Ponni Sugars (Erode) Ltd

Your Board is pleased to present its 28th Annual Report

and the audited financial statements for FY 2023-24.

Dividend

Your Board has recommended a dividend of 7.00/- (Rupees Seven only) per equity share of 10 each for the financial year ended 31st March 2024, subject to the approval of shareholders at the ensuing Annual General Meeting.

Transfer to General Reserves

Your Board has proposed to transfer 25 crores to General Reserve.

Company performance

The company suffered a double whammy during the year with the frustrating failure of both south-west and north-east monsoon. The resultant water stress in our command area brought forth catenae of challenges to our core operations principally by way of detestable decline in cane yield and formidable fall in sucrose content. Farmers were loath to plant fresh cane and scurrying to supplant ratoon cane with short duration crops fearing imminent irrigation challenge. Further, we were forced to draw immature cane to bail out our farmers from impending total crop perishal that caused concomitant loss in sugar recovery. The company however double

downed its efforts to mobilise additional cane from unregistered sources in and around its command area that helped largely to contain, though not convincingly combat, the overarching cane shortage.

As a result, our cane crushing after showcasing five successive years of ascendance in a clear departure descended this time. Alongside, our sugar recovery though unarguably one of the best amongst the peer group was down by 40 bps YoY. Together,these two factors pushed down our sugar production for the year by near 10%. Our sale volume too crippled in the last quarter owing to low monthly sale quota that came applicable to us from Jan '24. Amidst all round adversities severely challenging operating environment, our financial performance was boosted by buoyancy in sugar and molasses prices, higher power tariff and lower cost of fuel.

World markets currently rule at a premium over domestic prices. The company however is constrained from riding on this export boom due to virtual ban on sugar exports clamped since Oct ‘22. Despite domestic production shoring up from the subdued initial estimates and thereby creating exportable surplus, the Govt is reluctant to reopen the export window opting for extra, if not extreme, caution. Further, the MSP for sugar last fixed at 31/ kg in Feb '19 remains stagnant, defying the covert intent and overt provision in the Sugar Control Order to link MSP of sugar to FRP of cane. This is a clear dampener to market sentiment. Sugar stock build up is further sought to be ensured by the Govt limiting diversion of sugar for ethanol. No doubt, sugar prices have improved from their rock bottom but there is dire need to facilitate further meaningful increase thereof to avert negative cash flows for sugar mills and consequent build-up of cane price arrears.

The company reached wage settlement covering 4 sugar seasons from Oct '22 and further paid goodwill amount for the preceding 4 sugar seasons. Excess provision of

274 lacs made in earlier years was consequently reversed during the year.

Cogen operations

Power tariff increase has finally been granted for the period from 28/12/23 to 31/03/25 by TNERC. It has come after a delay of 21 months. More painfully, the legitimate increase due during the long interregnum has been forcibly forfeited for no fault of power producers. Undue delay in revising the tariff and ultimate denial of the differential tariff for the period of prolonged delay strikes at the very root of cost plus model consciously adopted by the policy makers as tariff setting principle. All our appeals before APTEL covering tariff orders since 2012 are now being taken up for hearing and the company keenly looks to early resolution of key pricing issues involved in tariff determination.

The late payment surcharge rules announced in June 2022 whereunder accumulated past dues were made payable over 48 EMIs free of interest brought considerable stress to our liquidity and strained our margin. No doubt, the company since then has started receiving both past and current dues on time, a pyrrhic victory.

The company has produced power in excess of PLF both during the last and current year. Under extant tariff regulations, such excess power qualified for a discounted price covering only the variable cost plus a measly incentive, ignoring in total the fixed cost component. The company through SISMA-TN had petitioned TNERC to reckon PLF on a cumulative basis, as opposed to annual basis. This is meant to set off the huge shortage in power generation suffered during drought times before PLF restrictions could kick in. The Hon'ble Commission was pleased to consider the merit and rationale of our plea and granted requisite relief. This has bolstered our top- line and bottom-line for the year by 4.64 crores.

