facilitate swift policy response towards addressing emerging surplus or shortage in sugar supply.

Government measures

Government has constituted an expert committee in January 2012 under the chairmanship of Dr C Rangarajan for sugar sector reforms. Indian Sugar Mills Association and the Regional Associations have given their representations urging upon (i) levy sugar abolition (ii) dismantling release mechanism (iii) liberated Exim policy with occasional intervention only through tariff recalibration as opposed to physical embargo (iv) abolition of mandatory jute packing. Above all, it has underpinned the economic rationale and global models to have in place a long term cane pricing formula devoid of political intervention, with due linkage to realization from sugar and its by-products.

Levy obligation continues at 10% for 2011-12 season. Quarterly release mechanism has been introduced in place of monthly releases from April 2012. Duty-free raw sugar import facility is being extended periodically and is currently in force till end of June 2012. Stock holding norms on trade and restrictions on bulk users have been withdrawn during the year.

Fair and Remunerative price for sugarcane has been fixed at Rs.145 / qtl for 2011-12. Government of Tamil Nadu has fixed the SAP for this year at Rs.200/ qtl plus transport cost to be fully borne by sugar mills. CACP has recommended an FRP of Rs.170 / qtl for 2012-13. All these base prices are linked to 9.5% recovery.

Levy of Service tax is being made comprehensive on all services except those under a small Negative List or that are specifically exempted. Services rendered by sugar industry for harvest or agri extension is protected under the Negative List.

Company performance

Cane crushing improved by 19 % despite little recourse to outsourced cane. More significantly, sugar recovery showed a swift rebound during the year. In fact, our sugar recovery touched an all time high of 11.9% on two days in March 2012. On the strength of higher cane volume and improved recovery, sugar production could be maintained close to last year level despite discontinuance of raw sugar import.

Your Company continues to lay stress on sugarcane productivity and its long term sustainability. Our initiatives on this outlined in last year's report have been well received by the sugarcane farmers and field level results tend to show good promise.

Sugar price rise was muted and fell strikingly short of the rising cost of cane, fuel and overheads. Higher realization on sugar exports however came to our rescue to protect and prop up operating margin. Molasses price has been on a devastating downward spiral for 8 successive quarters. Other income fell sharply in the absence of exchange gains and interest earnings on surplus funds. Despite these cost adversaries, our Company could protect its net margin on the strength of increased cane volume, improved sugar recovery and higher export realization.

In sum, our PBT and PAT figures compare quite favourably with the previous year, more so when the previous year had the benefit of booster-dose from exceptional income. The overall performance of the company for the year is commendable and highly satisfactory under the adversity of extant external constraints.

A Decade after Demerger

Ten years is a short period in the life of a Company but marks an occasion to trigger tracking its accomplishments. Your Company took the reigns of the Erode Sugar Mill through a Demerger Scheme sanctioned by the High Court of Madras in September 2001. It had to take a disproportionately high share of debt to win the support of lending Institutions and was faced with the formidable task to service same out of a single unit producing a single product.

Soon after Demerger, the Company restructured its debts with deft recourse to lower cost options under a benevolent financial market with benign interest rates. With enhanced earnings on the strength of improved cane volumes and higher sugar recovery, it accelerated debt servicing and completed same well ahead of original schedule. It then implemented an energy conservation plan followed by modernization scheme to optimize operational costs without recourse to external debts. Its share prices in turn shot up in the stock market responding to its strong fundamentals and improved financials.

Thus the Company has delivered in every sphere on its promise to stakeholders made in the Demerger Scheme. It is now diversifying into power with its Cogeneration slated to start producing green energy from the second quarter of FY 2012-13. It will continue to remain steadfastly focused in adding value to all its stakeholders.

Finance

RBI in dealing with the dichotomy between growth and inflation has embraced a hawkish monetary policy stance by hiking rates 12 times in a row. Commercial Banks on each occasion showed an instant response by realigning their base rate and correspondingly hiking the effective lending rates to corporates. Paying heed to the dismal industrial growth, RBI relented and rolled back repo rates by 50 bps in April 2012. Commercial Banks have however passed on the benefit to borrowers only in part.

RBI after 9 years hiked the Bank rate from 6% to 9.5% in February 2012 to realign same with prevailing rates. Loans from Sugar Development Fund are lent at concessional rates linked to Bank rate and hence have gone up pro tanto. There has been a swift reduction by 50 bps on this also in April 2012.

Interest cost for our company remained rather insignificant in the last couple of years due to limited recourse to borrowings and temporary surplus funds in our hand. We have since deployed the surplus fully in Cogen Project and are exposed to higher borrowings on drawal of term loans for Cogen Project. The rate hikes will hence have a direct bearing on our company henceforth.

Legal cases

Our Company has been the hapless victim of a long standing dispute with the Sugar Development Fund (SDF) for the loans extended by them to the erstwhile Ponni Sugars and Chemicals Ltd. Its efforts to settle the issue on compromise on commercial expediency did not bear fruit. Finally, the Company obtained a favourable ruling on this from the High Court of Madras in November 2010.

The Government after long delay has since appealed against the above decision in October 2011 before the Division Bench and obtained stay of the order of Single Judge. As a result, our company is caught again between a rock and a hard place. Subsidies to the tune of Rs6.90 crores remain undisbursed. Levy sugar price differential of Rs2.20 crores remains unrealized. Eligible concessional loan for Cogen Project remains unsanctioned. We have filed our Counter and fervently hope for early resolution of this contentious issue.

Cogeneration Project

Cogeneration Project undertaken on a capital outlay of Rs110 crores is now in its final leg. We have encountered time overrun due to delay on the part of major equipment suppliers and persistent shortage of field labour stifling erection work. We now plan to complete the Cogen Project in all respects before end of June 2012. The delay however put paid to our tax-planning and escalated current tax outgo. On the positive, the Project cost could be contained within the original estimate.

