DIRECTOR'S REPORT THE MEMBERS OF THE COMPANY, Your Directors take pleasure in presenting their twenty second Annual Report together with the audited accounts for the year ended 31st March, 2016 2. DIVIDEND In view of brought forward losses, it is deemed prudent to plough back the profits earned during the year for strengthening the cash flows of the Company. No divided [(including dividend on Preference Shares of any of the Series (including Arrears)] is hence being recommended for payment. Fourth Proviso to sub section 1 of section 123 of the Companies Act, 2013 does not permit payment of any dividend unless all brought forward losses including depreciation are set off against profits of the Company for the Current year. The dividend on Cumulative Redeemable Preference Shares (Series I, II, III & IV) is being accumulated and will be paid subsequently in the year when the company earns adequate profits. 3. YEAR IN RETROSPECT OPERATIONS: Distinguishing features of the crushing operations in your company are given below: • Accounts for the current year are drawn up for 12 months, captures results of small part of crushing season 2014-15, off season of 2015-16 and major part of crushing season 2015-16, whereas the accounts of previous accounting period 201315 were drawn up for 18 months (from 1st October, 2013 to 31st March, 2015). The figures are therefore not comparable. Season 2014-15 vis-a-vis season 2013-14: Season 2014-15 vis-a-vis season 2013-14 • Crushing higher, by 11.67%. • Recovery higher, by 5.48%. • Sugar production higher, by 17.77%. Performance of Distillery: During the year 5,701,769 Litres of Spirit (previous period 5,038,103 Litres [Including 212,806 Liters on conversion of 200,155 Liters ethanol and additional moisture thereon]. The rectified spirt was further reprocessed and 5,168,428 Litres Ethanol (previous period 574,205) was produced at Dwarikesh Nagar Unit of the Company. In value terms the sale of Rectified Spirit was Rs. 310.01 lacs (previous period Rs. 1,320.97 lacs) and sale of Ethanol was Rs. 2,025.04 lacs (previous period Rs. 123.23 lacs). Your company migrated to producing more ethanol which resulted in value addition During the year Bio methanated spent wash plant was commissioned. The capital expenditure plan was executed at an outlay of approximately Rs. 10 crores. The plant will not only address the effluent treatment needs of the distillery but will also assist in uninterrupted functioning of the distillery plant for most part of the year. 4. Sugar industry - year at a glance. 0 The year under review was a year of fluctuating fortunes. During first few months of the year there was a sense of deja-vu as the sugar prices, both globally & domestically plunged to extremely unviable levels. While on the one hand international price of raw sugar touched a low of around 10 cents per pound, domestic prices reached a nadir of around Rs. 2,200 per quintal during August, 2015. Sugar industry in India was in a state of disarray with cane arrears figure at an all-time astounding high. Over supply resulting in glut had swept across the world. Many sugar companies across India were in a debt trap and on the cusp of bankruptcy 0 Central Government had to perforce intervene and it quickly announced a slew of measures which have helped revival of the industry. For starters, it announced a soft loan of Rs. 6,000 crores to be paid to sugar mills through Banks to be disbursed directly to the farmers towards their cane dues. Central Government agreed to provide interest subvention @ 10% for one year period. Secondly, it announced compulsory export of 3.2 million tons of sugar and to compensate the sugar mills for the losses incurred on exports, agreed to provide a production subsidy Rs. 4.50 per quintal of sugarcane crushed during the season 2015-16. There was an additional covenant of supplying a minimum agreed quantity of ethanol so as to be eligible to claim subsidy. The scheme was revenue neutral for the Government, as it sought to raise cess on sugar sale to build the corpus to settle claims of subsidy 0 10% Ethanol blending program has been taken up by the Central Government in the right earnestness. Bids were invited by oil marketing companies for 2.66 billion litres of ethanol. A one year excise duty benefit has been given to mills supplying ethanol so as to motivate mills to actively participate in the ethanol program. While fructification of 10% ethanol blending may take some time, country has already achieved 5% blending. Central Government is proactively ironing out all transactional bottlenecks by constantly engaging and communicating with all stakeholders including oil marketing companies, various ministries and all agencies, both at the levels of Central Government & State Government. 