Financial results

The company continues to lay stress on optimising costs and improving in-house efficiency. Braving headwinds, it has managed to sustain and marginally surpass last year's high PBT – a no mean achievement under extant hostile external environment.

The Tax Department initiated proceedings during the year to give effect to the order of the High Court of Madras to allow depreciation entitlement on the fair value of assets of the Erode sugar mill transferred under the Scheme

of Arrangement. Consequently, the company has reassessed tax provision since 01/04/1999 and excess provision of 597 lacs has been reversed in the current year. This has helped our PAT to sky-rocket to an all-time high this year.

Projects

The company has successfully implemented both phases of ‘energy efficiency project' on a capital outlay of 16 crores and the benefits have started accruing. Its ethanol project however could not secure requisite environment clearance for production of allied products namely, ENA and RS and has hence been shelved for now.

Legal cases on sugar and sugarcane control

The High Court of Madras in June 2023 held in clear and unequivocal terms that State Advised Price (SAP) is only recommendatory in Tamil Nadu. Hence it is not legally binding for sugar seasons till 2018 when the State for the first time enacted a Law for this purpose. This at once has put paid to recurring controversies clouding the cane price arena. Taking note of this, another PIL petition for enforcing SAP payment too got dismissed by the Division Bench of Madras High Court in Feb '24.

As regards additional cane price under Clause 5-A of the Sugarcane Control Order, the High Court of Madras in Oct '23 dismissed the writ appeal of SISMA-TN. The industry thereupon took a collective call that it may no longer be desirable to continue the legal fight. Instead, it consciously opted to furnish requisite data to the Commissioner of Sugar, underpinning its contractual right to adjust advances cumulatively paid to individual farmers against final liability, if any. Our company carries adequate provision for this in its books.

Many TN sugar mills, including our company, had challenged in the High Court of Madras the monthly sale quota determination by the Central Govt introduced since 2018. We could in turn sell additional sugar on the strength of interim order of the Court that hugely helped our company during times of liquidity stress to clear cane dues. This writ petition has since got dismissed in Jan ‘24. Weighed by current liquidity strength, the company decided to forbear from further legal recourse and abide by MSQ orders. While MSQ impost has dented our sale volume for now, its impact would pan out overtime.

Outlook for FY 2024/25

The financial year 2024/ 25 has started on a prodigiously challenging note with a steep decline in standing cane portending stunted capacity use in the offing. It is however heart-warming that monsoon forecast, both by IMD and the other private player, has been reassuring with El Nino transcending to La Nina promising copious rains this year. Assuming normalcy in monsoon, the company looks to regain some lost cane area; nonetheless it is too late to bet on a full recovery. Accordingly, the company expects 10-15% decline in its sugar production for FY 2024/25 with its knock on effect on power production and export.

With improved production prospects for the country's sugar production, the Govt can be expected to roll back its restrictions on the export and ethanol front. Sugar prices are predicted to stay positive, while the highest increase in FRP this time in 11 years would ineluctably escalate our cane cost.

One off gains such as power tariff differential and reversal of past provisions boosting this year's bottom-line would obviously not repeat next year. In overall reckoning, the company expects a correction and climb down in its profit for FY 2024/ 25 from the current peak; yet, on a normative scale our financial performance may be expected to pan out reasonably satisfactory.

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

Disclosures / Confirmation

In deference to Section 134 of the Act read with Rule 8 of the Companies (Accounts) Rules, 2014, disclosures / confirmation are made as below:

1. Annual Return

A copy of annual return for FY 2022-23 has been placed on the website of the company www.ponnisugars.com and it will be done for FY 2023-24 after conclusion of the 28th AGM.