We have spent Rs.84 crores as of 31st March 2012 on the Project. We have utilized Rs.35 crores out of the sanctioned loan of Rs.65 crores by Canara Bank.

We have signed Power Purchase Agreement with TNEB and are now seeking to modify same to export 4 MW of power to our associate company, namely, SPB Papers Ltd. With the extension in deadline conceded by Finance Bill 2012, our Cogen Project would qualify for tax holiday u/s 80(IA) of the Income Tax Act, 1961.

Investment

Your Company has invested Rs10 crores in Subburaj Papers Ltd as reported last year to support its acquisition by Seshasayee Paper & Boards Ltd (SPB). The name of the company has since been changed to SPB Papers Ltd. This company is planned to be merged with SPB effective 1st April 2012. Share exchange ratio has been fixed at one Equity share of SPB for every Eleven Equity shares held in SPB Papers Ltd.

Your Company has made an additional investment of Rs2.50 crores during March 2012 in SPB Papers Ltd and now cumulatively holds 62.50 lakh Equity shares constituting 41.67%. It would upon merger receive pro-rata shares in SPB.

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 2012-13

Indian Meteorological Department has predicted yet another year of normal monsoon. Cane planting as of 29.02.2012 has shown parity to pointer to yet another year of surplus sugar production for India. World market would also move into third year of surplus in succession. Accordingly sugar prices would largely remain under bearish pressures barring intermittent volatility.

Sugar production in Tamil Nadu has been steadily on the rise after the setback suffered in 2009-10. By reason of remunerative cane price, insignificant cane arrears and relative unattractiveness of competing crops, cane area has further surged in the State by 21% in current year. Power shortage poses a severe threat and serious constraint on irrigation schedules during summer. Sugar production in our region is however certain to pose a large surplus that requires a conducive export policy and commensurate viable prices for its liquidation.

Registered cane area has remained stable but yields may be under threat in our command area due to difficulties in drawal of water from available sources. Interest cost would significantly go up for the Company. Revenues from the new Cogen facility should help the company combat cost escalations and overall maintain reasonable profit performance.

Directors

Mr S K Ramasamy, retired at the AGM held on 15th July 2011. Mr.K.Bharathan was appointed as an additional director on 28.12.2011. He will retire at this meeting in accordance with Sec.260 of the Companies Act, 1956. Notice u/s 257 has been received for his appointment as director liable to retire by rotation. Approval of members has been sought for same at this meeting.

Mr V Sridar and Mr N R Krishnan, directors of your Company retire by rotation at this meeting and being eligible offer themselves for reappointment.

Mr C K Pithawalla also retires by rotation at this meeting. Considering his advanced age, he has opted not to seek re-election at this meeting. Mr C K Pithawalla has been a director of the Company since 26.10.2001. The Company was richly benefitted by his global business experience and commercial acumen. Your directors wish to place on record the valuable contribution made by Mr C K Pithawalla to the Company during his long association.

Directors' Responsibility Statement

Your Directors, in terms of Section 217(2AA) of the Companies Act 1956, 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 2012 and of the Profit 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; and

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

Employees

No employee of the Company was in receipt of remuneration during the financial year 2011-12 in excess of the sum prescribed under Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975.

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) read with the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 is given in the Annexure hereto.

Auditors

M/s Maharaj N R Suresh & Co and M/s R Subramanian and Company retire at this meeting and are eligible for reappointment pursuant to Section 224 of the Companies Act, 1956.

Cost Audit

Cost Audit Report for the year would be filed with the Central Government in due course. M/s S Mahadevan & Co have been reappointed as Cost Auditors for 2012-13.

Appreciation

Your Board is greatly appreciative of the cane cultivators, customers, suppliers and Banks for their continued support and cooperation. Your Directors commend the committed performance of employees at all levels. Your Directors wish to thank the shareholders for their continual support to the management.

For Board of Directors

Chennai N Gopala Ratnam

30th May 2012 Chairman


Mar 31, 2011

The Directors of your Company have pleasure in presenting their Annual Report and Accounts for the year ended 31st March, 2011.

Financial Results Rs. Lakhs

2010-11 2009-10

Revenue from Operations 139654 112542

Net Profit after Tax 9501 6205

Profit brought forward from previous year* 8620 8200

Balance available for Appropriation 18121 14405 Amount transferred to General Reserves 975 625

Dividend proposed 6949 4632

Corporate Dividend Tax 1127 770

Surplus carried in Profit and Loss Account 9070 8378

*Including Rs. 242 lakhs taken over on amalgamation of the wholly owned subsidiary VST Distribution, Storage & Leasing Company Private Limited with the Company.

KEY RATIOS

Earnings Per Share (Rs.) 61.53 40.18

Dividend Per Share (Rs.) 45.00 30.00

The financial year 2010-11 recorded an improvement of 24.1% in Sales (Gross) and 53.1% Profit after Tax when compared to the previous year. A record year with record Sales, record Profit after Tax and Dividends Per Share of Rs. 45, the best in the decade. Value Creation during the decade has been Compounded Annual Growth Rate (CAGR) of 9.9% in Earnings Per Share (EPS) and 28.2% in Dividends Per Share (DPS).

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTGO

Information in accordance with clause (e) of sub-section (1) of Section 217

read with the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 is given in the Annexure to this Report.

ENVIRONMENT, HEALTH & SAFETY (EHS) AND COMMUNITY SERVICES

Your Company has been maintaining a high safety performance for the last 364 days without any accident.

Gold Award for the year 2010 was presented to your Company by Royal Society for Prevention of Accidents (RoSPA), U.K. for maintaining highest standards in Occupational, Health and Safety.

Accident Free Award was awarded to your Company from British American Tobacco on 5th April, 2010 for One Year Accident Free from 21st March, 2009 to 20th March, 2010.

