dhampur sugar mills ltd Management discussions

Global economic overview

Overview: The global economic growth was estimated at a slower 3.2% in 2022, compared to 6% in 2021 (which was on a smaller base of 2020 on account of the pandemic effect). The relatively slow global growth of 2022 was marked by the Russian invasion of Ukraine, unprecedented inflation, pandemic-induced slowdown in China, higher interest rates, global liquidity squeeze and quantitative tightening by the US Federal Reserve.

The challenges of 2022 translated into moderated spending, disrupted trade and increased energy costs. Global inflation was 8.7% in 2022, among the highest in decades. US consumer prices increased about

6.5% in 2022, the highest in four decades. The Federal Reserve raised its benchmark interest rate to its highest in 15 years. The result is that the world ended in 2022 concerned that the following year would be slower. The global equities, bonds and crypto assets reported an aggregated value drawdown of US$26 trillion from peak, equivalent to 26% of the global gross domestic product (GDP). In 2022, there was a concurrently unique decline in bond and equity markets; 2022 was the only year when the S&P 500 and 10-year US treasuries delivered negative returns of more than 10%. Gross FDI inflows – equity, reinvested earnings and other capital – declined 8.4% to $55.3 Billion in April-December. The decline was even sharper in the case of FDI inflows as equity: these fell 15% to $36.75 Billion between April and December 2022. Global trade expanded by 2.7% in 2022 (expected to slow to 1.7% in 2023). The S&P GSCI TR(Global benchmark for commodity performance) fell from a peak of 4,319.55 in June 2022 to 3495.76 in December 2022. There was a decline in crude oil, natural gas, coal, lithium, lumber, cobalt, nickel and urea realisations. Brent crude oil dropped from a peak of around US$ 120 per barrel in June 2022 to US$ 80 per barrel at the end of the calendar year following the enhanced availability of low-cost Russian oil.

Regional growth (%)	2022	2021
World output	3.2	6.1
Advanced economies	2.5	5
Emerging and developing economies	3.8	6.3

Performance of major economies

• United States: Reported GDP growth of 2.1% compared to 5.9% in 2021 • China: GDP growth was 3% in 2022 compared to 8.1% in 2021.

• United Kingdom: GDP grew by 4.1% in 2022 compared to 7.6% in 2021 • Japan: GDP grew 1.7% in 2022 compared to 1.6% in 2021 • Germany: GDP grew 1.8% compared to 2.6% in 2021

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

Outlook

The global economy is expected to grow 2.8% in 2023, influenced by the ongoing Russia-Ukraine conflict. Concurrently, global inflation is projected to fall marginally to 7%. Despite these challenges, there are positive elements within the global economic landscape. The largest economies like China, the US, the European Union, India, Japan, the UK, and South Korea are not in a recession. Approximately 70% of the global economy demonstrates resilience, with no major financial distress observed in large emerging economies. The energy shock in

Europe did not result in a recession, and significant developments, including Chinas progressive departure from its strict zero-Covid policy and the resolution of the European energy crisis, fostered optimism for an improved global trade performance. Despite high inflation, the US economy demonstrated robust consumer demand in 2022. Driven by these positive factors, global inflation is likely to be still relatively high at 4.9% in 2024. Interestingly, even as the global economy is projected to grow less than 3% for the next five years, India and China are projected to account for half the global growth (Source: IMF).

Indian economic overview

Overview: Even as the global conflict remained geographically distant from India, ripples comprised increased oil import bills, inflation, cautious government and a sluggish equity market. Indias economic growth is estimated at 7.2% in FY 2022-23. India emerged as the second fastest-growing G20 economy in FY 2022-23. India overtook UK to become the fifth-largest global economy. India surpassed China to become the worlds most populous nation (Source: IMF, World Bank)

