Magadh Sugar & Energy Ltd Management Discussions

GLOBAL ECONOMY Overview

Global economic growth: The IMF projects global growth to stabilize at 3.1% in 2024, similar to 2023, with expectations to slightly improve to 3.2% in 2025. This growth is lower than the historical average due to continuing restrictive monetary policies, a gradual withdrawal of fiscal support, and subdued productivity growth across nations.

Advanced economies: Advanced economies are facing a slowdown, with projected growth decreasing from 2.6% in 2022 to around 1.2% in 2023, and slightly recovering to 1.7% in 2024. This is primarily due to high interest rates and other tightening monetary policies aimed at controlling inflation.

Emerging markets and developing economies: These economies are expected to perform slightly better, with growth projected at 4% in 2023 and increasing to 4.2% in 2024. China and India are significant contributors to this growth, partially offsetting weaker performance in other regions.

Inflation trends: Global inflation is forecasted to decrease, expected to drop from 6.8% in 2023 to 5.8% in 2024 and further to 4.5% in 2025. The disinflation is supported by easing supply-side issues and ongoing restrictive monetary policies.

Trade and commodity prices: Global trade dynamics are shifting, with significant changes in trade flows due to geopolitical tensions and economic policies. For example, trade volumes are adjusting, with emerging economies driving much of the demand. Commodity prices, particularly energy, have been volatile, influencing global inflation and economic strategies.

Equity markets and economic sentiment: Global equity markets have shown resilience, with significant contributions from the US, India, and Brazil. Despite economic challenges, strong corporate earnings and consumer spending have supported market performance.

Regional growth (%)	2023	2022
World output	3.1	3.5
Advanced economies	1.69	2.5
Emerging and developing economies	4.1	3.8

(Source: UNCTAD, IMF)

PERFORMANCE OF MAJOR ECONOMIES, 2023

United States:	Reported GDP growth of 2.5% in 2023 compared to 1.9% in 2022
China:	GDP growth was 5.2% in 2023 compared to 3% in 2022
United Kingdom:	GDP grew by 0.4% in 2023 compared to 4.3% in 2022
Japan:	GDP grew 1.9% in 2023 unchanged from a preliminary 1.9% in 2022
Germany:	GDP contracted by 0.3% in 2023 compared to 1.8% in 2022

(Source: PWC report, EY report, IMF data, OECD data, Livemint)

Outlook

Asias economic growth: Asia is expected to maintain strong growth, albeit with some moderation. The Asian Development Bank forecasts the regions growth at 4.8% for both 2023 and 2024, with developing Asia excluding China anticipated to grow at 4.6% in 2023 and 5.1% in 2024. This growth is supported by increased consumption, tourism, and investment as pandemic restrictions continue to ease.

Global economic resilience: The global economy has shown resilience despite high inflation and monetary tightening. However, growth is expected to slow down, with the World Bank projecting a global growth rate of 2.4% in 2024, reflecting the impacts of tight monetary policies and subdued trade and investment.

Inflation trends: Inflation within the G20 economies is expected to decline gradually as cost pressures ease. This aligns with a broader global trend where inflation is anticipated to fall, supported by unwinding supply-side issues and restrictive monetary policies. Specific forecasts for G20 inflation are not detailed in the sources, but the general trend points towards a moderation in inflation rates globally.

Regional Specifics: The East Asia and Pacific region is likely to see continued but slowing momentum, with growth expected to be robust in 2023 at 5% and slightly tapering to 4.5% in 2024. This forecast reflects a combination of enduring consumer demand and the effects of a global slowdown.

INDIAN ECONOMY Overview

The Indian economy is expected to perform robustly in the fiscal year 2023-24, with the Reserve Bank of India estimating a growth rate of 7.3%, slightly above the previous years 7.2%. This growth is supported by strong performance in sectors like manufacturing and services, despite challenges such as adverse monsoon conditions and global geopolitical tensions.

Inflation has been a significant concern, with the Consumer Price Index (CPI) averaging 5.4% over the first 11 months of FY 2023-24. Food inflation has been particularly high due to lower production and erratic weather, while core inflation has shown a decline, averaging 4.5%, thanks to the softening of global commodity prices.

The Indian rupee has shown relative stability against the US dollar throughout the year, reflecting underlying strengths in the economy despite global uncertainties. Additionally, Indias foreign exchange reserves reached a historic high of US$645.6 billion, providing a substantial buffer against external shocks.

