REPORT OF THE BOARD OF DIRECTORS your directors have pleasure in presenting their report as a part of the 40th annual report, along with the audited accounts of the company for the year ended 31st march 2016. Dividend Your Directors have not recommended any dividend for the year ended 31st March, 2016, in view of the restrictions under Section 123 of the Companies Act, 2013 (the Act) as amended by the Companies (Amendment) Act, 2015, becoming effective from 29th May, 2015, by virtue of which no company can declare dividend unless carried over previous losses and depreciation not provided in previous year or years, are set off against profit of the company for the current year. Performance & Outlook The Company registered a gross turnover of Rs.287407 Lacs for the year ended 31st March, 2016 as against Rs.309321 Lacs for the year ended 31st March 2015 - a reduction of 7% primarily on account of lower sugar realizations. The sugar recovery increased to 11.06% in the financial year ended 31st March 2016 as compared to 9.83% in the corresponding previous year. Distillery and Cogeneration divisions performed well and helped in posting a positive bottom-line this year. The Company earned a net profit of Rs.9942 Lacs as against a net loss of Rs.5773 Lacs in the previous year. The financial year began with a surplus stock with mills causing the sugar prices to touch a three-year low of Rs.23,000/MT by August 2015. With the global sugar-surplus scenario and muted international prices, the chances of any improvement in domestic sugar prices seemed distant. Finally, at that depressing point, the End of the tunnel was found. The Govt. of India stepped in at the right time and announced a slew of measures with a view to • Reduce the surplus stock of sugar • Boost the price sentiments in the domestic market • Clear cane arrears worth about Rs.14,000 Crores to farmers (the Govt. of India announced interest free loans). In September 2015, the Hon'ble Ministry of Consumer affairs, Food & Public Distribution allocated a target of 4 Million Tonnes of sugar as Minimum Indicative Export Quota (MIEQ) amongst 570 sugar mills for sugar season 2015-16 and directed the mills to discharge their export obligations accordingly. Subsequently, in Early December, the government notified a production subsidy of Rs.4.50 per quintal of cane crushed to offset the cane cost of millers. The eligibility of production subsidy was subject to a minimum 80% export and ethanol blending targets. Meanwhile, the production failure across the Globe led the markets to revise the sugar stock positions from surplus to deficit and from a depressed 11 to 12 cents per pound range prevalent in late September 2015, the international raw sugar prices gradually revived to 14.77 cents in early December 2015 and to around 16.50 cents by March 2016. Improvement in global prices helped the Indian Mills to partially discharge their export obligations under MIEQ thereby reducing surplus stock in the country. The sugar production in the country for the sugar season 2015-16 is at 25.2 million tonnes against the estimates of 26 million tonnes. With an approximate carry forward stock of 9.0 million tonnes from previous season and estimated domestic consumption of 25.5 million tonnes and exports of around 1.6 million tonnes during the season 2015-16, a carry forward stock of around 7.1 million tonnes is estimated as on 1st October 2016. At present, the cane acreage data for season 2016-17 is not available. However, with reports on lower plantation in the State of Maharashtra and deficit rainfall in the preceding two years, the country's sugar production in 2016-17 is expected to be lower than 2015-16. Going forward, the country's demand supply dynamics is expected to keep the prices firm. During the year, the prices of power, alcohol and ethanol remained remunerative, driven by healthy demand. With the focus of the Government on the Ethanol Blending Programme (EBP) and the new fixed pricing mechanism for ethanol supplied to OMCs and removal of central excise duty of 12.5%, the profitability of the industry as a whole is expected to further stabilize in the next season. The average realization per unit of power increased from Rs.4.23 per unit in 2014-15 to C4.77 per unit in 2015-16 primarily due to upward revision of power tariff in the month of January 2015 as well as on account of normal annual escalation of 2 (two) percent. Performance of Business Segments Sugar Your Company is glad to report its highest ever recovery of 11.13% as against 9.82% in previous season due to varietal change and ideal weather conditions throughout the crushing season. The Company initiated stringent processes and quality control measures in procuring clean