DIRECTORS' REPORT

To the Member(s),

The Directors have pleasure in presenting before you the 22^nd Annual Report of the Company together with the Audited Statements of Accounts for the year ended 31^st March, 2017.

1. FINANCIAL RESULTS :

Your Directors are happy to report the operational results of the Company for the year ended 31^st March 2017, the details of which are as under:

(Rupees in Lakhs)

REVIEW OF OPERATIONS:

Performance during the financial year 2016-17:

Your Directors are pleased to report that during the year under review, the Company crushed 2.09 Lakh Tonnes of Sugar cane and 2.33 Lakh Quintals of Sugar was produced with an average recovery of 11.12%.

The Company registered a gross turnover of Rs, 24,777.79 Lakhs for the year ended 31^st March, 2017 against Rs, 25,457.12 Lakhs for the year ended 31^st March, 2016. For the year 2016-17, the Company earned profit of Rs, 3,983.33 Lakhs before Interest, Depreciation and Exceptional item compared to the profit of Rs, 1,748.60 Lakhs for the previous year 2015-16 and earned net profit of Rs,1,080.39 Lakhs compared to the net loss of Rs,1,352.09 Lakhs of previous year.

Prospects for the financial year 2017-18:

It is too early to estimate the sugar production for 2017-18 sugar season but good sowing reports and good water availability are indicating good sugar production for 2017-18 season compared to the 2016-17 actual production of 203 lakh tonnes.

2. ALLOTMENT OF 4% SECURED, UNLISTED NON-CONVERTIBLE DEBENTURES:

The Company has allotted 4% Secured, Unlisted Non-Convertible Debentures (NCD'S) on Private Placement basis by way of conversion of outstanding Right of Recompense (ROR) amount of Rs. 695.05 Lakhs payable to the Banks pursuant to the special resolution passed by the shareholders by way of Postal Ballot.

3. CHANGE IN THE NATURE OF BUSINESS, IF ANY:

During the period under review and the date of Board's Report there was no change in the nature of Business of the Company.

4. DIVIDEND:

As the Company has accumulated losses as at 31^st March, 2017, the Directors could not recommend dividend on Preference Shares and also on Equity Shares.

5. BOARD MEETINGS:

During the Financial year 2016-17, the Board met 6 (six) times on 20.05.2016, 13.08.2016, 29.08.2016, 11.11.2016, 16.12.2016 and 10.02.2017.

6. DIRECTORS AND KEY MANANGERIAL PERSONNEL:

During the year under review, there was an casual vacancy due to demise of Sri. S. Venkataswamy, Independent Director of the Company and Mr. Raghuraj Suresh Bhalerao was appointed as an Independent Director to fill the casual vacancy by the Board of Directors in their meeting held on 11^th November, 2016, subject to the approval of shareholders in the Annual General Meeting.

There was no change in the composition of Key Managerial Personnel.

The Company has received necessary declaration from each Independent Director of the Company under Section 149(7) of the Companies Act, 2013 that the Independent Directors of the Company meet with the criteria of their Independence laid down in Section 149(6).

7. COMMITTEES OF BOARD:

Pursuant to requirement under Companies Act, 2013 and SEBI (Listing Obligations and Disclosure Requirements), Regulations, 2015, the Board of Directors has constituted various committees of Board such as Audit Committee, Nomination and Remuneration Committee, and Stakeholders Relationship Committee. The details of Composition and terms of reference of these committees are mentioned in the Corporate Governance Report.

8. POLICY LAID DOWN BY THE NOMINATION AND REMUNERATION COMMITTEE FOR REMUNERATION OF DIRECTORS, KMP & OTHER EMPLOYEES:

Remuneration policy of the Company is performance driven and is structured to motivate Employees. Recognize their merits and achievements and promote excellence in their performance. The Nomination Remuneration and Evaluation Policy of the Company is enclosed as Annexure-I of this report.

Manner in Which Formal Annual Evaluation has been made by the Board of its Own Performance and that of its Committees and Individual Directors:

Pursuant to the provisions of the Companies Act 2013 and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 the Board has carried out evaluation of (i) its own performance, (ii) the directors individually and (iii) working of its Committees. The manner in which the evaluation was carried out as detailed below:

(a) Nomination & Remuneration Committee: Pursuant to the provisions of the Companies Act 2013 and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Nomination and Remuneration Committee has formulated the criteria for evaluation of directors and evaluated every director. A structured questionnaire was prepared after taking into consideration various parameters such as attendance and participation in meetings, monitoring corporate governance practices, independence of judgment, safeguarding the interests of the Company etc., and accordingly the evaluation was made. The Members of the Committee evaluated the individual directors at its meeting held on 10.02.2017.

