The directors have pleasure in placing the directors report together
with management discussion and analysis for the financial year ended on
September 30, 2010.
FINANCIAL RESULTS AND ANALYSIS
A summary of the financial results of the Company for the year under
report is stated as under:
(Rs in mn)
Particulars Year ended Year ended
Sept 30, 2010 Sept 30, 2009
Net Sales/Income from operations 12,616 7063
Other Operating Income 570 183
Total operating income 13,187 7,246
Profit/(Loss) from Operations before (477) 578
other income and interest
Other Income 64 740
Profit/(Loss) before Interest (413) 1319
Interest and finance cost 8,47 631
Profit /(Loss) before tax (1,260) 688
Tax expense
Deferred tax benefit 513 -
Fringe benefit tax - 29
Net Profit/(Loss) after Tax (747) 717
In view of substantial business losses, and need to conserve cash, the
directors express their inability to recommend any dividend for the
year.
During the year, the business of the Company has been affected
adversely by a sudden fall in sugar prices in a short span of time.
The ex-factory prices of the sugar sold by the Company came down by 40%
between February to August 2010. The Company has been carrying large
inventories of white sugar, both from raw and cane, and unprocessed raw
sugar, including raw sugar in transit. On such sales, it had to incur
the operational losses on account of valuation of the stocks at NRV and
the net sugar realisation falling lower than the cost of production.
The valuation fall and lower realization of sugar inventory resulted in
one-time exceptional loss of nearly Rs 4 per kg, and a non recovery of
off season expenses including the interest expense.
This has adversely affected the financial ratios and created liquidity
constrains. The management is consciously aware of the situation and is
confident that despite such valuation related losses, which have been
common to the sugar industry, the measures taken by the Management, to
improve its business viability by cost controls, product improvements
and financial engineering, will improve the financial position of the
Company. It is considering the options of carrying out business
restructuring, future capitalisations, replacement of short term loans
with the long term ones etc to tie over the liquidity constrains. Your
directors are confident that the measures stated herein above, would be
sufficient to continue the businesses of the Company viable both for
short and long term.
The analysis of the balance sheet of the Company as at September 30,
2010 and profit and loss account for the year ended on that date is
reported as under:
Share capital
The following movement in the share capital has taken place during the
year:
Preference shares: 2,16,000, 8% Cumulative Redeemable Preference shares
of Rs. 100 each have been redeemed. There is no outstanding preference
share capital at the end of the year.
Equity shares: 28,140 (previous year 1,75,836) equity shares of Rs 10
each were issued and allotted under Employee Stock Option Scheme, 2007
as fully paid-up at an exercise price of Rs. 39 per equity share.
Reserves and surplus
The following movement has taken place during the year under the
reserves and surplus head:
(i) Revaluation reserve: Deduction of Rs. 0.15 crores due to
depreciation charged on re-valued amount of fixed assets.
(ii) Securities premium account: Increased by Rs. 0.08 crores on
account of issue and allotment of equity shares under ESOP at a premium
of Rs 29 per share and Rs 0.73 crores on account of reversal of premium
on buy back of USD 1.5 mn FCCBs. The securities premium amount is
further reduced by Rs 0.35 crores being the premium payable on
redemption of securities.
Total equity shareholder funds excluding revaluation reserve of the
Company reduced to Rs. 42.02 crores (previous year Rs. 116.21 crores).
The book value per equity share is Rs. 18.12 (previous year Rs. 50.16).
Secured loans
Additional foreign currency loan of Rs. 5.52 crores (previous year Rs
64.86 crores) has been taken during the year to repurchase the USD 1.50
million FCCBs. Sugar Development Fund loan of Rs 40.61 crores has been
availed during the year and Rs 5.45 crores has been repaid. Besides, a
sum of Rs 65.4 crores has been repaid to banks and other lenders.
Unsecured loans
Bought back FCCBs of USD 1.5 million (Rs 8.9 crores including premium)
during the year at an average gain of 38.5% to book value. The
outstanding FCCBs are USD 1.89 mn (Rs 11.26 crores including premium).