The outlook for FY 2024-25 remains positive with projected real GDP growth at 7%, indicating sustained economic momentum. This outlook is enhanced by improvements in consumer confidence and business optimism, although the performance is not uniform across all sectors.

Overall, while there are external risks from global geopolitical tensions and economic conditions, Indias internal strengths, such as high foreign exchange reserves, strong sectoral performance, and government capital expenditure, position it well for continued economic growth.

Growth of the Indian economy

	FY 21	FY 22	FY23	FY24
Real GDP growth (%)	-6.6%	8.7	7.2	8.2

E: Estimated

Growth of the Indian economy quarter by quarter, FY 2023-24

	Q1	Q2	Q3	Q4
	FY24	FY24	FY24	FY24
Real GDP growth (%)	8.2	8.1	8.4	7.8

(Source: Budget FY24; Economy Projections, RBI projections, Deccan Herald)

Economic sectors: Key sectors driving growth include manufacturing, services, and infrastructure, with substantial government capital expenditure playing a crucial role in stimulating private investment. (RBI)

Inflation and monetary policy: Inflation has seen some fluctuation with the Consumer Price Index (CPI) rising in the latter months of 2023, primarily due to increases in food prices. However, core inflation has remained more stable, reflecting the effectiveness of monetary policy in managing price stability. (RBI)

The Indian economy has shown a robust performance in the fiscal year 2023-24, with a variety of sectors contributing to its growth, despite some challenges such as a significant monsoon shortfall.

Economic growth: Indias real GDP growth for FY 2023-24 is estimated at 7.3%, slightly up from 7.2% in the previous year. This growth is supported by a strong performance in sectors like manufacturing, which is expected to grow by 6.5%, and mining, which is projected at an 8.1% increase. The services sector, particularly financial, real estate, and professional services, are also expected to grow robustly at 8.9% (Press Information Bureau).

Agricultural sector: Despite the challenges posed by the lowest monsoon rainfall in five years, wheat production is expected to reach a record 114 million tonnes due to increased cultivation area. However, rice production is anticipated to decrease significantly to 106 million metric tons, down from 132 million metric tons in the previous year, largely due to the adverse weather conditions affecting crop yields (Press Information Bureau).

Exports and tax collections: Indias exports of goods and services are projected to reach about US$ 900 billion, with merchandise exports expected to be between US$ 495 billion and US$ 500 billion, and services exports around $400 billion. Net direct tax collections have also shown a substantial increase, up 19% to H14.71 lakh crore, indicating strong economic activity and effective fiscal management (Press Information Bureau).

Banking and financial health: The gross non-performing asset ratio for scheduled commercial banks has improved, decreasing to 3.2% as of September 2023, from 3.9% at the end of March 2023. This improvement suggests strengthening financial stability within the banking sector (Press Information Bureau).

Sector-specific growth: Other key sectors such as construction are expected to grow by 10.7% year-on-year, and public administration, defense, and other services by 7.7%. However, agricultures growth is expected to be modest at 1.8%, reflecting the impact of less favorable monsoon conditions (Press Information Bureau).

Overall, while India faces challenges such as global economic headwinds and domestic climatic conditions, its diverse and resilient economic structure allows it to maintain growth momentum across various sectors.

Outlook

India has demonstrated remarkable resilience against global economic challenges in 2023 and is well- positioned to continue its growth trajectory into 2024. It is expected to remain the fastest-growing major economy, with various forecasts suggesting a GDP growth rate of around 6.1% to 6.6% for 2024. This growth is underpinned by strong domestic demand, moderate inflation, stable interest rates, and robust foreign exchange reserves.

The countrys GDP is projected to exceed US$4 trillion by 2024-25, supported by substantial economic diversification and effective policy measures that have helped smooth out external shocks. Indias growth is also bolstered by the private sectors significant role, particularly in industries like manufacturing, which is expected to see further improvements in 2024.

Inflation is anticipated to remain within manageable levels, with the Reserve Bank of India maintaining a stable interest rate environment to support economic growth while keeping inflation in check. Retail inflation is forecasted to decline slightly to 4.8% in the financial year 2024-25. Additionally, Indias foreign exchange reserves have remained robust, crossing the $600 billion mark again in late 2023, providing a solid buffer against external vulnerabilities.