cane, improving varietal balance and inculcating better agricultural practices. The Company's aggregate sugarcane crushing was lower at 703.87 lac quintals during the season 2015-16 as against 772.04 lac quintals in season 2014-15. During the year, the Company sold 80.70 lac quintals of sugar at an average realisation of Rs.27.06/kg as against 81.45 lac quintals at an average realisation of Rs.29.40/kg in the corresponding year. The Board in its meeting held on 27th May, 2015 approved the closure of its sugar unit at Khalilabad, subject to fulfillment of necessary formalities and compliance. The closure of the said unit does not have any significant impact on sales of the Company as the said unit's contribution in the overall sales of the Company constituted only 1.68% for the year ended 31st March, 2015. Further, the net fixed assets of the said unit as at 31st March, 2015 constituted only 2.33% of the total net fixed assets of the Company as on that date. However, for the year ended 31st March, 2015 loss before interest and tax of Rs.1200.72 Lacs of the said unit constituted 4.31% of the loss of the sugar segment for the year ended 31st March, 2015. Owing to the huge uncertainity regarding the receipt of the Company's claim under the New Sugar Industry Promotion Policy, 2004 (SIPP) with respect to reimbursements, the Company discontinued the accounting for the same w.e.f. 1st April, 2012. Since no meaningful progress has been made in last four years in the said matter, your directors have proposed to write-off an amount of Rs.16,900.57 Lacs, on account of the Company's claim of reimbursements, which was currently lying as incentive receivables under the head "other non-current assets", in line with a legal advise received in this matter. Distillery The distillery performance was satisfactory as the Company produced 705.55 lac BL during 2015-16 as against 699.03 lac BL during the previous year. Ethanol production constituted 87.38% of the Distillery production in the current year as against 46.55% during the previous year. The average realization per BL stood at Rs.40.41 as against Rs.37.40 during the previous year. Further, the Company has successfully commissioned incinerator boilers at its distillery - Balrampur in view of prescribed pollution guidelines to achieve Zero Liquid Discharge (ZLD) of effluent waste on 10th February, 2016. The other projects at Mankapur and Babhnan are under construction and would be completed during the ongoing year. This would enable the Company to run its distilleries for higher number of days every year. Cogeneration The performance of the cogeneration business of the Company was as per expectations. The total power generated stood at 7469.14 lac units, as against 8294.86 lac units in the previous year. Power export to Uttar Pradesh Power Corporation Limited stood at 5307.41 lac units as against 6168.10 lac units in the previous year and the total value of power exported to the grid was Rs.25351.10 Lacs as against Rs.26130.31 Lacs in the previous year. The Company also sold 1.78 lac Renewable Energy Certificates during the year resulting into gross proceeds of Rs.2670.00 Lacs. Organic Manure The performance of the organic manure division was satisfactory during the year under review. Policies relating to sugar industry For sugar season 2015-16, the salient features of the policies relating to sugar industry are as under: • The FRP (Fair & Remunerative Price) for sugarcane was fixed at Rs.230 per quintal linked to a basic recovery of 9.50% subject to a premium of Rs.2.42 per quintal for every 0.1% increase in recovery above that level. • The Government of Uttar Pradesh maintained State Advised Price (SAP) for sugarcane for season 2015-16, in line with the previous season. In view of the situation prevailing in the Industry at the time of announcement of cane price, the Government of Uttar Pradesh also decided the following: (i) The cane price of Rs.275 per quintal for rejected variety of sugarcane, C280 per quintal for normal variety of sugarcane and Rs.290 per quintal for early variety of sugarcane would be paid to farmers in two installments. The first installment of Rs.230 per quintal would be paid within 14 days of purchase and the balance amount would be paid within three months of closure of crushing for the sugar season 2015-16. (ii) In addition to the above, the State Government also announced the sugarcane subsidy of Rs.35 per quintal of cane which included concessions of Rs. 11.70 per quintal of sugarcane covering the following heads: The balance subsidy amount of Rs.23.30 (Rs.35.00 - 11.70) per quintal of sugarcane would be shared between the State Government and the Millers as per the decision of the Special Committee to be formed