The Company has taken unsecured loan from directors aggregating Rs 2.56
crores as short term borrowings.
Deferred tax liabilities/assets (net)
Deferred tax asset of Rs 70.41 crores (Rs. 19.27 crores) recognised in
the accounts keeping in view that sufficient taxable income will be
available in future, against which these assets will be realized in the
normal course of business of the Company.
Fixed assets
The following movements have taken place under the head of fixed assets
during the year:
a. Capital expenditure: Capital expenditure for the year, Rs 46.56
crores include setting up a new mill at Simbhaoli sugar plant,
additions to the boilers at Chilwaria and Brijnathpur sugar division
and new bio-digester at Brijnathpur ethanol division.
b. Retirement of assets: The Company has deducted from fixed assets
Rs. 8.55 crores (previous year Rs 1.52 crores) including Rs 5.99
crores, being the exchange differences on long term monetary items
relatable to the acquisition of fixed asset.
Pre-operative expenditure
The pre-operative expenses pending allocation are nil (Previous year
Rs. 1.33 crores), after the capitalization/commissioning of concerned
capital assets.
Inventories
Inventory amounting to Rs 400.5 crores (previous year Rs 430 crores)
includes raw sugars, both at plants and ports, finished goods and
process stocks. Raw sugar in hand will be refined in following months
along with sugarcane. Loss on account of marking the value of
inventories to market price of Rs 48 crores, has been fully provided
for.
Sundry debtors
Sundry debtors (net) amounting to Rs. 72.7 crores as on September 30,
2010 (previous year Rs. 56.9 crores), are considered good and
realizable. Provisions are generally made for all debtors outstanding
for over 360 days subject to their scope of realization and depending
on the managements perception. Debtors are at 4.9% (previous year
5.7%), representing an outstanding of 18 days (previous year 20 days)
of gross revenues.
Cash and bank balance
Cash and bank balance of Rs 139.2 crores (previous year Rs 56.10
crores) includes fixed deposits of Rs 121.7 crores out of which Rs
119.5 crores are pledged with banks for securing various Letters of
credit/guarantees etc.
Current liabilities and provisions
Sundry creditors of Rs 1 lacs comprises amount due to small scale
industries, the suppliers of raw materials, stores and services and
other expenses. Other provisions include provision of Rs. 2.81 crores
(previous year Rs. 4.09 crores) towards premium on redemption of FCCBs
and Rs. 1.97 crores (previous year Rs. 1.87 crores) towards provisions
for leave encashment. Provision for taxation is reduced to Rs 2.79
crores (previous year Rs 10.65 crores) in view of lack of taxable
profits.
Sales and other income
Sales and other income (net of excise) for the year was Rs. 1325.11
crores (Previous year Rs. 798.75 crores), higher by 65.9%. The other
income comprises interest, rent, profit on sale of fixed assets,
liability/provisions no longer required to be written back and
miscellaneous earnings.
Negative EBIDTA under sugar segment is attributed to high cost of
production in 2009-10 season, high value of raw sugar and sudden fall
in sugar prices after February 2010. Negative EBIDTA under alcohol
segment is attributed to lower capacity usage, higher molasses cost and
steep discounts in potable liquor segment.
The segment wise allocation of revenues for 2009-10 and preceding three
years is as under:
(Rs. in lacs)
Years/ Sugar Alcohol Power Others
Segment Turnover %age Turnover %age Turnover %age Turnover %age
2006-07* 50,346 51.3 47,301 48.2 265 0.3 204 0.2
2007-08 30,291 45.8 33,540 50.72 1478 2.23 825 1.25
2008-09 58,909 58.8 38,739 38.8 1530 1.5 900 0.9
2009-10 110,592 74.12 36,146 24.23 2,467 1.65 -
*consisting of a period of 18 months
Accounting policies
The Companys financial statements are prepared in compliance with the
requirements of the Companies Act, 1956 and Generally Accepted
Accounting Principles. The management of the Company accepts
responsibility for the integrity and objectivity of these financial
statements, as well as for various estimates/ judgments used in
preparation of these statements. The estimates and/or judgments have
been made on a consistent, reasonable and prudent basis to reflect true
and fair picture of the state of the affairs of the Company.