The Nomination and Remuneration Committee decided that since the performance of the directors has been excellent, it is decided to continue with the term of the directors and Managing Director.

(b) Separate Meeting of Independent Directors: The Independent directors of the Company at its meeting held on 10.02.2017 (a) reviewed the performance of the Non-Independent directors and Board, (b) reviewed the performance of the Chairperson of the Company and (c) assessed the quality, quantity and timeliness of flow of information between the Company management and the Board. All the Independent Directors attended the meeting.

A structured questionnaire was prepared after taking into consideration various parameters such as attendance and participation in meetings, monitoring corporate governance practices, independence of judgment, safeguarding the interests of the Company etc., and accordingly, the evaluation was made. The Independent directors evaluated the Non-Independent directors.

The Independent Directors decided that since the performance of the Non-Independent Directors (including Managing Director) is excellent, the term of their appointment be continued.

The Independent Directors after review of the performance of the Chairperson decided that the Chairperson has good experience, knowledge and understanding of the Board's functioning and her performance is excellent. The Independent Directors decided that the information flow between the Company's Management and the Board is excellent.

(c) Evaluation by Board: The Board has carried out the annual performance evaluation of its own performance, the Directors individually (excluding the director being evaluated) as well as the evaluation of the working of its Committees. A structured questionnaire was prepared after taking into consideration various aspects of the Board's functioning such as adequacy of the composition of the Board and its Committees, effectiveness in developing Corporate Governance structure to fulfill its responsibilities, execution and performance of specific duties etc. The Board decided that the performance of individual directors, its own performance and working of the committees is excellent.

9. DIRECTOR'S RESPONSIBILITY STATEMENT:

In pursuance of section 134 (5) of the Companies Act, 2013, the Directors hereby 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 period;

(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 except for the material weakness/deficiency.

(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.

10. INFORMATION ABOUT THE FINANCIAL PERFORMANCE / FINANCIAL POSITION OF THE SUBSIDIARIES / ASSOCIATES/ JOINT VENTURES:

There are no Companies which have become or ceased to be its Subsidiaries, Joint Venture or Associate Companies during the year.

11. EXTRACT OF ANNUAL RETURN:

As required pursuant to section 92(3) of the Companies Act, 2013 and rule 12(1) of the Companies (Management and Administration) Rules, 2014, an extract of annual return in Form MGT-9 as a part of this Annual Report in Annexure II.

12. STATUTORY AUDITORS AND THEIR REPORT:

The Auditors, M/s. Deloitte Haskins & Sells, Chartered Accountants, Hyderabad retire at the ensuing Annual General Meeting and they have expressed their unwillingness for re-appointment. M/s. MOS & Associates LLP, Chartered Accountants are being appointed for a period of five years from the conclusion of this Annual General Meeting [AGM] till the conclusion of 27^th AGM. Your Board of Directors have recommended the appointment of M/s. MOS & Associates based on the recommendation of the Audit Committee to the members for their approval at the forthcoming Annual general meeting for a term of five years till the conclusion of the 27^th AGM.

The Auditors Report to the members of the Company on the financial statements for the financial Year ended 31^st March 2017 forming part of this report contain a qualified opinion on the Internal financial controls over the financial reporting stating that material weakness has been identified as at March 31, 2017 in the Company relating to deficiency in internal financial controls over financial reporting in respect of certain differences between subsystems/sub-ledgers with the General Ledger between various accounting systems and on assessment of estimating potential liability relating to a disputed matter.

13. SECRETARIAL AUDIT:

As per the provisions of the Section 204(1) of the Companies Act, 2013, the Company has appointed Mr. Y. Koteswara Rao, Practicing Company Secretary to conduct Secretarial Audit of the records and documents of the Company The Secretarial Audit Report for the Financial Year ended 31^st March, 2017 in Form No MR-3 is annexed to the Directors Report as Annexure - III and forms part of this Report. The Secretarial Auditors' Report to the Members of the Company for the Financial Year ended March 31, 2017 does not contain any qualification(s) or adverse observations.

14. CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE OUTGO:

The required information as per Sec. 134(3)(m) of the Companies Act 2013 and Rule 8(3) of Companies (Accounts) Rules, 2014 is provided hereunder:

A. Conservation of Energy:

i) The steps taken or impact on conservation of energy:

a) Harmonic filters were installed to stabilize power supply thereby to improve the efficiency of the mills.

b) Steam saving equipment installed to utilize heat energy from condensate water and evaporator vapours.

ii) Step taken by the Company for utilizing alternate source of energy:

The company doesn't have alternative source of Energy, since the Company has Co-gen power facility.

iii) Capital investment on energy conservation equipments:

During the year, there was Rs, 39.50 Lakhs investment on energy conservation equipment.

B. Technology Absorption:

i) Efforts made towards Technology Absorption:

DC drives were changed to reduce the Power consumption.

ii) The benefit derived like product improvement, cost reduction, product development or import substitution, etc.

Benefit derived by changing the DC drives will be approximately Rs, 7.5 Lakhs.

iii) Details of Technology imported during the last 3 years reckoned from the beginning of the financial year:

During the period of last three years, there was no import of Technology.

iv) Expenditure incurred on Research & Development:

There was no expenditure incurred on Research and Development.

C. Foreign Exchange Earnings and Out Go:

Foreign Exchange Earnings : NIL Foreign Exchange Outgo : NIL

15. DETAILS OF ADEQUACY OF INTERNAL FINANCIAL CONTROLS:

The Company's internal control system is aimed at proper utilisation and safeguarding of the Company's resources and promoting operational efficiency. The internal audit process reviews the in-system checks, covering significant operational areas regularly.

The Company's Audit Committee is responsible for reviewing the Audit Report submitted by the Internal Auditors. Suggestions for improvements are considered and the Audit Committee follows up on the implementation of corrective actions. The Audit Committee also invites the Statutory and Internal Auditors for regular meetings to ascertain their views on the adequacy of internal control systems and keeps the Board of Directors informed of its observations from time to time.

The statutory auditors had a qualified opinion on the Internal financial controls over the financial reporting stating that material weakness has been identified as at March 31, 2017 in the Company relating to deficiency in internal financial controls over financial reporting in respect of certain reconciliations between various accounting systems and on assessment of estimating potential liability relating to a disputed matter.

The Company uses various subsystems, the output from which is being used for accounting in the financial package maintained by the Company. Consequent to certain deficiencies in IT General and Application controls in the software platforms used for financial reporting, there were differences in balances between sub-systems / sub- ledgers with the general ledger, which have been manually reconciled by the Company. Whilst necessary adjustment entries were passed in the books of account for the year ended 31^st March 2017, and these material weakness did not affect on the financial statements, except assessment of estimating the liability on a disputed matter. The management is of the view that the Electricity Duty payable on Captive Consumption is a contingent in nature and no provision is required to be made.

16. PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS:

LOANS:

The Company has not given any loans during the year under review.

GUARANTEES:

After the closure of Financial year and as on the date of Board's Report the Company has extended the following guarantees :

The Guarantees given by the Company for availing loans from the Banks is not considered, since the liability is already appearing in the Books of Accounts.

INVESTMENTS:

The Company has not made any investments during the period under review.

17. MANAGEMENT DISCUSSION AND ANALYSIS REPORT:

Management Discussion and Analysis Report is annexed which forms part of this Report as Annexure -IV.

18. RISK MANAGEMENT POLICY:

The Company has been addressing various risks impacting the Company and developed risk policy and procedures to inform Board members about the risk assessment and minimization procedures.

19. WHISTLE BLOWER POLICY/VIGIL MECHANISM:

Pursuant to Section 177 of the Companies Act, 2013 and the Rules framed there under and pursuant to SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 the Company has established a mechanism through which all the stakeholders can report the suspected frauds and genuine grievances to the appropriate authority. The Whistle Blower Policy which has been approved by the Board of Directors of the Company has been hosted on the website of the Company at http://www.gayatrisugars.com/Investors/Corporate Governance/Policies.

20. DISCLOSURE AS PER SECTION 22 OF SEXUAL HARASSMENT OF WOMEN AT WORKPLACE (PREVENTION, PROHIBITION AND REDRESSAL) ACT, 2013:

Pursuant to the requirements of Section 22 of Sexual Harassment of Women at Workplace (Prevention, Prohibition & Redressal) Act, 2013 read with Rules there under, the Company has not received any complaint of sexual harassment during the year under review.