by the Government under the chairmanship of the Hon'ble Chief Secretary. The sharing mechanism would be determined by the Committee based on prices of sugar, molasses, bagasse, pressmud and would also be based on recovery of the said products. (iii) Subsequently, the State Government reduced the rate of society commission for the sugar season 2015-16, as mentioned above, from Rs.6.90 per quintal of sugarcane to Rs.3.00 per quintal of sugarcane thus restricting the concessions also at Rs.3.00 per quintal from the earlier announced rate of Rs.6.90 per quintal of sugarcane. The policies / schemes announced by the Central Government are summarised as under: • Soft loan aggregating to Rs.6,000 Crores during the year, in order to clear sugarcane dues of sugar season 2014-15. The Government will bear interest burden up to 10% simple interest or actual rate of interest charged by banks whichever is less for a maximum of one year by way of interest subvention. • MIEQ (Minimum Indicative Export Quota) of 4.00 million tones for the sugar season 2015-16 which was pro-rated amongst all sugar factories with an objective to export surplus stock of sugar from the domestic market. • Cane subsidy of C4.50 per quintal of sugarcane, to be paid directly to farmers for clearance of cane dues for the sugar season 2015-16 and cane price arrears of previous sugar season. Millers to be eligible for the said subsidy, have to fulfil minimum of 80% of their export obligations under MIEQ and 80% of their ethanol contracts wherever distillation capacities are installed. • Sugar cess was increased from Rs.24.00 per quintal to Rs.124.00 per quintal with effect from 1st February 2016 with an aim to create fund with the Sugar Development Fund to facilitate timely payment to farmers in case of exigencies. • Waiver of excise duty of 12.50% on ethanol produced out of molasses from sugar season 2015-16 and included the waiver component of exise duty within the fixed supply price of Ethnaol so as to assist the Millers for paying the farmers on time. Subsidiary The Company's subsidiary Indo Gulf Industries Limited (IGIL) reported a net loss of Rs. 11.89 Lacs for the year ended 31st March, 2016 as against a net profit of Rs.382.39 Lacs (including exceptional profit of Rs.362.25 Lacs) for the year ended 31st March, 2015. During the year under review, IGIL issued and allotted 2,50,000 Non-Convertible, Non-Cumulative, Redeemable Preference Shares of Rs.100 each on Private Placement basis. Consequently, the networth of IGIL has become positive. Details of the matter relating to IGIL before the Hon'ble Board for Industrial and Financial Reconstruction are given in the Annual Report 2015-16 of IGIL and the same is available on the website of the Company (www.chini.com) and also on the website of IGIL (www.indogulfind.com). Therefore, the same is not repeated here for the sake of brevity. The statement with respect to the Subsidiary Company has been separately annexed. The audited financial statements of the Company including the consolidated financial statements and related information of the Company and the audited accounts of subsidiary are available on the website of the Company at www.chini.com. The annual accounts of the Subsidiary Company and the related detailed information shall be made available to members of the Company or of the Subsidiary Company seeking such information at any point of time. The annual accounts of the Subsidiary Company would be avaliable for inspection by members at the Company's registered office and at the registered office of the Subsidiary Company. The Company has only one subsidiary, as stated above. No body corporate has become or ceased to be its subsidiary, joint venture or associate company during the year. Consolidated financial statements In compliance with the provisions of the Act, Accounting Standard - 21 and pursuant to Regulation 34(2)(b) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (the Listing Regulations), the consolidated financial statements forms part of this Annual Report. Share Capital The Company issued and allotted 33,500 equity shares of Rs.1 each at a price of Rs.45 per share (including premium of C44 per share) upon the exercise of 33,500 options under the Employee Stock Option Scheme. Consequently, the paid up share capital of the Company increased to Rs.24,49,49,767 consisting of 24,49,49,767 equity shares of Rs.1 each. Employee Stock Option Scheme The applicable disclosures as required under the SEBI Guidelines as amended, and the details of stock options as at 31st March, 2016 under the Employee Stock Option Scheme, 2005 are set out in the attached Annexure - I and forms part of this Report. Credit rating ICRA Limited - the Credit Rating Agency, vide