Debt servicing and public deposits
The Company has been able to meet its obligations towards the lenders
for principle and interest, in terms with the respective letter of
sanctions/ approvals. During the year, the Company has not accepted any
fresh public deposit and no amount was outstanding at the end of the
year.
AUDITORS REPORT
The comments on the statement of account referred to in the report of
the auditors are self-explanatory, and explained in the appropriate
notes to accounts. The Board has taken note of the qualification made
by Auditors in their Report on Deferred Tax credit. Such credit is
taken on the judgment exercised by the Company based on the following:
1. Recent increase in sugar prices and change in business cycles.
2. Changes in the Government policies deregulating the industry
including reduction in levy quota, permitting exports, relaxing
quantitative controls on sugar and permitting procurement of ethanol
for admixing with petrol.
3. Emphasis on exports particularly export of sugar of 40,800 mt,
which the Company is entitled under its past export obligations. Export
of sugar is giving positive arbitrage over domestic price of sugar.
Further, the Company is strengthening its ENA and IMFL export related
activities and creating new markets.
4. The Company is enlarging its non cyclical business areas viz power
and potable spirits which give higher margins. Increase in power export
tariff will assist the Company to meet its plans. The new brands
introduced in IMFL segment will yield higher margins.
5. The Company, having three integrated sugar refineries, is in the
best possible position to reap benefits of changing sugar scenario.
6. The Company has developed risk assessment and mitigation skills
over the years which will result in bringing stability in its earnings
capability.
7. The Company has identified technical innovation as a key driver of
growth. Under this approach, the Company is pursuing various technical
and agricultural development models. It has created a new business
vertical, Integrated Casetech Consultants Pvt Ltd, for this purpose.
The management is confident that the above steps initiated by the
Company will have a positive impact on the Companys financial
performance, therefore, its ability to utilize the deferred tax credit
going forward in future.
DIRECTORS
At the forthcoming 74th Annual General Meeting (AGM) of the Company,
Dr. G S C Rao and Mr. Sanjay Tapriya, Directors on the Board of the
Company, are retiring by rotation and being eligible offers themselves
for re-appointment. The Company has appointed Mr. Basant Kumar Goswami
as additional director on the Board of the Company on June 11, 2010.
Mr. Goswami is a senior retired IAS Officer, who joined Indian
Administrative Service in the year 1960. He has held important
positions in various government/semi-government departments and has
been awarded many times. Mr. Goswami has been director on the board
and/or committees of various public and private limited companies in
India. He has also been actively involved in various social, charitable
and religious activities. He holds a Masters degree in English from
the University of Punjab. Mr. Goswami is an independent director
within the meaning of Clause 49 of the listing agreement with stock
exchanges. Being eligible, he offers himself for re- appointment.
ICICI Bank has withdrawn the nomination of Mr. S D Saxena with effect
from December 15, 2009. The Board of Directors places on record its
appreciation for the advices and guidance extended by the outgoing
director to the Company.
EMPLOYEE STOCK OPTION SCHEME
During the year, 28,140 (previous year 1,75,836) equity shares of Rs 10
each were issued and allotted under Employee Stock Option Scheme 2007
as fully paid-up at an exercise price of Rs. 39 per equity share in
accordance with the provisions of SEBI (Employee stock option scheme
and employee stock purchase scheme) Guidelines, 1999. The details for
stock options issued and exercised are given in Annexure A to the
report.
The scheme has been implemented in accordance with the said guidelines
and the resolutions passed by the shareholders of the Company.