Overall, Indias economic outlook for 2024 is one of cautious optimism, with growth expected to be driven by ongoing governmental capital expenditures, improving labor market conditions, and a recovery in the services sector as the effects of the COVID-19 pandemic wane Source: (PwC), (Economic Times), (IMF), (Business Standard) .(World Bank).

INTERIM UNION BUDGET FY 2024-25

The Interim Union Budget for FY 2024-25 has placed a strong emphasis on capital expenditure, continuing the Indian governments focus on investments across several key sectors including infrastructure, solar energy, tourism, medical ecosystem, and technology. The budget highlights an 11.1% increase in capital expenditure, aligning with the governments vision to stimulate economic growth and enhance public services.

Key allocations include:

• The Ministry of Defence received the highest budget allocation at Rs 6,21,541 crore, which is about 13% of the total budgeted expenditure.

• Significant allocations were also made to other critical sectors such as road transport and highways (5.8%), Railways (5.4%), And consumer affairs, food and public distribution (4.5%).

These investments are part of a broader strategy to enhance Indias infrastructure and service sectors, aiming to boost productivity and long-term economic growth. The governments approach reflects its commitment to sustaining high growth through strategic investments in areas that are vital for the countrys development. (Sources: India Budget)

Global production: The 2023-24 global sugar production has been revised to 181.8 million tonnes, which is an increase from earlier estimates. This adjustment is mainly due to favourable weather conditions in Brazils Centre- South region, which have allowed continued high levels of cane crushing. However, overall global production is down slightly due to reduced outputs in key countries like Thailand and India, attributed to El Nino-induced dry conditions. Thailands production, in particular, is expected to be the lowest in a decade due to adverse weather conditions. (Czapp).

Global consumption: Consumption is forecasted to grow slightly, with global sugar consumption expected to be around 179 million tonnes in 2023-24. This represents a modest increase based primarily on population growth.

(Czapp).

Market dynamics: The global sugar market has experienced some fluctuations. After a dip in mid-2023, international sugar prices rebounded to their highest level since September 2011 by September 2023. These price increases were driven by concerns over a tighter global supply outlook and higher international crude oil prices. Despite this, the ample sugar supplies from Brazils 202223 crop helped to mitigate these increases, leading to a slight decrease in prices by October 2023 (World Economic Forum).

Trade projections: The initial projection for global sugar trade in 2023-24 stands at 60.7 million tonnes, slightly lower than the previous year. This decrease is largely due to anticipated reductions in exportable supplies from major exporters such as Brazil, India and Thailand (Czapp).

Overall, the global sugar sector continues to navigate through challenges such as climatic conditions and economic factors, affecting both production and prices. The sector is expected to experience continued growth in consumption, albeit at a slower rate due to economic constraints and elevated sugar prices.

PERFORMANCE OF MAJOR SUGAR PRODUCING NATIONS

United states: The U.S. is expected to maintain stable sugar production at 8.4 million tons. However, imports are forecasted to decrease by 10% to 2.8 million tons, primarily due to adjustments in quota programmes and reduced imports from Mexico (Czapp).

Brazil: Brazilian sugar production is forecasted to increase significantly, rising by 3 million tons to reach 42.3 million tons. This growth is driven by favourable weather and higher sugar prices, which encourage farmers to favour sugarcane over grains. Sugars share of the production mix is expected to increase, with ethanol making up the remainders (USDA Foreign Agricultural. Service) (Ragus).

China: Sugar production in China is expected to rise by 1 million tons to reach 10.6 million tons. This increase is supported by favourable weather conditions, enhancing sugarcane yields. Sugar consumption is anticipated to remain steady, while imports will likely rise to balance the domestic supply and demand (Ragus).

Thailand: Thailands sugar production is expected to decrease significantly by 1.7 Million tonnes to 9.4 Million tonnes due to drought conditions affecting the sugarcane growth stages. Despite this decrease, sugar consumption is expected to increase due to economic recovery and rising tourism, boosting domestic demand (Czapp).

European union: Sugar production in the EU is projected to rise by 3% in the 2023-24 season, driven by robust crops in the Eastern regions, which compensate for a decline in other areas such as France. The EU is expected to decrease its imports by 500,000 tons to 2.5 million tons (USDA Foreign Agricultural Service) (USDA Foreign Agricultural Service).