Safety Innovation award was awarded to your Company from Institution of Engineers India on 28th December, 2010.

Environment, Health and Safety (EHS) in day-to-day business operations is given very high priority by your Company. 395 employees and 30 contractors have undergone EHS training and 543 employees have undergone fire fighting training programme. Mock Fire Drills were also conducted for workers and management during the period to comply with the Companys EHS guidelines. Involvement by workmen in quarterly EHS reviews along with staff members and periodical inspections have kept the performance monitoring on vigil. Quarterly and annual EHS audits of Company operations including leaf godowns was carried out to ensure

compliance of EHS requirements and to measure the EHS progress. EHS Road Map rating for your Company was assessed at 3.54 as against the scale of 4.0 for the year 2010-11.

Your Company celebrated National Safety Day on 4th March, 2011 by conducting safety meetings inside factory and all contractors attended safety programme conducted by National Safety Council.

Surveillance Reviews of ISO 14001: 2004 & OHSAS 18001: 2007 for the year 2010 by Registro Italiano Navale India (RINA) revalidated your Companys certifications.

On the environmental side, as a responsible corporate, your Company continues to put in sustained efforts in the upkeep and improvement of existing systems like Scrubber, DRF systems, rain water harvesting pits, ETP with soil bio- technology and also in energy conservation installation of solar water heating panels for boiler feed water and for workers canteen boiler.

Water Consumption was reduced by 30 Kl/day.

As a social responsibility and to conserve greenery, your Company is encouraging social forestry through afforestation and Trees for Life programme. It is also actively discouraging child labour involvement in tobacco growing/processing. Your Company has installed water purifiers in major tobacco growing villages to improve health through supply of clean drinking water to the rural community.

All statutory compliances are in place.

The thrust on EHS will continue while emphasizing the focus on Best International Work practices.

FINANCE

a. Profits

The Profit after Tax for the year at Rs. 95 crore is the highest ever recorded by your Company in its history.

The continuous increase in taxation over the last several years has made improvement in margins a daunting task thereby impacting profitability.

Your Companys thrust on growing volumes continued during the year with reasonable success though industry growth remained flat.

Your Companys focus on working capital management and budgetary control on expenses has resulted in improvement of profitability. When compared to previous year, your Companys profits improved both in cigarettes and leaf tobacco operations.

b. Treasury Operations

Your Company follows a SLR model (Safety, Liquidity and Return) in deployment of surplus funds which arise during various periods of time. The Company predominantly deploys money in income funds of reputed mutual funds and tax free bonds. Such investments earned Rs. 13 crore during the current year.

ENTERPRISE RESOURCE PLANNING (ERP)

Your Company was able to successfully manage the entire ERP system by developing an in-house team. All routine business issues as well as improvements in existing systems have been

undertaken by the team. This team interacts with managers of the operating teams and works continuously to help improve the overall business processes. Your Company has also developed adequate skills to manage issues arising out of facilities management and networking which are the other limbs of the IT infrastructure.

FIXED DEPOSITS

Your Company has stopped accepting fresh deposits for several years now.

As on 31st March, 2011, your Company does not have any deposits for the purpose of its business. Unclaimed deposits amounting to Rs. 8,000 is outstanding.

RATING

The Credit Rating Information Services India Limited (CRISIL) has re-affirmed the rating of your Company to "FAAA/ Stable" for Fixed Deposit Schemes, "AA+/Stable" for Long Term Non- convertible Debentures and P1+ for Non-fund based liabilities (Letter of Credit and Bank Guarantee).

UNCLAIMED DIVIDENDS

Your Company had by its letter dated 25th October, 2001 communicated to all the Members about the promulgation of rules pertaining to the Investor Education and Protection Fund. Dividends which remain unpaid or unclaimed for a period of seven years would be deposited in the Investor Education and Protection Fund. The final dividend for the year ended 31st March, 2004 remaining unpaid would be deposited by 26th August, 2011 in accordance with Section 205C read with Investor Education and Protection Fund (Awareness and Protection of Investors) Rules, 2001.

UNCLAIMED SHARE CERTIFICATES

Your Company has communicated to the Members whose share certificates are returned undelivered to the Company that these would be transferred to the Unclaimed Suspense Account if not claimed by them, as required under the Listing Agreement amended by SEBI vide its Circular dated 16th December, 2010.

CORPORATE GOVERNANCE

The Companys Report on Corporate Governance is annexed to this Report.

Certificate of the Statutory Auditors of your Company regarding compliance of the conditions of Corporate Governance as stipulated in Clause 49 of the Listing Agreement with stock exchanges is annexed to this Report.

Your Company has taken adequate steps for strict compliance with the Corporate Governance guidelines, as amended from time to time.

The Ministry of Corporate Affairs has released draft guidelines for voluntary compliance covering various aspects. Your Company has already implemented most of the items and examined the balance provisions for implementation.

INTERNAL CONTROL SYSTEMS

Your Company remains committed to improve effectiveness of internal control systems and processes which would help in increasing the efficiency of operations and provide security of its assets.

The internal audit process in your Company captures the control environment prevalent in the

organization. Over a period of three years, the entire business process of your Company is reviewed through a systems audit process which helps review the systems on a continuous basis. The objective is to identify potential risk areas and come up with a comprehensive mitigation plan.

The Audit Committee of your Board met four times during the year. Review of audit observations covering the operations, consideration of accounts on a quarterly basis and monitoring the implementation of audit

recommendations were some of the key areas of focus which were dealt with by the Committee. The Statutory Auditors/System Auditors were invited to attend all the Audit Committee meetings and make presentations covering their observation on adequacy of internal controls and the steps required to bridge gaps, if any.

The self-evaluation system which was put in place on internal controls is being reviewed continuously to improve its effectiveness.