FOREIGN CURRENCY CONVERTIBLE BONDS
During the year, Company has bought back FCCBs of USD 1.5 mn out of
total outstanding liability of USD 3.39 mn by raising additional
external commercial borrowings from Punjab National Bank, Hong Kong in
accordance with the guidelines issued by Reserve Bank of India. These
Bonds were the part of the USD 33 mn FCCBs issued by the Company in
2006, to part finance its growth plan.
CORPORATE GOVERNANCE
As per clause 49 of the listing agreement with the stock exchange, the
report on corporate governance along-with certificate from the auditors
and certificate from Chairman and Managing Director, Chief Executive
Officer and Chief Financial Officer form part of this annual report.
LISTING OF SECURITIES
The equity shares of the Company are listed with Bombay Stock Exchange
Limited and National Stock Exchange of India Limited. Foreign Currency
Convertible Bonds are listed with the Singapore Stock Exchange.
FOREIGN EXCHANGE EARNINGS AND OUTGO
Foreign exchange aggregating of Rs. 53.17 crores (Previous year Rs.
24.3 crores) was earned by the Company against the export of sugar and
cancellation of raw sugar contracts. A sum of Rs. 639.3 crores
(previous year Rs. 334.1 crores) inclusive of import of raw material
was spent in foreign currency.
RESEARCH AND DEVELOPMENT
The details relating to Research and Development activities carried out
by the Company are stated in Form B of this Report as required under
the Companies (Disclosure of Particulars in the Report of Board of
Directors) Rules, 1988.
CONSERVATION OF ENERGY
Details of steps taken for conserving the energy are stated in Annexure
to this report.
PARTICULARS OF EMPLOYEES
Information relating to employees of the Company, as required under
section 217(2A) of the Companies Act, 1956, read with the Companies
(Particulars of Employees) Rules, 1975, as amended is set out in the
Annexure B to this report. However, as per the provisions of section
219(b) (iv) of the Companies Act, 1956, the report and the accounts are
being sent to all the shareholders of the Company excluding the
aforesaid information. Any shareholder interested in obtaining such
information may write to the Company Secretary at the registered office
of the Company. The said information is also available for inspection
at the registered office during working hours up to the date of the
annual general meeting.
AUDITORS
The Auditors, M/s Deloitte Haskins & Sells, Chartered Accountants, New
Delhi, retire at the ensuing annual general meeting of the Company and,
being eligible, offers themselves for re-appointment. You are requested
to re-appoint the auditors for the financial year 2010-11 and fix their
remuneration.
DIRECTORS RESPONSIBILITY STATEMENT
Pursuant to the provisions of Section 217(2AA) of the Companies Act,
1956 as amended, with respect to the Directors responsibility
statement, it is hereby confirmed:
(a) that in preparation of accounts for the financial year ended on
September 30, 2010, the applicable accounting standards have been
followed along with proper explanation relating to the material
departures.
(b) that the directors of the Company 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 as at September 30, 2010 and of the
loss of the Company for the financial year ended on that date.
(c) that the directors of the Company have taken proper and sufficient
care for the maintenance of adequate accounting records in accordance
with the provisions of the Companies Act, 1956 for safeguarding the
assets of the Company and for preventing and detecting fraud and other
irregularities, and
(d) that the directors of the Company have prepared the accounts of the
Company for the year ended September 30, 2010 on going concern basis.
ACKNOWLEDGEMENT
The Board of Directors places on record their gratitude to all the
lender banks and financial institutions for their continued assistance
and guidance. The Directors acknowledge with gratitude the co operation
and assistance received from all executives, staff and workmen of the
Company.
The Directors also wish to emphatically state their gratitude to the
Government of India, State Government of Uttar Pradesh, Indian Sugar
Mills Association, and Sugar Technologist Association of India,
farmers, suppliers and all other concerned persons who have continued
their valuable support to your Company.
For and on behalf of the Board of Directors
Simbhaoli Sugars Limited
New Delhi Gurmit Singh Mann
November 29, 2010 Chairman and
Managing Director
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