Indian sugar sector review

The Indian sugar industry is currently navigating through significant challenges and strategic shifts, particularly in the realms of production and policy:

Sugar production estimates: The Indian Sugar Mills Association (ISMA) forecasts that sugar production for the 2023-24 season will likely exceed earlier projections, reaching about 32 million tonnes. This adjustment is mainly due to better-than-expected cane yields in key producing states like Maharashtra and Karnataka (ISMA India) (Sugar Online).

Export restrictions and ethanol production: The government has extended export restrictions on sugar to ensure domestic supply ahead of national elections. There is no current consideration for allowing sugar exports despite industry pressures. This is aligned with efforts to meet internal demand and stabilize market prices (The New Indian Express). Furthermore, the government has shifted its focus toward enhancing ethanol production from sugarcane, aiming to achieve a 15% ethanol blend in gasoline by the end of 2023-24. Sugar mills are now allowed to convert an additional 800,000 tonnes of sugar for ethanol production. (IndianSugar) (India Today).

Impact on farmers and the industry: The restriction on using sugarcane juice for ethanol production and the limitations on sugar exports have put financial pressures on sugar mills, affecting their ability to make timely payments to farmers. However, the government is allowing the use of B-heavy molasses for ethanol, which could help in managing excess stock and supporting mill operations (The New Indian Express) (India Today).

These policies and production adjustments are critical as they influence the overall economic dynamics within the rural sectors where sugarcane is a major agricultural commodity. The governments strategy seems focused on balancing farmer welfare, industry sustainability, and consumer prices amidst global and climatic challenges affecting production.

Sugar Balance Sheet 2023-24	(in Million Tonnes)
Opening stock	5.2
Estimated production during sugar season FY 2023-24	31.5
Sugar availability	36.7
Estimated domestic consumption	29.0
Targeted exports during sugar season FY 2023-24	0.2
Closing stock	7.5

Source: Industry (Sugar year 2024-October 2023-September 2024)

Sugar opening stock, production, consumption and closing stock in India over the years

Year	Opening balance	Production	Consumption	Closing balance
2013-14	9.3	24.4	24.2	6.7
2014-15	6.7	28.3	24.8	9.1
2015-16	9.1	25.3	24.8	7.8
2016-17	7.8	20.3	24.6	4.0
2017-18	4.0	32.4	25.0	10.1
2018-19	10.1	32.8	25.5	13.6
2019-20	13.6	27.5	25.0	10.3
2020-21	10.3	31.2	26.1	8.4
2021-22	8.4	36.0	27.4	5.8
2022-23	5.8	33.1	27.5	5.2
2023-24	5.2	31.5	29.0	7.5

(Source: Financial express, Mordor Intelligence, Outlook India, Economic Times) Major sugar-producing states and their performance, FY 2023-24

Sl. State No.	No. of Working Factories		Actual Sugar Production (after Diversion into ethanol)
	2023-24	2022-23	2023-24	2022-23
1 Uttar Pradesh	75	97	97	89
2 Maharashtra	67	11	107	104
3 Karnataka	4	4	50	55
4 Others*	64	75	48	51
Total	210	187	302	301

Source: ISMA

Uttar Pradesh: In the 2023-24 sugar season, Uttar Pradesh saw 121 operational units crushing 920.38 lakh metric tonnes of sugarcane to produce 97.10 lakh metric tonnes of sugar, marking an increase from the previous season. In comparison, during the 2022-23 sugar season, the state had 118 mills processing 921.88 lakh metric tonnes of sugarcane, yielding 88.50 lakh metric tonnes of sugar. Uttar Pradesh witnessed a rise in the sugar recovery rate, climbing from 9.60% in 2022-23 to 10.55% in 2023-24.

Maharashtra: During the 2023-24 sugar season,

Maharashtras 207 sugar mills processed 1046.83 lakh metric tonnes of sugarcane, resulting in the production of 107.30 lakh metric tonnes of sugar, with a recovery rate of 10.25 percent as compared to the previous season, wherein 211 sugar factories crushed 1050.50 lakh metric tonnes of sugarcane, yielding 105.05 lakh metric tonnes of sugar, with a recovery rate of 10 percent in the 2022-23 sugar season.