Risk Management

Risk Management is monitored by a Committee comprising members from various functions. The Committee meets periodically to identify the potential risks as well as to take adequate steps for mitigating the risks which have been identified. A comprehensive note covering various aspects is reported to the Board every quarter.

DIRECTORS

Directors retiring by rotation

In accordance with Article 93 of the Articles of Association of your Company, Mr. T. Lakshmanan and

Mr. S. Thirumalai retire from the Board and being eligible, offer themselves, for re-election. Your Board recommends their re-appointment.

Mr. T. Lakshmanan

Mr. T. Lakshmanan was re-appointed at the Annual General Meeting held on 17th July, 2008. He is now due to retire by rotation at the forthcoming Annual General Meeting and being eligible, offers himself for re-appointment.

Mr. Lakshmanan is a Post Graduate in Science and a Member of FFII. He has over 33 years of experience in various departments of General Insurance Corporation (GIC) and retired as General Manager of GIC in 2001. He was a nominee Director on the Board of your Company prior to his appointment as an Additional Director. He is the Chairman of the Audit Committee and a Member of Committee of Directors and Shareholders Grievance Committee of your Company. Mr. Lakshmanan does not hold any shares in the Company and is not related to any other Director of the Company.

Mr. S. Thirumalai

Mr. S. Thirumalai was re-appointed at the Annual General Meeting held on 16th July, 2009. He is now due to retire by rotation at the forthcoming Annual General Meeting and being eligible, offers himself for re-appointment.

Mr. S. Thirumalai is a Commerce and Law Graduate and is a Fellow Member of Institute of Chartered Accountants of India and Institute of Company Secretaries of India. He is also a Certified Associate of the Indian Institute of Bankers. He attended the Advanced

Management Program at Harvard Business School, Boston, MA (USA) in 1992. He has over 30 years of experience in manufacturing industry covering all aspects of Finance, Taxation and General Management (including three years with Reserve Bank of India/Unit Trust of India as an Officer). He is now the Senior Advisor to the consulting firm Deloitte Touche Tohmatsu India Private Limited. He is the Chairman of the Shareholders Grievance Committee and a Member of Audit Committee and Committee of Directors of your Company. Mr. Thirumalai holds 25 shares in the Company and is not related to any other Director of the Company.

Directors Resignation/ Appointment

Mr. R.V.K.M. Suryarau

Mr. R.V.K.M. Suryarau is elected Chairman of your Company and of its Board of Directors with effect from 15th October, 2010 in place of Mr. Abhijit Basu who had tendered his resignation.

The Board of Directors place on record their deep appreciation of the contribution made to your Company by Mr. Abhijit Basu.

DIRECTORS RESPONSIBILITY STATEMENT

Pursuant to Section 217(2AA) of the Companies (Amendment) Act, 2000 the Directors confirm that:

1. in the preparation of the Annual Accounts, the applicable accounting standards have been followed;

2. appropriate accounting policies have been applied consistently. Judgement and estimates which are reasonable and prudent have been made so as to give a true and fair view of the state of affairs of your Company as at the end of the financial year and of the profit of your Company for the period;

3. proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of your Company and for preventing and detecting fraud and other irregularities;

4. the Annual Accounts have been prepared on a going concern basis.

VST DISTRIBUTION, STORAGE & LEASING COMPANY PRIVATE LIMITED

The wholly owned subsidiary, VST Distribution, Storage & Leasing Company Private Limited was merged with your Company effective 1st April, 2010 in terms of Court Order dated 16th March, 2011.

TAXATION

i. Income Tax

a. Financial Services

Business

It may be recalled that your Company had diversified into Financial Services Business and Foods Business in the early nineties. Subsequently in the year 1998-99, your Company incurred a total loss of Rs. 38.67 crore in the financial services business of which Rs. 29.70 crore was claimed as loss under the

head "Income from Business" and Rs. 8.97 crore was claimed as a capital loss under the provisions of the Income Tax Act.

The Income Tax Appellate Tribunal allowed the entire amount of Rs. 38.67 crore as a capital loss. It may be noted that the department had treated the entire loss as a "Speculation Loss".

Your Company has filed an appeal before the Honble High Court of Andhra Pradesh which has been admitted. The matter is yet to be heard.

Further in connection with its divestment from the Foods Business in the financial year 1999-2000, your Company had incurred a total loss of Rs. 53.68 crore, of which Rs. 44.18 crore was claimed as a loss under the head "Income from Business" and Rs.9.50 crore was claimed as a capital loss under the provisions of the Income Tax Act. The Income Tax Department has disallowed the entire amount excepting Rs. 5.70 crore which was allowed as a capital loss. The Commissioner of Income Tax (Appeals) further allowed Rs. 11.24 crore out of the balance amount of Rs. 47.98 crore, on appeal before him and the same was upheld by the Income Tax Appellate Tribunal. Your Company has preferred an appeal against the above order and the

matter is now before the Honble High Court of Andhra Pradesh.

Consequent to the above orders, the Income Tax Department had issued consequential orders under Section 154 of the Income Tax Act demanding Rs. 28.86 crore (revised) which was paid by your Company.

b. North East

You would recall that pursuant to the withdrawal of exemption notification for manufacture of cigarettes in the North Eastern region in terms of Supreme Court judgement of 19th September, 2005. Your Company had paid an amount of Rs. 31.20 crore towards principal and provided an amount of Rs. 12.69 crore towards interest.

In the income tax return filed by your Company for the relevant year, this amount was considered as an allowable expenditure in the assessment for the year 2006-07. However, subsequently the Income Tax department has now sent a demand notice seeking payment of Rs. 20 crore being tax payable along with interest. Your Company will contest the same.

c. Subsidiary Company

During the financial year 1998-1999, your Companys subsidiary had received financial assets worth of Rs. 1200 lakhs against a future

liability of Rs. 5200 lakhs. This was settled on 31st March, 1999 for an immediate payment of Rs. 1250 lakhs. The settlement was not accepted during the assessment proceedings and accordingly disallowed by the Income Tax Authorities. On appeal before the CIT(A), the matter was held in favour of your Companys subsidiary. However, the Income Tax Tribunal while holding the matter against your Companys subsidiary held that the ratification of the said settlement agreement by the Board did not relate to 31st March, 1999 and

consequently the liability to pay Rs. 1250 lakhs did not arise in the financial year 1998- 1999 and therefore not allowable as a deduction for the year. The tax liability on this is Rs. 420 lakhs apart from interest.