0 State Government of Uttar Pradesh also played a significant role in mitigating the crisis engulfing the industry. It cannibalised and directly disbursed subsidy of Rs. 28.60 per quintal of cane purchased during the season 2014-15. State Government also kept the sugarcane price for the season unchanged at Rs. 280 per quintal for the general variety. It has also announced waiver of post-procurement levies such society commission, purchase tax & entry tax amounting to Rs. 11.90 per quintal. Two tier cane price payment mechanism was introduced, in which first part of Rs. 230 per quintal is to be paid within stipulated 14 days of purchase of cane. Balance cane price is made payable within 90 days of the close of crushing of the respective sugar mill. This payment mechanism besides providing succour to the cash flows of sugar mills has ensured that all the farmers supplying sugarcane are at least paid Rs. 230 per quintal unlike in the past when the burden of arrears was mainly on the famers supplying sugarcane towards the rear end. 0 The aforesaid measures coincided with certain fundamental correction in the demand-supply scenario, both internationally & domestically. For the first time after many years if will be a deficit year globally with deficit stretching between 5 and 7 million tons. Compulsory exports combined with estimated lower production in the country on the back of unfortunate draught in Maharashtra & Karnataka led to a rally in sugar prices. From dreadful low levels of price in August 2015, the prices have now rebounded by nearly 50%. The price rise augurs well for the sugar industry which was facing existential crisis. However for the benefits to percolate on the industry the prices should sustain at reasonable levels. 0 Sugar mills in Uttar Pradesh benefited additionally on account of smart improvement in recoveries. The present trend is positive although the economics of the industry is nowhere near superlative. Yet the companies of better pedigree which are low on debt content and which are constantly achieving lofty standards of operating efficiencies may have something to cheer about, although it will take constantly good economics for 2 to 3 years at least to strengthen the financial position. The key of course would be the sugarcane price that the State Government may determine for the crushing season 2016-17. The numbers for the year under review make impressive comparison with the numbers of the previous period. a. EBDITA, both in absolute numbers and in % terms is markedly better than in the previous period. Margin of EBITDA is more than 15% and in absolute numbers more than Rs. 120 crores. In absolute terms the EBIDTA posted in higher than the EBIDTA posted in the previous period of 18 months. b. Your company has earned a healthy cash profit in excess of Rs. 70 crores in comparison to meagre cash profit of Rs. 20.66 crores earned in the previous period. c. Earnings after tax is close to Rs. 39 crores which in % works out nearly 5%. This may be seen in juxtaposition with the loss of Rs. 16.75 crores posted during the previous period. Your company has posted better results after several years. Standout reasons are not difficult to explore: 0 Realignment of fundamentals of sugar industry. After many years of surplus sugar, world over, 2015-16 has been a deficit year, resulting in rally in sugar prices. Sales price realization of sugar, post November, 2015 improved steadily & gradually 0 During the year under review your Company received and accounted for a subsidy of Rs. 20 per quintal of cane purchased during the season 2014-15. The subsidy was received from the State Government. 0 Your company recorded impressive recoveries during the year, significantly better than in the previous year, thus keeping the raw material & other costs pegged at lower levels 0 Your company is relentlessly making efforts to recalibrate its debt profile and reduce its long-term debt burden with a view to keep the interest cost under control 0 Though the State Government has announced subsidy of Rs. 23.30 per quintal of cane purchased during the season 2105-16 the same is linked to threshold price of sugar and by-products. The same will be taken cognizance of as and when the same is crystallised. 5. A - CANE & SUGAR POLICY: The main policies of the government in relation to the sugar industry during the year were: a) The ratio of levy and free sale sugar was 10:90 for the period up to 31st March, 2013 & thereafter levy obligation was abolished pursuant to adoption of recommendations contained in the report of Dr. Rangarajan. b) The Fair & Remunerative Price (FRP) for the crushing season 2015-16 was Rs. 230 per quintal and the same has been retained at Rs. 230 per quintal for 2016-17, both are linked to recovery @ 9.50 %. c) Chronology of SMP /FRP announced by the Central Government on the basis of recovery is given herein under: B. CHANGE IN NATURE OF BUSINESS: There is no change in nature of business of the company. C. MATERIAL CHANGES AND COMMITMENTS, IF ANY, AFFECTING THE FINANCIAL POSITION OF THE COMPANY WHICH HAVE OCCURRED BETWEEN THE END OF THE FINANCIAL YEAR OF THE COMPANY TO WHICH THE FINANCIAL STATEMENTS RELATE AND THE DATE OF THE REPORT No Material changes have occurred subsequent to the close of the financial year of the Company to which the balance sheet relates and the date of the report. D. DETAILS OF SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS OR TRIBUNALS