Karnataka: Karnataka being the third-largest sugar producer, operated 76 factories, crushing 492.31 lakh metric tonnes of cane and yielding 48 lakh metric tonnes of sugar, with a recovery rate of 9.75 percent in 2023-24 sugar season. In contrast, during the corresponding period last year, 74 factories in Karnataka processed 554.46 lakh metric tonnes of cane, resulting in the production of 56 lakh metric tonnes of sugar, with a recovery rate of 10.10 percent.

Bihar: During the 2023-24 sugar season, Bihar experienced growth in its sugar production compared to the previous season. Nine operational units crushed 67.72 lakh metric tonnes of sugarcane, resulting in the production of 6.04 lakh metric tonnes of sugar. In contrast, in the 2022-23 sugar season, Bihars nine mills processed 66.29 lakh metric tonnes of sugarcane, yielding 6.27 lakh metric tonnes of sugar. In Bihar, there was slight degrowth in the sugar recovery rate. It declined from 9.46% in the 2022-23 season to 8.91% in the 2023-24 season. (Source: National Federation of Cooperative Sugar Factories Ltd)

Sugar exports (in Million Tonnes)

Year	Export
2012-13	0.4
2013-14	2.1
2014-15	1.1
2015-16	1.7
2016-17	-
2017-18	0.5
2018-19	3.8
2019-20	5.9
2020-21	7.1
2021-22	10.0
2022-23	6.1
2023-24	0.2

FAIR AND REMUNERATIVE PRICES

Sugar mills disbursed Rs 78,000 crore to sugarcane farmers during the first six months (October-March) of the current marketing season (2023-24). The sugar marketing season spans from October to September.

As of March 31 of the 2023-24 season, mills have settled 87 per cent of the total cane payment amounting to Rs 90,000 crore. During this season, mills have collectively produced over 300 lakh tonnes of sugar.

The total cane payment of Rs 90,000 crore for the October-March period of the 2023-24 season, mills have already cleared Rs 78,000 crore. Payments to farmers are based on the Fair and Remunerative Price (FRP) of Rs 315 per quintal set by the Centre for the 2023-24 marketing season, considering the recovery rate.

The sugar mills have settled 99.7% per cent of the total Rs 1.15 lakh crore cane dues from the 2022-23 season.

Outstanding cane dues from seasons prior to 2022-23 have nearly been resolved, except for those entangled in legal proceedings.

The fair and remunerative price has been decided on the basis of recommendations of the Commission for Agricultural Costs and Prices (CACP) and after discussions with State governments and other stakeholders. (Source: economictimes. com)

INDIAN ETHANOL SECTOR OVERVIEW

The capacity of Indias grain-based distilleries experienced a significant surge, increasing from 206 crore litres in 2013 to 433 crore litres. This expansion has contributed to the national ethanol production capacity reaching 1244 crore litres in 2023.

The government granted permission to sugar mills to utilize both cane juice and B-heavy molasses for ethanol production but limited sugar diversion to 17 lakh tonnes for the ongoing 2023-24 supply year. However, achieving the governments targets of 20% ethanol-blended petrol by 2024-25 and 30% by 2029-30 may face challenges due to restrictions in ethanol manufacturing from sugarcane juice in 2023-24.

In the 2023-24 ethanol supply year, domestic ethanol production is anticipated to decrease by 20%, leading to a moderation in the ethanol blending rate to less than 10% compared to 12% in the previous year. Nevertheless, ethanol supply from existing offers received by oil marketing companies from B-heavy molasses, C-heavy molasses and grains is expected to continue.

Oil marketing companies allocated 425.6 million litres of ethanol to be produced from sugarcane juice and 1.15 billion litres of B-heavy molasses for the first two quarters of the 2023-24 ethanol supply year. This allocation represents a significant decline from their tenders issued in October 2023, where they sought to procure around 8.25 billion litres of ethanol for the 2023-24 ethanol supply year, receiving offers for approximately 5.6 billion litres. Sugarcane-based ethanol constituted 2.7 billion litres of the offers, while grain-based ethanol comprised around 2.9 billion litres.