Your Companys subsidiary preferred an appeal against the above order before the Honble High Court of Andhra Pradesh.

ii. Luxury Tax

As mentioned in last years Report, a Contempt Petition has been filed in the Honble Supreme Court by the Commercial Tax Officer, on behalf of the Government of Andhra Pradesh against the Managing Director of your Company alleging contempt of the Honble Supreme Courts judgement dated 20th January,

2005, which had set aside levy of Luxury Tax. The Department has alleged that your Company has failed to pay an amount of Rs. 34.86 crore being the Luxury Tax collected from customers by your Company after passing of the interim order dated 1st June,1999, but not paid to the State Government of Andhra Pradesh which is in violation of the said judgement dated 20th January, 2005. An amount of Rs. 29.81 crore has also been claimed as interest thereon @ 24% per annum. Your Company and the Managing Director have both filed separate counter affidavits strenuously denying that there has been any contempt on their part of the said judgement of the Honble Supreme Court. The contempt case against the Managing Director of your Company was dismissed by Honble Supreme Court. As far as the case against the Company is concerned, there have been no further developments during the year.

iii. Entry Tax

As mentioned in last years Report, several High Courts in the country including those of Andhra Pradesh, Kerala, Tamilnadu and Assam have struck down the levy of Entry Tax on the ground that it is violative of Article 301 and not saved under Article 304(b) of the Constitution, as it is not compensatory in the manner required in terms of the Supreme Court judgement in the case of M/s.Jindal Stainless Ltd. Thereafter, several states such as Uttar Pradesh, Bihar and Haryana

have attempted to re-introduce Entry Tax by amending the original Acts, sparking a fresh round of legal challenges in the High Courts. Most of the appeals filed by the various states, and individual companies have been clubbed together. The Honble Supreme Court by its Order dated 18th December, 2008 in the batch of cases headed by Jai Prakash Associates vs the State of MP has referred a number of vital questions on levy of Entry Tax, to the Constitutional Bench in terms of Article 145(3) of the Constitution which are still pending adjudication.

iv. Excise

a. Wrapping Materials

As mentioned in last years Report, the Customs, Excise and Service Tax Appellate Tribunal, Bangalore by its Order dated 8th October, 2004, had allowed your Companys appeal and set aside the demand of the Excise Department for an amount of Rs. 3.62 crore (including penalty and interest @ 24%) on the ground that Gay Wrappers (printed paper used for wrapping cigarette packets) had been manufactured and consumed by your Company without payment of duty during the period April 1996 to March 2002. An appeal against the said Order has been filed by the Excise Department and is presently pending in the Honble Supreme Court.

In the meantime, the Honble Supreme Court by its Order dated 27th November, 2008 has remanded various other similar appeals pertaining to other manufacturers back to their respective Tribunals for re-adjudication in the light of individual facts of each case. Notices for subsequent periods have also been received by your Company which have been kept pending awaiting the decision of the Honble Supreme Court.

b. Cigarette manufacture in North Eastern states

As mentioned in the last years Report, the Excise Department had demanded a sum of Rs. 5.85 crore from two of your Companys former contract manufacturers, by way of interest on the principal amount of Rs. 31.20 crore repaid to the Excise Department, consequent upon the judgement of the Honble Supreme Court dated 19th September, 2005. The two contract manufacturers had filed Writ Petitions challenging the said demands in the Honble Guwahati High Court and obtained Interim Orders staying partial recovery until final disposal. Against the said Interim Orders, the Department had filed appeals in the Honble Supreme Court. By its Order dated 15th April, 2009 the Honble Supreme Court has requested the Honble High Court to dispose

off the Writ Petitions within a period of two months from the date of communication of the Order. A Single Member Bench disallowed the writ petitions and upheld levy of interest. Against the judgement, the contract manufacturers filed appeals before the Division Bench, which passed interim orders staying the judgement of the Single Bench. First hearing has been completed and the appeals are reserved for judgement.

c. Tobacco Refuse

Your Company has received show cause notices demanding recovery of duty on cut tobacco used in the manufacture of tobacco refuse together with interest and penalty from January 2005 to November 2009.

Your Company has now received a demand for Rs. 10.22 crore being excise duty and penalty for the period upto 30th November, 2009. Interest is payable separately till the date of payment. Your Company is in the process of filing an appeal before CESAT.

v. Service Tax

Your Company has received show cause notices from the Excise Department seeking to deny CENVAT credit availed on service tax paid by various service providers on the ground that the

same are not in relation to the manufacture of final products. They are pending adjudication at various levels. Total amount involved is approximately Rs. 2.5 crore with equivalent penalty and interest thereon.

PUBLIC INTEREST LITIGATION (PIL)

i. A PIL was filed in the Honble Supreme Court by an NGO Health for Millions seeking immediate implementation of various provisions of COTPA including the pictorial warnings, is still pending.

ii. A PIL has been filed by Mr. A. Sherfuddin in the Honble Madras High Court against the Health Ministry and tobacco companies (including your Company) seeking various reliefs including printing of ingredients contained in cigarettes on packets and their ill effects so as to inform the public of the dangers of smoking, removal of all hoardings and other visible representations of the brands which is still pending.

iii. A PIL has been filed in the Honble High Court of Andhra Pradesh by the Old Students Association, PG College, Secunderabad against the Central Government and the tobacco companies (including your Company) seeking introduction of stronger pictorial warnings on both sides of the packets. Your Company has entered appearance in the Court.