2. Directors' Responsibility Statement

Pursuant to Section 134(3)(c) of the Companies Act, 2013 (the Act) with respect to the Directors Responsibility Statement, your Board confirms that:

1. in the preparation of the annual accounts, the applicable accounting standards have been followed and there are no material departures from the same;
2. 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;
3. 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;
4. the directors have prepared the annual accounts on

a going concern basis;

5. the directors have laid down internal financial controls to be followed by the company and that said internal financial controls are adequate and were operating effectively; and
6. the directors have devised proper systems to ensure compliance with the provisions of all applicable laws and such systems were adequate and operating effectively.

1. 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.

2. 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 is given in Annx-3.

3. Material changes and commitments

There is no change in the nature of business of the

company during the year.

There is no material change or commitment affecting the financial position of the company that has occurred since 31st March 2024 to the date of this report.

4. 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-4.

5. Corporate Social Responsibility (CSR)

The company is covered under the mandate of Section 135 of the Companies Act, 2013 for FY 2023-24. The CSR report in the prescribed form as amended is given in Annx-5 that forms part of this report.

6. Public deposit

The company does not accept public deposits and there is no amount outstanding at the beginning or end of the year.

7. Adverse orders

No significant or material order has been passed by the regulators or courts or tribunals impacting the going concern status of the company and the company's operations in future.

9. 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.
10. Insolvency and Bankruptcy Code, 2016

No application has been made or proceeding pending under the Insolvency and Bankruptcy Code 2016 in respect of the company.

11. Valuation difference

The company has not done any one time settlement with Banks or Financial Institutions

12. Particulars of Employees

The Statement of Disclosure of Remuneration under Rule

5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is appended as Annx-6 to this Report.

Directors and KMPs

Mr.Arun G Bijur (DIN:00024434) retires by rotation at the ensuing 28th Annual General Meeting and being eligible, offers himself for reappointment that would be through Special Resolution. Due disclosure and rationale for his reappointment are furnished in the statement pursuant to Section 102(1) of the Companies Act, 2013 attached to the AGM Notice.

Mr V Sridar (DIN:02241339), Mr K Bharathan (DIN:00210433) and Dr.Nanditha Krishna (DIN:00906944) as independent directors of the Company completed their second term of office and ceased to be directors of the company from close of 31st March 2024. They were associated with the company for well over a decade. The Board places on record their valued contribution to the company's growth and governance.

Consequent to Board reorganisation, Mr Bimal K Poddar (DIN:00031146), non-executive & non-independent director, who is due for retirement at the ensuing Annual General Meeting of the company by rotation has resigned and ceased to be a director effective from close of 31-03-2024. He was associated with the company for close to three decades. The Board places on record his business acumen and valued contribution to the company's growth and governance. His reclassification from promoter to public category is placed for shareholder approval at this AGM.

Dr.Lakshmi Nadkarni (DIN:07076164) and Mr. Chellamani Naresh (DIN:10474276) were appointed as independent directors of the company for the fixed tenure of five years from 15.03.2024 to 14.03.2029 by special resolution passed through postal ballot by the shareholders on 12.03.2024.

Auditors

M/s S Viswanathan LLP (Firm Regn.No.004770S/ S200025)were appointed as statutory auditors for the second term of five years in the 26th AGM held on 20.07.2022. Accordingly, their term will expire at the conclusion of the 31st AGM.

Particulars of statutory auditors, cost auditors, internal auditors and the secretarial auditors have been given in the Corporate Governance Report that forms an integral part of this report. Secretarial Audit Report as required by Section 204(1) of the Companies Act, 2013 is attached (Annx-7).

Acknowledgment

We convey our sincere appreciation and thanks to the Central Government, Government of Tamil Nadu, Banks, customers and suppliers for their understanding and support. We thank our extended family of sugarcane farmers who have been the backbone of our backward integration and bedrock of sustainability.

Your company's creditable results are convincingly due to the committed contribution of its employees in all ranks. The Board, above all, would like to thank our valued shareholders for their persistent patronage.

For Board of Directors

N Gopala Ratnam

Chennai Chairman

26th April 2024 DIN:00001945