IMPACTING THE GOING CONCERN STATUS AND COMPANY'S OPERATIONS IN FUTURE No significant & Material orders have been passed impacting the Going concern Status & Company's operations in future. E. DETAILS IN RESPECT OF ADEQUACY OF INTERNAL FINANCIAL CONTROLS WITH REFERENCE TO THE FINANCIAL STATEMENTS. The Company has adequate internal financial control in place .The Company has got robust systems in place to ensure prepayment audits of transactions, concurrent internal audit of all transactions of various segments of activities of the company. F. SHARE CAPITAL The company has not issued any shares during the year. G. EXTRACT OF THE ANNUAL RETURN The extract of the annual return in Form No. MGT - 9 is annexed herewith as Annexure III, forming part of the Board's report. H. CORPORATE SOCIAL RESPONSIBILITY The company is incurring losses in last few years & there were losses in last 3 preceding accounting years, hence the provisions of CSR are mandatorily not applicable, however the Company is carrying out CSR activities. The Company has been incurring expenditure on CSR activities covering education, health, medical facilities etc for the common benefits of employees, farmers, villagers from time to time. I. NUMBER OF MEETINGS OF THE BOARD OF DIRECTORS Details of Composition of Board, Audit Committee & details of their meetings are given in Corporate Governance Report. J. VIGIL MECHANISM The Company has adopted policy on Vigil Mechanism in the Board meeting held on May 9, 2014. No complaints were received under this policy during the year. K. NOMINATION & REMUNERATION COMMITTEE Details of Composition of the Committee & details of their meetings are given in Corporate Governance report. L. PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS UNDER SECTION 186 No Loans, Guarantees or investments are made during the year. M. PARTICULARS OF CONTRACTS OR ARRANGEMENTS WITH RELATED PARTIES: The particulars of every contract or arrangements entered into by the Company with related parties referred to in sub-section (1) of section 188 of the Companies Act, 2013 are approved by the Board & if required approval is sought from shareholders in General meeting. N. MANAGERIAL REMUNARTION: b) Median Remuneration There is increase of 9.89 in median remuneration of employee during the current accounting year of 12 months over the previous accounting period consisting of 18 months, pro-rated for 12 months for calculating the increase. c) Permanent employees As at 31st March, 2016, the Company has on its payroll 620 permanent employees excluding seasonal employees. d) The explanation on the relationship between average increase in remuneration and company performance; Although performance of the Company has deteriorated on account of high cost of Sugarcane & low realization of its products, the average increase in remuneration of employees is commensurate with increase in Sugar Industry. e) Comparison of the remuneration of the Key Managerial Personnel against the performance of the company; The operating performance of the Company has been one of the best, however financial performance is marred by high cost of Sugarcane & low realization of Sugar. Remuneration of Key Managerial personnel is in line with the trends & remuneration paid by others in Sugar Industry in state of Uttar Pradesh. g) Average percentile increase already made in the salaries of employees other than the managerial personnel in the last financial year and its comparison with the percentile increase in the managerial remuneration and justification thereof and point out if there are any exceptional circumstances for increase in the managerial remuneration; The average increase in average Salaries of median employee is 9.89 % & average increase in salaries of Key Managerial personnel's remuneration is 40.38 % over last accounting year (pro-rated for 12 months based on 18 months). h) Comparison of the each remuneration of the Key Managerial Personnel against the performance of the company; Although performance of the Company over the years has been less than satisfactory, reflected in the losses incurred in the last few years (barring current year), on account of high cost of Sugarcane & low realization of its products, the increase in remuneration is commensurate with increase in Sugar Industry. i) The key parameters for any variable component of remuneration availed by the directors; All whole-time Directors including Managing Director are entitled to receive remuneration by way of ex gratia / interim bonus. j) The ratio of the remuneration of the highest paid director to that of the employees who are not directors but receive remuneration in excess of the highest paid director during the year: NOT APPLICABLE. k) Affirmation that the remuneration is as per the remuneration policy of the company. Remuneration paid to Managing Director & Whole Time Director is as per approved policy of the Company. l) A statement showing the name of every employee of the company, who- (i) If employed throughout the financial year, was in receipt of remuneration for that year which, in the aggregate, was not less