INTELLECTUAL PROPERTY

A Suit for infringement and passing off was filed by ITC Limited against the

Company in the Original Side of Calcutta High Court alleging that the Company had violated ITC Limiteds Gold Flake trade mark by using a deceptively similar get up and trade dress consisting of a combination of red and gold colors, on its Special brand of cigarettes. A Single judge of the Calcutta High Court by his Order dated 4th March, 2011 has dismissed ITC Limiteds application for interim injunction. The main suit is posted for trial in August 2011. Your Company has filed a Caveat in the Division Bench of the Calcutta High Court in anticipation of ITC Limited filing an appeal against this said interim order of the Single Judge.

FINANCIAL SERVICES BUSINESS

As mentioned in last years Report the Company Petition filed by the Official Liquidator in the Honble High Court of Andhra Pradesh seeking directions to some of the Ex-Directors of ITC Agro Tech Finance and Investments Limited (ITCATF) to file a Statement of Affairs is still pending.

In terms of the Order dated 10th July, 2007 the Division Bench of the Honble High Court of Andhra Pradesh had directed the Regional Director, Department of Corporate Affairs, Chennai to conduct an investigation and submit a report showing the persons who promoted ITCATF and the persons who were responsible in conducting its affairs until its winding up. A comprehensive report dated 19th May, 2008 was prepared and filed in the Honble High Court of Andhra Pradesh by the Regional Director in July 2008. All the matters are still pending final adjudication.

THE CIGARETTES AND OTHER TOBACCO PRODUCTS (PROHIBITION OF ADVERTISEMENT AND REGULATION OF TRADE AND COMMERCE, PRODUCTION, SUPPLY AND DISTRIBUTION) ACT, 2003 (COTPA)

i. Some of the provisions of COTPA have come into force with effect from 1st May, 2004. These include ban on advertising in print and visual media, ban on outdoor advertising, regulation of in-store advertising, prohibition of sale of cigarettes to persons below the age of 18 years.

ii. The tobacco industry has been told to print the prescribed graphic health warnings on all its product packing. The Cigarettes and Other Tobacco Products (Packaging & Labelling) Rules, 2006 (COTPR) had originally prescribed pictorial warnings along with health messages and sign of skull and cross bones. However, due to vociferous objections from various sections of the industry and public, a Committee of a Group of Ministers (GoM) was constituted to relook at the warnings. Based on their recommendations, a new set of labelling requirements has been prescribed under the COTPR which were published on 16th March, 2008. However, these have again been modified based on representations made. The GoM is yet to give its conclusive recommendations. The revised implementation date as originally envisaged from 1st November, 2010 has been deferred.

iii. In the meantime, some Tobacco manufacturers had challenged various provisions of COTPA and Rules made thereunder in different High Courts across the country. The Union Government filed Transfer Petitions in the Honble Supreme Court seeking to transfer 31 pending Writ Petitions from various High Courts to the Honble Supreme Court. On 18th November, 2008 all the Transfer Petitions were allowed and the Writ Petitions have thus been moved to the Honble Supreme Court, for final adjudication.

iv. Your Company had also filed a Writ Petition in the Honble High Court of Andhra Pradesh challenging COTPR and the Amendment Rules 2008, on the grounds inter alia that they are ultra vires of COTPA and therefore the Notifications issued thereunder (including those seeking implementation of Graphic Health Warnings) should be quashed. The said Writ Petition was admitted on 17th October, 2008 but no interim orders were passed by the Honble Court.

v. A ban on smoking in public places as envisaged under COTPA, came into effect on 2nd October, 2008, under which smoking has been banned in virtually all public places including courts, public buildings, restaurants, bars, cinema halls etc. A batch of writ petitions challenging this was filed in the Honble Delhi High Court and transferred to the Honble Supreme Court, which came up for admission on 29th September, 2008. While the Honble Supreme Court admitted the Transfer Petitions it declined to grant interim relief prayed for by the petitioners seeking to postpone implementation of the ban on smoking in public places.

COMPANY EMPLOYEES

Under the provisions of Section 217 (2A) of the Companies Act, 1956, read with the Companies (Particulars of Employees) Rules, 1975 as amended, the particulars of employees are set out in annexure to the Directors Report.

However, as per the provisions of Section 219(1)(b)(iv) of the Act, the Report and Accounts are being sent to all the shareholders of the Company excluding the aforesaid information. Any shareholder interested in obtaining such particulars may write to the Company Secretary.

Your Directors take this opportunity to record their deep appreciation of the continuous support and contribution from all employees of your Company.

AUDITORS

The Auditors, Messrs. Lovelock & Lewes, Chartered Accountants, retire at the ensuing Annual General Meeting and being eligible, offer themselves for re-appointment.

THE FUTURE

In the current years Budget no increase in excise duties has been proposed which has been a welcome relief.

The focus of your Company will continue to remain on cigarettes and tobacco. The strategy of offering "value for money" brands in both existing and new geographies which provide opportunities will continue as it has improved the performance of your Company for the last several years.

The challenge to cope with increased bout of taxation across various states would continue as would be the challenge when comprehensive Goods and Services Tax (GST) is introduced in the financial year 2012-13 as per current indication, as GST would lead to change in the operation structure.

New pictorial warnings would have to be displayed on the packs effective financial year 2011-12. However the exact date for change in graphical warning is awaited.

Leaf tobacco exports have been growing over the last several years and your Companys thrust on this area will continue.

On behalf of the Board,

R.V.K.M. SURYARAU Chairman

Dated this 13th day of April, 2011. Azamabad, Hyderabad - 500 020, Andhra Pradesh.