According to government data, the countrys distilleries supplied 5.02 billion litres of ethanol to oil marketing companies in 2022-23, with sugarcane-based ethanol accounting for approximately 1.42 billion litres. Out of the total ethanol used for blending in gasoline in India, approximately 61% is sourced from B-heavy molasses, 20% from sugar syrup, 11% from surplus rice, 6% from damaged food grains and maize and 2% from C-heavy molasses. (Sources: Business Standard, RIB, argus media.com)

CO-GENERATION

Sugarcane serves as a significant agricultural biomass energy source, yielding two types of biomass: sugarcane trash and bagasse. Bagasse, a residue from sugarcane processing, with 45-50% moisture content, serves as a significant biomass energy source. Sugar factories, processing 100 tonnes of sugarcane, typically generate around 30 tonnes of wet bagasse, which is commonly used as fuel. Combusting bagasse produces heat and electricity, powering entire sugar factory operations. This process is carbon-neutral, as CO2 emitted is offset by sugarcane absorption. A study funded by the Ministry of New and Renewable Energy (MNRE) has found that India has the potential to generate 28 GW of power from biomass sources, , the countrys [] sugar mills have the potential to generate an additional [] GW of power through the use of cogeneration using bagasse, a byproduct of sugar production. (Source: mnre.gov.in)

GOVERNMENT POLICIES

Sugar Development Fund: The Indian governments Sugar Development Fund (SDF) employs a loan mechanism to boost sugar cane production, offering financial aid to sugar mills for renovation and modernization, cane varietal development and initiatives for bagasse-based cogeneration, among other programs. Currently, Sugar Development Fund loans are available at a rate 200 basis points lower than the standard bank rate. In the Indian Fiscal Year (IFY) 2023-2024, approximately US$ 9.5 million (H779 million) was allocated to the sugar industry under various schemes for financial assistance, including renovations of mill distilleries for ethanol production. The budgetary allocation to sugar mills for ethanol production increased by 54 percent in FY 2023-2024 compared to FY 2022-2023.

Sugar subsidy scheme: The Indian government revised the sugar subsidy scheme for the distribution of sugar through the Antyodaya Anna Yojana program, which supports the most impoverished food plans, setting the price at Rs18.50/kg (US$ 0.24/kg) and providing 1.0 kg of sugar per family per month. Moreover, states and union territories were authorized to add additional expenses related to shipping and handling fees directly to the beneficiary, which are incurred directly to the retail issue price of Rs 13.50/kg (US$ 0.16/kg).

National Biofuel Policy: Under the 2018 National Biofuel

Policy, the Indian government established targets for the national average ethanol blend rates in automotive fuel, aiming for 10 percent by 2022 and 20 percent by 2025. The programs aim is to enhance ethanol production from sugarcane, broken grains and other feedstocks. To achieve these goals, the government is incentivizing sugar mills and distilleries to divert surplus sugar derivatives to ethanol production through the ethanol blending program. India successfully met its target, achieving a national blending average of 10.1 percent in June 2022, with further initiatives underway to achieve 20 percent ethanol blending. The Ministry of Petroleum and Natural Gas has raised procurement prices for ethanol derived from sugarcane derivatives under the EPB program for the ethanol supply year (ESY) 2022-23 (December-November). (Source: USDA)

DEMAND DRIVERS IN THE SECTOR

Population growth and market expansion: Indias recent surpassing of China as the worlds most populous nation, with an estimated 1.44 billion people as of June 2024, represents a significant milestone that indicates a potential market expansion and growth opportunities for various industries.

Governmental emphasis on ethanol production:

The Indian government has been focusing on ethanol production as part of its biofuel policy, which could reshape the agricultural and energy sectors. This emphasis involves diverting surplus sugar to ethanol production, aligning with sustainable energy goals.

Climatic advantages for sugar cultivation: Climatic conditions in South India provide an advantageous environment for sugar cultivation, with moderate temperatures that avoid extreme heat in summer and frost in winter. This could lead to increased sugar production to meet rising demands.

Rising tea production and correlated sugar demand: The increase in tea production, which saw a rise of 12.06% in October 2023 compared to the previous year, also suggests a correlating increase in sugar demand since tea and sugar consumption are closely linked.

Preference for value-added products & FMCG market potential: Theres also a rising consumer preference for value-added products, which is boosting the packaged products market across different sectors. Additionally, Indias relatively low per capita beverage consumption indicates significant growth potential for the Fast-Moving Consumer Goods (FMCG) sector.