its letter dated 1st April, 2016, revised the Credit Rating of the Company from [ICRA] A to [ICRA] A+ with respect to long-term loans and from [ICRA] A+ to [ICRA] A1 + with respect to short-term credit facilities. Directors The members of the Company at the 39th Annual General Meeting, held on 12th August, 2015, appointed Smt. Novel S. Lavasa as an Independent Director for a term of 5 (five) consecutive years ending on 31st March, 2019 in terms of Section 149 and other applicable provisions of the Act. Pursuant to Section 149 and other applicable provisions of the Act, your Directors are seeking appointment of Shri Sakti Prasad Ghosh and Shri Sumit Mazumder as Independent Directors for a period of 5 (five) consecutive years, who were appointed as Additional Directors in the category of Independent Directors with effect from 4th November, 2015 and 21st May, 2016 respectively. The terms and conditions of the above appointments are contained in the Letter of Appointment issued to the respective directors and the same is also hosted on the website of the Company. Notices in writing under Section 160 of the Act have been received by the Company proposing the appointment of Shri Sakti Prasad Ghosh and Shri Sumit Mazumder as Directors of the Company. Smt. Meenakshi Saraogi stepped down from the post of Jt. Managing Director owing to her indifferent health and accordingly the Board of Directors noted the change in status of her directorship from Executive Director to Non-Executive (Non-Independent) Director w.e.f. 1st June, 2015. Further, during the year under review, Shri Kishor Shah informed the Company about his decision to relinquish his position as Director cum Chief Financial Officer of the Company, to allocate his time and commitment towards pursuing other professional ventures. Accordingly, with effect from the close of business hours on 30th November, 2015, he ceased to be the Director cum Chief Financial Officer of the Company. Shri Kishor Shah had been with the Company for over 22 years in various capacities and has made exceptional contributions to the growth of the Company. The Board places on record its deep appreciation of Shri Shah's contribution to the Company, spanning over two decades. Director retiring by rotation Smt. Meenakshi Saraogi retires from the Board by rotation and being eligible, offers herself for reappointment. Information regarding the directors seeking appointment/ reappointment Resume and other information regarding the directors seeking appointment / reappointment as required by Regulation 36 of the Listing Regulations has been given in the Notice convening the ensuing Annual General Meeting and in the Statement pursuant to Section 102 of the Act. The Board of Directors recommends the above appointment(s) / reappointment(s). Other Information Appointment of directors is made in accordance with the Criteria for Selection of Directors and persons in Senior Management as recommended by the Nomination & Remuneration Committee and approved by the Board of Directors. Other details pertaining to the Directors, their appointment / cessation during the year under review and their remuneration are given in the Extract of Annual Return annexed hereto and forming part of this Report. The Executive Directors (including Managing Director and Wholetime Director) of the Company do not receive any remuneration or commission from the subsidiary company. Declaration by Independent Directors The Company has received declarations from all the Independent Directors of the Company confirming that they meet the criteria of independence prescribed both under the Act and Regulation 16 of the Listing Regulations. Directors' Responsibility Statement The Board of Directors acknowledges the responsibility for ensuring compliance with the provisions of Section 134(3)(c) read with Section 134(5) of the Companies Act, 2013 and Regulation 18 of the Listing Regulations in the preparation of the annual accounts for the year ended 31st March, 2016 and state that : i. In the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures, if any; ii. The Directors have 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 of the Company for that period; iii. The Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with provisions of this Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; iv. The Directors have prepared the annual accounts on a going concern basis; v. The Directors have laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and are operating effectively; and vi. There is a proper system to ensure compliance with the provisions of all applicable laws and that such systems are adequate and operating effectively. Particulars of Employees The particulars of employees, as