Mar 31, 2010

The Directors present their 14th Annual Report and the audited statement of accounts for the year ended 31st March 2010

Year ended Year endedd

31.03.2010 31.03.2009

Physical Performance (tonnes)

Cane crushed 808612 680238

Sugar produced 90920 71820

Financial Performance (Rs. crores)

Turnover (Net) 244.64 137.27

Profit Before Tax 55.41 18.72

Profit After Tax 36.85 12.26

Surplus from Previous Year 6.88 3.13

Amount available for appropriation 43.73 15.39

Appropriations:

Transfer to General Reserve 25.00 6.00

Proposed dividend 3.44 2.15

Dividend Tax 0.57 0.37

Balance carried forward 14.72 6.88

Performance Pinnacle

Your Company has had a spectacular financial performance that reached a crescendo during 2009-10 Its gross turnover crossed the Rs 250 crores mark Its PBIDT and PAT figures displayed a dream run scoring a scorching three-fold increase over the last year Two successive years of strong profit performance has helped to significantly strengthen its financial position providing the right platform to launch its diversification plans.

Dividend

Your Directors are pleased to recommend a dividend of Rs 4/- per Equity Share of Rs 10 each for the financial year ended 31st March 2010.

Sugar Industry Overview

Sugar business has been intrinsically cyclical in India but the swings in recent times have turned rather too sharp and swift Sugar production discernibly doubled between 2005 and 2007 that hurriedly halved just within the next two years From this low base it is now well poised to nearly double again in the near term

No other major sugar producing country is witness to such galloping gyrations in year on year production. Price volatility is but a necessary outcome of such production volatility. This has rather made the diverse stakeholders by turn taciturn and dis-spirited towards taking a long term commitment for the orderly functioning and growth of this core industry.

The causes for such intermittent and intimidating upsurge and downswing in sugar production are too well known. It is axiomatic to recognize and pave way for price parity between sugar and sugarcane on the one hand as well as sugarcane and other competing cash crops on the other A cohesive and comprehensive action plan is imperative and its need immediate to meaningfully moderate if not totally eliminate the adversity of sugar cycles occurring in our country at frequent intervals with ferocious intensity.

Indian production figures have their domino effect both on the direction and degree of world sugar balance It is thus no wonder that world sugar balance suffered a deficit during 2008-10 that is now heading towards surplus in 2010-11 As a corollary, Indian exports are invariably during glut at the bottom of global prices while imports are during deficits at the peak of prices On both counts the huge financial burden befalls on producers consumers and the exchequer though in varying degree. ,

With two successive sugar years of low production Indian sugar prices have been continuously on their climb up to reach robust levels This in turn empowered and prompted the industry to offer high and remunerative cane price so as to lure the farmer back to cane corp Sugar mills have voluntarily paid a whopping Rs 20 000 crores over and above the Central Government’s mandatory cane price in this process As a result there has been a swift and strident recovery in Indian sugar production to narrow down the deficit during 2009-10 and turn surplus during 2010-11 There is no arguing that this remarkable rebound could and in fact has come only on the strength of buoyant sugar prices and consequent benevolent cane prices.

Government measures

The year under review witnessed aggressive Government intervention in sugar business to rein in rising sugar prices fuelled by the galloping deficit in production and stock estimates Some of these measures were well justified to augment domestic sugar availability and cool-off the overheated market. But several others proved too harsh and outlandish that created panic in the minds of Trade and Industry, quelling demand and disrupting off-take.

Levy obligation was doubled from 10% to 20% to protect PDS supply while levy sugar prices now remain unrevised for over six years. Duty-free raw sugar import facility was extended till end of 2010 besides opening duty-free white sugar imports for all. Indeed, white imports are presently placed at a premium over domestically produced sugar with total exemption from levy obligation and full freedom from release mechanism Further bulk users of sugar were subjected to unrealistic inventory norms for holding domestic sugar that has forcibly moved them to imported sugar offering greater flexibility. Inventory and turnover norms were rigidly enforced on sugar traders followed by frequent raids The reversal of market sentiments and concomitant price decline from the peak was taken in the normal stride by the industry. But persistence with these moves have plummeted prices to below breakeven levels that cries for instant policy correction.

The Government promulgated an Ordinance later made as Law to retrospectively amend the Essential Commodities Act 1955 By this the Government has endeavoured to undo a favourable Supreme Court ruling and deny higher levy sugar price based on State Advised Price or actual price for cane The new Law seeks to restrict and confine the levy sugar price by considering only Statutory Minimum Price for cane from 1974 to 2009 Sugar industry has challenged the retrospective amendment by filing a Writ Petition in Delhi High Court.

The concept of Statutory Minimum Price (SMP) has been changed to Fair and Remunerative Price (FRP) for sugarcane from 2009-10 season Such FRP takes certain additional factors into consideration over SMP namely, reasonable margins for the growers of sugarcane on account of risk and profits FRP was conceptually intended to be total compensation and hence the sole mandatory price for cane restraining States from announcing higher SAP However the Centre bowing to political pressures had to make a quick retreat and remove the ban on SAP Dual cane pricing would thus continue to daunt the industry with its deleterious impact.

Indian sugar production for 2009-10 was initially estimated around 140 lakh tonnes that now stands uprevised to 185 lakh tonnes Further the production outlook for the next year is also highly promising Simultaneously world sugar deficit is moving towards a surplus. All these have brought about a strident shift in market sentiment and consequent crash in sugar prices. Raw sugar prices after recording a 29 year high at 30.40 c/lb on 1st February 2010 now trades at less than 50% of that level. Concurrently, Indian sugar prices have also fallen from Rs.4200/ qtl to below Rs.2800/ qtl. Accordingly, the industry has made fervent appeal to the Government to roll back the harsh measures initiated during times of high sugar prices that are no longer relevant. Sugar prices now need to recover from the bottom for the farmer to be able to get a remunerative cane price.