Sweets and chocolate consumption driving sugar demand: Moreover, the growing consumption of sweets and chocolates is directly impacting the demand for sugar, further supporting the growth of the sugar industry.

Pharmaceutical sector growth trajectory: The pharmaceutical sector in India is also showing a promising trajectory, with expectations to reach a market size of US$65 billion by 2024 and potentially doubling by 2030. This growth is supported by India having the second- largest global workforce in the biotech and pharmaceutical sectors. (Source: FortuneIndia)

SWOT ANALYSIS Strengths

• India is not only the largest consumer of sugar but also the largest producer. The sugar industry plays a critical role in the economy, supporting about 50 million sugarcane farmers and providing direct employment to half a million workers. This robust domestic market and the resulting brand equity offer a solid foundation for the industry (Mordor Intel) (EMBA Pro).

• The industry benefits significantly from government support, recognizing its impact on the rural economy and providing various incentives and subsidies (Mordor Intel).

Weaknesse:

• A major issue within the industry is the prevalence of outdated machinery and technology in several mills, which hampers efficiency and productivity (EMBA Pro).

• Financial instability is another significant challenge, with many sugar mills experiencing liquidity constraints and difficulties in modernizing their operations (EMBA Pro).

• The cost of cane in India is higher than the global average, which affects competitiveness on the international stage (Mordor Intel).

Opportunities

• The Indian governments policy mandating ethanol blending presents a new revenue stream for sugar mills, allowing them to convert excess sugar into ethanol (Mordor Intel).

• Advances in agricultural technologies and practices offer the potential to improve sugarcane yields and processing efficiency, which can enhance productivity and reduce costs (Mordor Intel).

• There is an increasing demand for organic sugar, both domestically and internationally, which can be leveraged to access premium markets (Mordor Intel).

Threats

• The sugar industry is highly susceptible to climatic variations, particularly the monsoon seasons, which can significantly impact sugarcane production (EMBA Pro).

• Climate change poses a long-term risk, potentially altering rainfall patterns and increasing the frequency of extreme weather events, thereby affecting crop yields (EMBA Pro).

• Infrastructure constraints can lead to inefficiencies in the supply chain, affecting everything from cane transportation to sugar distribution (EMBA Pro).

FINANCIAL OVERVIEW

Analysis of the Profit and Loss Statement

Revenues: Revenues from operations increased from H95,341.98 lakhs in FY 2022-23 to H109658.03 lakhs in FY 2023-24.

Expenses: Total expenses increased by 7.22% from H87,813.27 lakhs in FY 2022- 23 to H94,155.80 lakhs. Raw material costs, accounting for a 82% share of the Companys revenues in FY 2023-24. Employees expenses, accounting for a 5.72% share of the Companys revenues from operations in 2023-24 from 6.47% share in FY 202223.

Analysis of the Balance Sheet

Sources of funds: The capital employed by the Company were H1,43,109 lakhs as on March 31, 2024 as against H1,27,281 lakhs as on March 31, 2023. Return on capital employed, a measurement of returns derived from every rupee invested in the business, was 13% in FY 2023-24.

The net worth of the Company was H74560.76 lakhs as on March 31, 2024 as against H63,936.66 lakhs as on March 31, 2023. The Companys equity share capital, comprising 1,40,91,630 equity shares of H10 each, remained unchanged during the year under review.

Long-term debt of the Company was H12,298.66 lakhs as on March 31, 2024. The debt-equity ratio of the Company stood at 0.85 in FY 2023- 24 compared to 0.91 in FY 202223.

Finance costs of the Company increased by 7.44% from H3,035.97 lakhs in FY 2022-23 to H3,261.74 lakhs in FY 2023-24. The Companys debt service coverage ratio stood at a comfortable 1.76x at the close of FY 2023-24 as against 1.53x at the close of FY 2022- 23.

Applications of funds: Fixed assets (gross) of the Company was H79,161.27 lakhs as on March 31, 2024 as against H78,967.41 lakhs as on March 31, 2023. Depreciation on tangible assets was H2542.54 lakhs in FY 2023-24 as against H2,519.49 lakhs in FY 2022-23 during the year under review.

Working capital management: Current assets of the Company were H80,029.67 lakhs as on March 31, 2024 as against H61,472.97 lakhs as on March 31, 2023. The Current ratio of the Company stood at 1.08 respectively at the close of FY 2023-24 compared to 1.04 at the close of FY 2022-23.