than sixty lakh rupees; 3 (Shri G R Morarka, Managing Director, Shri Vijay S Banka, Whole Time Director & CFO, Shri B J Maheshwari, Whole Time Director & CS Cum CCO). (ii) If employed for a part of the financial year, was in receipt of remuneration for any part of that year, at a rate which, in the aggregate, was not less than five lakh rupees per month: NIL. m) Any director who is in receipt of any commission from the company and who is a Managing Director or Whole-time Director of the Company shall receive any remuneration or commission from any Holding Company or Subsidiary Company of such Company subject to its disclosure by the Company in the Board's Report: NOT APPLICABLE. n) Details of remuneration with break up of components paid to Managing Director, Whole Time Director, terms of appointment are stated in Corporate Governance Report. O. SECRETARIAL AUDIT REPORT: A Secretarial Audit Report given by M/s VKM & Associates, a company secretary in practice is submitted and annexed herewith as Annexure IV. There are no qualifications, reservation or adverse remarks or disclaimer in the Secretarial Audit Report. P. RISK MANAGEMENT POLICY: A statement indicating development and implementation of a risk management policy for the Company including identification therein of elements of risk, if any, which in the opinion of the Board may threaten the existence of the company. Q. POLICY ON ANTI SEXUAL HARASSMENT: The Company has put in place a policy on Anti Sexual harassment, No complaints have been received under this policy during the year. R. RELATED PARTY TRANSACTIONS : Related party transactions that were entered during the financial year were on an arm's length basis and were in the ordinary course of business. There were no materially significant related party transactions with the Company's Promoters, Directors, Management or their relatives, which could have had a potential conflict with the interests of the Company. Transactions with related parties entered by the Company in the normal course of business are periodically placed before the Audit Committee for its omnibus approval and the particulars of contracts entered during the year as per Form AOC-2 is enclosed herewith and marked as Annexure II. The Board of Directors of the Company has, on the recommendation of the Audit Committee, adopted a policy to regulate transactions between the Company and its Related Parties, in compliance with the applicable provisions of the Companies Act 2013, the rules thereunder and the Listing Regulations. 6. DIRECTORS A) Changes in Directors and Key Managerial Personnel Pursuant to the requirements of the Companies Act, 2013, Managing Director & Independent directors are not liable to retire by rotation and hence all the Whole Time Directors are liable to retire by rotation. Accordingly Shri B J Maheshwari and Shri Vijay S Banka retire by rotation and has offered themselves for re appointment. B) Declaration by an Independent Director(s) and re- appointment Pursuant to the requirements of section 149(7) of the Companies Act, 2013, the company has received the declarations from all the independent directors confirming the fact that they all are meeting the eligibility criteria as stated in section 149(6) of the Companies act, 2013. All the three independent directors are appointed/re appointed in the meeting of Board of Directors held on August 13, 2014 for a period of 5 years as per the requirements of section 149 of the Companies act, 2013. C) Formal Annual Evaluation Pursuant to the requirements of section 134(3)(p) of the Companies Act, 2013 read with Regulation 17 of the listing regulations, the Board has carried out an annual performance evaluation of its own performance, the directors individually as well as the evaluation of the working of its Audit, Nomination & Remuneration Committees. A structured questionnaire was prepared after taking into consideration inputs received from the Directors, covering various aspects of the Board's functioning such as adequacy of the composition of the Board and its Committees, Board culture, execution and performance of specific duties, obligations and governance. A separate exercise was carried out to evaluate the performance of individual Directors including the Chairman of the Board, who were evaluated on parameters such as level of engagement and contribution, independence of judgement, safeguarding the interest of the Company and its minority shareholders etc. The performance evaluation of the Independent Directors was carried out by the entire Board. The performance evaluation of the Chairman and the Non Independent Directors was carried out by the Independent Directors who also reviewed the performance of the Secretarial Department. The Directors expressed their satisfaction with the evaluation process. D) POLICY ON DIRECTORS' APPOINTMENT AND REMUNERATION INCLUDING CRITERIA FOR DETERMINING QUALIFICATIONS, POSITIVE ATTRIBUTES, INDEPENDENCE OF A DIRECTOR, KEY MANAGERIAL PERSONNEL AND OTHER EMPLOYEES The Board shall have minimum 3 and maximum 12 directors, unless otherwise approved. No person of age less