required under Section 197(12) of the Act read with Rules 5(1), 5(2) and 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, are given in a separate annexure attached hereto and forms part of this Report as Annexure - II. During the year under review, no complaint / case was filed pursuant to Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. Conservation of energy, technology absorption and foreign exchange earnings and outgo The particulars related to the conservation of energy, technology absorption and foreign exchange earnings and outgo as required under Section 134(3)(m) of the Act are given in Annexure - III attached hereto and forms part of this Report. Deposits The Company has not accepted any deposit from the public and consequently, there are no outstanding deposits in terms of the Companies (Acceptance of Deposits) Rules, 2014. Key Managerial Personnel Pursuant to the change in the position of Smt. Meenakshi Saraogi from Jt. Managing Director to Non-Executive (Non-Independent) Director, she ceased to be a Key Managerial Personnel of the Company, w.e.f. 31st May, 2015. Shri Santosh Kumar Agrawala retired as the Company Secretary of the Company at the close of business hours on 3rd November, 2015, after serving the Company for more than two decades. The Board places on record its appreciation for the services rendered by Shri Agrawala during his tenure as the Company Secretary of the Company. Accordingly, he ceased to be a Key Managerial Personnel of the Company, w.e.f. 3rd November, 2015. Based on the recommendations of the Nomination & Remuneration Committee of the Board, Shri Nitin Bagaria, a qualified company secretary, has been appointed by the Board of Directors as the Company Secretary and Key Managerial Personnel of the Company, w.e.f. 4th November, 2015. Consequent to the resignation of Shri Kishor Shah as the Director cum CFO of the Company, he ceased to be a Key Managerial Personnel of the Company, w.e.f. 30th November, 2015. Based on the recommendations of the Nomination & Remuneration Committee and the Audit Committee of the Board, Shri Pramod Patwari, a qualified chartered accountant, has been appointed by the Board of Directors as the Chief Financial Officer of the Company, w.e.f. 16th December, 2015. Other details pertaining to the Key Managerial Personnel of the Company, their appointment / cessation during the year under review and their remuneration have been provided in the Extract of Annual Return annexed hereto and forming part of this Report. Board Meetings The Board met 5 (five) times during the financial year under review, the details of which are given in the Corporate Governance Report attached to this Report. Audit Committee Details of the composition, the terms of reference, number and dates of meetings held, attendance, etc. pertaining to the Audit Committee, constituted by the Board, are given in the Corporate Governance Report attached to this Report. All recommendations made by the Audit Committee during the year were accepted by the Board. Whistleblower Policy The Company has in place a Whistleblower Policy to deal with unethical behavior, victimisation, fraud and other grievances or concerns, if any. The aforementioned whistleblower policy is available on Company's website at the following web-link: <http://www.chini.com/Vigil_Mechanism_Policy.pdf> Nomination & Remuneration Committee Details of the composition, the terms of reference, number and dates of meetings held, attendance, etc. pertaining to the Nomination & Remuneration Committee, constituted by the Board, are given in the Corporate Governance Report attached to this Report. Policy on Selection of Directors and Remuneration The Policy on Selection of Directors and Remuneration Policy is annexed as Annexure - IV. Board evaluation Pursuant to the provisions of the Act and Regulation 17 of the Listing Regulations, the Board has carried out the evaluation of its own performance and that of its Committees as well as evaluation of performance of the Directors individually. The manner in which the evaluation has been carried out has been explained in the Corporate Governance Report attached to this Report. CSR Committee Details of the composition, the terms of reference, number and dates of meetings held, attendance, etc. pertaining to the CSR Committee, constituted by the Board, are given in the Corporate Governance Report attached to this Report. The CSR policy approved by the Board is available on Company's website at the following web-link: <http://www.chini.com/CSR_Policy.pdf>. The annual report on CSR activities is appended as Annexure - V. Inter-corporate Loans and Investments The Company has not lent out any money or made any investments or provided any guarantees