Inventories, including raw materials, work-in-progress and finished goods, among others, was H74,970.74 lakhs as on March 31, 2024 as against H56,501 lakhs as on March 31, 2023. The inventory: turnover ratio was 1.16 times as against 1.42 times in FY 2022-23. Trade receivables were H3,514.83 lakhs as on March 31, 2024 as against H3,452.70 lakhs as on March 31, 2023. All receivables were secured and considered good.

Margins: The EBIDTA margin of the Company is 19.55% in 2023- 24 while the net profit margin of the Company is 10.62%.

KEY RATIOS

Particulars	FY 2023-24	FY 2022-23
Total debt-equity ratio	0.85	0.91
Return on capital employed (%)	13.00	8.00
Earnings per share (H)	82.61	35.67
Trade receivable turnover ratio	31.45	22.88
Inventory turnover ratio	1.16	1.42
Interest coverage ratio	5.80	4.36
Current ratio (x)	1.08	1.04
Debt service coverage ratio	1.76	1.53
Net profit margin (%)	10.62	5.26

The variance and reasons for the same have been reported in the financial statements and form part of this management and discussion analysis

RISK MANAGEMENT

Geographical risk: The operational efficiency of the company could be adversely affected by the distance between the mills and cane fields.

Mitigation: The companys mills are strategically located within a 30 kilometer radius of major cane-growing regions and are interconnected by road for convenient accessibility.

Procurement risk: The procurement of sugarcane may present challenges for the company.

Mitigation: The company has established enduring partnerships with 88,500 cane farmers and has implemented several initiatives aimed at enhancing their well-being and productivity.

Quality risk: The company is susceptible to the risk of encountering sugar cane of inferior quality.

Mitigation: The company spearheaded the cultivation of early-maturing cane varieties and addressed the risk by providing subsidized insecticides and enhancing farmer education on modern farming techniques.

Financial risk: The Company may face risks related to increasing debt.

Mitigation: The company has consistently met its debt obligations on time, thereby enhancing its financial stability.

Human capital risk: The companys failure to attract and retain talent could affect its prospects.

Mitigation: The Companys well-defined human resource policy aids in both attracting and retaining talent.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

Key features of our internal control system include:

• Regular Monitoring and Updates: Our internal audit framework undergoes continuous evaluation to adapt to new challenges and opportunities. This dynamic approach ensures that our controls stay relevant and robust against evolving risks.

• Audit Committee Oversight: The Audit Committee plays a critical role in overseeing the effectiveness of internal controls. It regularly reviews internal audit reports and works closely with management to implement necessary improvements. The committee also ensures that corrective actions are taken promptly to address any identified issues.

• Collaboration with Auditors: We maintain open and transparent communication with both our statutory and internal auditors. This collaboration helps in enhancing the effectiveness of our internal controls and audit processes.

• Risk Management Integration: Our internal controls are integrated with our risk management framework, which allows for a proactive approach to risk identification, assessment, and response.

• Training and Development: We invest in continuous training and development of our internal audit team to keep them updated on the latest audit techniques and compliance requirements. This investment in our people supports the overall effectiveness of our internal controls.

By adhering to these principles, we ensure that our internal control systems are not only adequate but also aligned with best practices and industry standards, thereby supporting our business objectives and enhancing shareholder value.

HUMAN RESOURCES AND INDUSTRIAL RELATIONS

Recognizing the crucial role of its employees in its success, the Company is committed to providing them with the essential skills to adapt to technological advancements. Over the past year, it conducted a range of training programs encompassing technical, behavioral, business, leadership, customer service, safety and ethical skills. As of March 31, 2024, the Companys had a workforce of 1174.

CORPORATE SOCIAL RESPONSIBILITY

At every stage, we exhibit our commitment to environmental and social responsibility. Our goal is to positively impact the communities in which we operate - including our workforce, the public and the environment. We regularly organize medical camps, providing free medicines and emergency medical equipment to those in need. Additionally, we are contributing to the future of our nation by offering education to underprivileged children -responsibility to the environment, we actively engage in efforts for its improvement.

CAUTIONARY STATEMENT

This statement made in this section describes the Companys objectives, projections, expectation and estimations which may be forward-looking statements within the meaning of applicable securities laws and regulations.