than 21 years shall be appointed as a director on the Board. The company shall have such person on the Board who complies with the requirements of the Companies Act, 2013, Provisions of the Listing Regulations, Memorandum of Association and Articles of Association of the company and all other statutory provisions and guidelines as may be applicable from time to time. Composition of the Board shall be in compliance with the requirements of Listing Regulations of the Stock Exchanges. Majority of the Directors shall have specialised knowledge/ experience in the areas like Sugar sector, Strategic management, Legal, Risk Management, Accountancy, Finance, etc. Except for whole time directors, no other directors are paid remuneration, but are paid only sitting fees. The MD is paid remuneration as approved by other applicable authorities, but are not paid sitting fees. MD, Company Secretary and Chief Financial Officer shall be the Key Managerial Personnel (KMPs) of the company. All persons who are Directors / KMPs, members of Senior Management and all other employees shall abide by the Code of Conduct. Directors/KMPs shall not acquire any disqualification and shall be persons of sound integrity and honesty, apart from knowledge, experience, etc. in their respective fields. Policy on Directors nomination and remuneration is available on company's website at www.dwarikesh.com 7. STATEMENT OF DIRECTOR'S RESPONSIBILITIES As required under the provisions of Section 134(3)( c ) of the Companies Act, 2013, your Directors confirm that: (a) In the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures; (b) the directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the financial year and of the profit and loss of the company for that year; (c) the directors had 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 had prepared the annual accounts on a going concern basis; and (e) the directors had laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively, (f) the directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively. 8. MANAGEMENT'S DISCUSSION AND ANALYSIS REPORT Pursuant to Regulations 34 of the Listing Regulations of the Stock Exchanges, Management's Discussion and Analysis Report for the year under review is presented in a separate segment which is forming part of the Annual Report. 9. CORPORATE GOVERNANCE As per Regulations 34 of the Listing Regulations with the Stock Exchanges, a report on Corporate Governance together with the Auditors Certificate regarding compliance of the conditions of corporate governance, Management Discussion and Analysis statement forms part of the Annual report. 10. DISCLOSURES: CSR Committee The CSR Committee comprises Shri B. K. Agarwal as Chairman, Shri G. R. Morarka and Shri B. J. Maheshwari as other members. Audit Committee The Audit Committee comprises of Independent Directors namely Shri B. K. Agarwal as Chairman, Shri K. N. Prithviraj, Ms. Malathi Mohan and Shri V. S. Banka as other members. All the recommendations made by the Audit Committee were accepted by the Board. 11. CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO: Pursuant to section 134 (3)(m) of the Companies Act, 2013, the particulars in respect of conservation of energy, technology absorption and foreign exchange earnings & outgo are furnished in Annexure -I and form a part of this report. 12. SUBSIDIARY COMPANY'S REPORT: The Company does not have any subsidiary in terms of provisions of Companies Act, 2013. 13. AUDITORS & AUDITOR'S REPORT: There are no qualifications in the Auditors report. The Auditors, M/s. S S Kothari Mehta & Co., Chartered Accountants retire at the ensuing Annual General Meeting of the Company. You are requested to re-appoint the Auditors for the accounting year 2016-17 and fix their remuneration. M/s S. S. Kothari Mehta & Co., Chartered Accountants, being eligible, have offered themselves for reappointment. All remarks of the auditors having reference to the accounting policies or notes to the account are self-explanatory and do not require any further explanation. There are no qualifications in the Auditors report. 14. COST AUDITORS: As per the directions issued by the Central Government pursuant to the provisions of section 148 of the Companies Act, 2013 M/s Ramanath Iyer & Co, Cost Accountants were appointed to conduct cost audits relating to sugar, electricity and industrial alcohol for the year ended March 31, 2016. 15. PUBLIC DEPOSITS The Company does not have any fixed deposits at the beginning of the year in terms of Section 74 of the Companies Act, 2013. The Company did not accept any deposits during the year. 16. ACKNOWLEDGEMENT Your directors wish to place on record their sincere gratitude and appreciation to its members, sugar cane growers, employees, bankers, financial institutions, Central & State Government Agencies for their valuable contribution in the growth of the organisation. By Order of the Board For DWARIKESH SUGAR INDUSTRIES LIMITED G. R. MORARKA MANAGING DIRECTOR VIJAY S BANKA WHOLE TIME DIRECTOR & CFO B J MAHESHWARI WHOLE TIME DIRECTOR & CS Cum CCO Place : Mumbai Dated : May 24, 2016 |