during the year under review. However, the details of loan given or investment made before the financial year under review are provided in the notes to the financial statements. Related Party Transactions There have been no materially-significant related party transactions made by the Company with the promoters, the directors, the key managerial personnel which may be in conflict with the interest of the Company at large. The policy on related party transactions as approved by the Board can be accessed on the Company's website at the following web-link: <http://www.chini.com/Policy_on_> materiality_of_Related_Party_Transactions.pdf The details of related party transactions are set out in the notes to the financial statements. Risk Management Policy The policy on risk assessment and minimisation procedures laid down by the Board is periodically reviewed by the Audit Committee and the Board. The policy facilitates in identification of risks at appropriate time and ensures necessary steps to be taken to mitigate the risk. Brief details of risks and concerns are given in the Management Discussion and Analysis Report. Extract of Annual Return Extract of Annual Return in Form MGT- 9 is annexed to this Report as Annexure - VI. Material Changes and Commitments There are no material changes and commitments, affecting the financial position of the Company, between the end of the financial year of the Company i.e. 31st March, 2016 and the date of this Report. Signiicant and Material Orders There are no significant/ material orders passed by the Regulators / Courts / Tribunals which would impact the going concern status of the Company and its future operations. Internal Financial Controls The Company has in place adequate internal financial controls with reference to the financial statements. During the year, such controls were reviewed and no reportable material weakness was observed. Corporate Governance In terms of the provisions of Régulation 34(3) of the Listing Régulations, the Management Discussion and Analysis, the Corporate Governance Report and the Certificate on the compliance of conditions of Corporate Governance, forms part of the Annual Report and are given separately as Annexure - VII. Auditors Statutory Auditors and its Audit Report M/s. G. P. Agrawal & Co., Chartered Accountants, Auditors of your Company retire, and being eligible, offers themselves for reappointment. The notes on accounts referred to in the Auditors' Report are self-explanatory and therefore do not call for any further explanations/comments. Secretarial Auditors and its Audit Report Pursuant to the provisions of Section 204 of the Act, the Company has appointed M/s. MKB & Associates, Company Secretaries, to undertake the secretarial audit of the Company for the financial year 2015-16. The Secretarial Audit Report for the financial year 2015-16 is attached as Annexure - VIII and forms part of this Report. The Secretarial Audit Report does not contain any qualification, reservation or adverse remark or disclaimer. Cost Auditors and its Audit Report The cost auditors (M/s. N. Radhakrishnan & Co., Cost Accountants) appointed by the Board have submitted the Cost Audit Report within the time limit prescribed under the Act and Rules made there under. During the year under review, pursuant to Section 148 of the Act read with the Companies (Cost Records and Audit) Rules, 2014 (as amended), the Board appointed M/s. N. Radhakrishnan & Co., Cost Accountants, to conduct cost audit of the Company relating to sugar (including industrial alcohol) and electricity for the financial year ended 31st March, 2016. On the date of this Report, your directors have, on the recommendation of the Audit Committee, appointed M/s. N. Radhakrishnan & Co., Cost Accountants, as the Cost Auditors of the Company for the financial year 2016-17. As required under the Act, a resolution seeking ratification for the remuneration payable to the Cost Auditors forms part of the Notice convening the ensuing Annual General Meeting. Appreciation Your Board of Directors are thankful to various stakeholders - the Central Government, the Government of Uttar Pradesh, shareholders, customers, dealers, State Bank of India, HDFC Bank, Punjab National Bank, other banks and financial institutions, shareholders, customers, dealers and other business associates for the excellent support received from them during the year under review. Your Directors also wish to place on record their deep sense of appreciation for the committed services by your Company's employees. For and on behalf of the Board of Directors Sd/- Dr. Arvind Krishna Saxena Whole-time Director DIN - 00846939 Sd/- Vivek Saraogi Managing Director DIN – 00221419 Place: Kolkata Date: 20th May, 2016 |