21. CORPORATE SOCIAL RESPONSIBILTY POLICY:

Corporate Social Responsibility pursuant to Section 135 of the Companies Act, 2013 is not applicable and hence the Company need not adopt any Corporate Social Responsibility Policy but the Company is involved in some of the social activities like organizing health camps, providing drinking water facility and fumigation in the nearby villages of the factories.

22. SIGNIFICANT & MATERIAL ORDERS PASSED BY THE REGULATORS:

(i) Demand of Rs, 1,38,81,669/- was raised by the Commissioner of Customs, Central Excise & Service Tax, Hyderabad-1 Commission rate, being the amount equal to 10% or 5% of the value of Exempted goods i.e Electricity sold by the company for the period Nov-2006 to Dec-2010 in the case of Kamareddy Unit and for the period March-2006 to March-2012 in the case of Nizamsagar Unit.

Electricity is not an exempted product and as such the provision of rule 6(1), 6(2) and 6(3) of CCR 2004 are not applicable. The CENVAT credit availed on common inputs and utilized in the production of Electricity is required to be reversed to the extent of such inputs / input services utilized in generation of Electricity. Since the company reversed the CENVAT credit to the extent of such value utilized in electricity generation, the demand under rule 6(1), 6(2) & 6(3) of the CCR, 2004 is not sustainable in law in the light of the judicial decisions by various H'ble tribunals.

The requirement of pre deposit of the balance dues is waived and stay against recovery is granted during the pendency of the appeal by the Customs, Excise & Service Tax Appellate Tribunal (CEASTAT), Bangalore.

23. CONTRACTS OR ARRANGEMENTS WITH RELATED PARTIES:

The policy on dealing with Related Party Transactions is disseminated on the website of the company at http://www.gayatrisugars.com/Investors/ Corporate Governance/Policies.

The details of Related Party Transactions entered by the company in the ordinary course of business at arm’s length basis are detailed in the notes forming part of the financial statements.

24. FIXED DEPOSIT:

Your Company has not accepted or renewed any deposit from public during the year under review.

25. DISCLOSURE ABOUT COST AUDIT:

As per section 148 of the Companies Act, 2013 and rule 14 of the Companies (Audit and Auditors) Rules, 2014, Company requires to appoint Cost Auditor. The Board of directors and the Audit Committee of the Board has approved the appointment of M/s. Narasimha Murthy & Co., as Cost Auditor to audit the cost records of Sugar, Power and Distillery division of the Company for the financial year 2017-18 the same has been proposed to the shareholders for approval.

26. PARTICULARS OF EMPLOYEES:

Details in respect of remuneration paid to employees as required under Section 197 (12) of the Companies Act, 2013, read with Rule 5(2) & (3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, as amended forms part of this report. In terms of Section 136 of the Companies Act, 2013 the same is open for inspection at the Registered Office of the Company. Copies of this statement may be obtained by the members by writing to the Company Secretary at the Registered Office of the Company.

The ratio of the remuneration of each Director to the median employee's remuneration and other details in terms of Section 197(12) of the Companies Act, 2013 read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, are enclosed in Annexure - V and forms part of this Report.

27. LISTING WITH STOCK EXCHANGES:

The Company confirms that it has paid the Annual Listing Fees for the year 2017-2018 to Bombay Stock Exchange where the Company's Shares are listed.

28. CORPORATE GOVERNANCE AND SHAREHOLDERS INFORMATION:

Your Company has taken adequate steps to adhere to all the stipulations laid down in Regulation 34 read with Schedule V of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. A report on Corporate Governance is included as a part of this Annual Report as Annexure -VI. Certificate from the practicing Company Secretary confirming the compliance with the conditions of Corporate Governance as stipulated under aforesaid regulations is attached to this report.

29. ACKNOWLEDGEMENTS:

Your Directors would like to acknowledge and place on record their sincere appreciation to all stakeholders, clients, financial institutions, Banks, Central and State Governments, the Companies' valued investors and all other business partners for their continued co-operation and excellent support received during the year.

Yours Directors recognize and appreciate the efforts and hard work of all the employees of the Company and their continued contribution to its progress.

For and on behalf of the Board

(T. SARITA REDDY) (T.V. SANDEEP KUMAR REDDY)

Managing Director Vice Chairman

DIN: 00017122 DIN: 00005573

(V.R. PRASAD) (MUNMUN BAID)

Chief Financial Officer Company Secretary &

Compliance Officer

Place : Hyderabad

Date : 29^th May, 2017