Excessive Government controls on sugar though well meant to balance the interest of diverse stakeholders, have hardly helped to serve the intended objectives. Still worse, they have repeatedly failed to meaningfully respond to market dynamics and in reality resulted in the opposite by only aggravating the crisis It is hence high time the Government decontrols the sugar industry to unleash its innate potential help meet the growing demands of sugar in our fast developing economy and be a credible exporter.

Company performance

As stated the Company had a trailblazing financial performance during the year This was on the strength of higher production and robust sugar prices during most part of the year.

Cane volumes improved by 19% despite drought like conditions prevailing in some parts of the operational area Sugar recovery however slipped to 10 11% from 10 55% due to adverse cane quality Sugar production was supplemented with 9608 tonnes of imported raw sugar.

Cane price for 2009-10 season was fixed at higher levels upon negotiation with cane growers at Rs 1725/tonne besides subsidizing the full transport cost from field to factory This is considerably higher than the FRP of Rs 1298 40/tonne and SAP of Rs 1440/tonne In addition the Company opted to voluntarily settle the old disputed SMP for 2002-03 season involving an outlay of Rs 4 crores With these we have succeeded in strengthening the bond and motivating our cane farmers thereby achieving higher volume of cane supply during buoyancy in sugar prices.

Sugar prices recorded perceptible increase during the year till January 2010 but receded ruefully thereafter by reason of decisive change in production outlook Your Company has been aggressive in its sales including large volumes sold in upcountry markets in its endeavour to push volumes during good times. This has largely helped us achieve record high results for the year.

Pursuant to industry-wide negotiations, the Company entered into a long term wage settlement enuring upto March 2013. Employee relations have been cordial all along.

Contrary to the steep increase in sugar production in other States, Tamil Nadu has to remain content with muted growth in cane volumes due to deficient monsoon, high cost and unavailability of farm labour and lucrative return from competing crops As a result private sector mills in Tamil Nadu have had to increasingly rely on raw sugar imports to supplement their sugar production In this endeavour we too contracted additional import of 20000 tonnes in January 2010 for shipment during July 2010 The unprecedented fall in raw sugar prices by more than 50% within just the next couple of months coupled with deep decline in domestic sugar prices has however dealt a severe blow to the economics of this import The ban on Sugar Futures balefully pre-empted the scope for hedging our sugar price risk It is good comfort that with the help of profit accruals from earlier imports and all round improvement in our profit performance we have been able to put this adversity behind us Following prudence and relevant Accounting Standard due provision for the decline in the value of raw sugar import has been recognized in the financial statements of the year.

Diversification Plan

The Distillery Project of the Company has suffered a setback with a small group of local villagers protesting against the project being located in their vicinity. While our project is so configured as to strictly adhere to the environment norms the protesters continued to remain apprehensive and obstinate It was therefore considered prudent to keep this project in abeyance and consider alternative location.

The Company is now pursuing Cogeneration Project on a capital outlay of Rs 95 crores to produce 19 MW of power through the installation of 112 ata high pressure boiler This should help us export power to the extent of 13 MW during season and 16 MW during off-season It is intended to fund the project out of internal accruals for Rs 30 crores and the rest from term debts.

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 2010-11

Indian Meteorological Department has predicted a normal monsoon that should help sustain the increased sugarcane production outlook for the country. However, we have been witnessing severe water stress in our area with failed monsoon for the third year in a row in certain major sections of our command area. As such there is reduced cane planting in our region despite high cane price We fear our cane volumes could shrink by more than 30% in the coming year by reason of drought.

Tamil Nadu Government has already announced SAP for 2010-11 season at Rs.2000/ inclusive of transport charges. This is bound to catapult our cane cost.

Sugar prices should however remain subdued consequent upon the upsurge in Indian production Having regard to the high cane prices currently paid in major sugar producing States and limited scope for its roll back to too lower levels sugar prices might tend to remain stable around current levels or move only marginally lower.

Your Company has thus an unenviable task to reckon with reduced output higher input cost and lower product realization With the help of carry over inventory and tight leash on costs we would combat these challenges It would of course be unrealistic and unreasonable to expect an encore of current year performance that by all count was exceptional There is hence bound to be a formidable fall in our profit figures in 2010-11 gravitating towards normative levels, barring unforeseen circumstances.

Directors

Mr N Gopala Ratnam and Mr Arun G Bijur Directors of your Company, retire by rotation at this meeting and being eligible offer themselves for reappointment.

Mr N Ravindranathan Director also retires by rotation at this meeting Considering his advanced age he has opted not to seek re-election at this meeting Mr N Ravindranathan has been associated with the Company since 2001 and had played an active role in the initial setting up of our Erode Sugar mill Your Directors wish to place on record the valued contribution made by Mr N Ravindranathan to the Company during his long association

Directors Responsibility Statement

Your Directors, in terms of Section 217 (2AA) of the Companies Act 1956, 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 2010 and of the Profit 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; and

iv the annual accounts have been prepared on a going concern basis.

Employees

No employee of the Company was in receipt of remuneration during the financial year 2009-10 in excess of the sum prescribed under Section 217(2A) of the Companies Act 1956 read with the Companies (Particulars of Employees) Rules, 1975.

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) read with the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 is given in the Annexure hereto.

Auditors

M/s Maharaj N R Suresh & Co and M/s R Subramanian and Company retire at this meeting and are eligible for reappointment pursuant to Section 224 of the Companies Act, 1956.

Cost Audit

Cost Audit Report for the year would be filed with the Central Government in due course M/s S Mahadevan & Co have been reappointed as Cost Auditors for 2010-11.

Appreciation

Your Board conveys its appreciation to the cane cultivators customers suppliers and Banks for their continued support and cooperation Your Directors commend the committed performance of employees at all levels in achieving an all time high performance for the year Your Directors wish to thank the shareholders for their continual support to the management.

For Board of Directors

Chennai N Gopala Ratnam

28th May 2010 Chairman

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