Growth of the Indian economy

	FY 20	FY 21	FY 22	FY23
Real GDP growth(%)	3.7	-6.6%	8.7	7.2

Growth of the Indian economy quarter by quarter, FY 2022-23

	Q1FY23	Q2FY23	Q3FY23	Q4FY23
Real GDP growth (%)	13.1	6.3	4.4	6.1

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

According to the India

Meteorological Department, the year 2022 delivered 8% higher rainfall over the long-period average. Due to unseasonal rains, Indias wheat harvest was expected to fall to around 102 Million metric Tonnes (MMT) in FY 2022-23 from 107 MMT in the preceding year. Rice production at 132 Million metric Tonnes (MMT) was almost at par with the previous year. Pulses acreage grew to 31 Million hectares from 28 Million hectares. Due to a renewed focus, oilseeds area increased 7.31% from 102.36 Lakh hectares in FY 2021-22 to 109.84 Lakh hectares in FY 2022-23. Indias auto industry grew 21% in FY23; passenger vehicle (UVs, cars and vans) retail sales touched a record 3.9 Million units in FY23, crossing 3.2 Million units in FY19. The commercial vehicles segment grew 33%. Two-wheeler sales fell to a seven-year low; the three-wheeler category grew 84%. Till the end of Q3FY23, total gross non-performing assets (NPAs) of the banking system fell to 4.5% from 6.5% a year ago. Gross NPA for FY23 was expected to be 4.2% and a further drop is predicted to 3.8% in FY2023-24. As Indias domestic demand remained steady amidst a global slowdown, import growth in FY23 was estimated at 16.5% to $714 Billion as against $613 Billion in FY22. Indias merchandise exports were up 6% to $447 Billion in FY23. Indias total exports (merchandise and services) in FY23 grew 14% to a record of $775 Billion in FY23 and are expected to touch $900 Billion in FY24. Till Q3 FY23, Indias current account deficit, a crucial indicator of the countrys balance of payments position, decreased to $18.2 Billion, or 2.2% of GDP. Indias fiscal deficit was estimated in nominal terms at ~ H17.55 Lakh crore and 6.4% of GDP for the year ending March 31, 2023. (Source: Ministry of Trade & Commerce) Indias headline foreign direct investment (FDI) numbers rose from US$74.01 Billion in FY 2021 to a record $84.8 Billion in FY 2021-22, a 14% Y-o-Y increase, till Q3FY23. India recorded a robust $36.75 Billion of FDI. In FY 2022-23, the government was estimated to have addressed 77% of its disinvestment target (H50,000 crore against a target of H65,000 crore).

Indias foreign exchange reserves, which had witnessed three consecutive years of growth, experienced a decline of approximately $70 Billion in FY 2022, primarily influenced by rising inflation and interest rates. Starting from $606.47 Billion on April 1, 2022, reserves decreased to $578.44 Billion by March 31, 2023. The Indian currency also weakened during this period, with the exchange rate weakening from H75.91 to a US dollar to H82.34 by March 31, 2023, driven by a stronger dollar and increasing current account deficit. Despite these factors, India continued to attract investable capital. The countrys retail inflation, measured by the consumer price index (CPI), eased to 5.66% in March 2023. Inflation data on the Wholesale Price Index, WPI (calculates the overall price of goods before retail) eased to 1.3% during the period. In 2022, CPI hit its highest of 7.79% in April; WPI reached its highest of 15.88% in May 2022. By the close of the year under review, inflation had begun trending down and in April 2023 declined below 5%, its lowest in months.

Indias total industrial output for FY23, as measured by the Index of Industrial Production or IIP, grew 5.1% year-on-year as against a growth of 11.4% in FY 2021-22. India moved up in the Ease of Doing Business (EoDB) rankings from 100th in 2017 to 63rd in 2022. As of March 2023, Indias unemployment rate was 7.8%. In FY 2022-23, total receipts (other than borrowings) were estimated at 6.5% higher than the Budget estimates. Tax-GDP ratio was estimated to have improved by 11.1% Y-o-Y in RE 2022-23. The total gross collection for FY23 was H18.10 Lakh crore, an average of H1.51 Lakh a month and up 22% from FY22, Indias monthly goods and services tax (GST) collections hit the second highest ever in March 2023 to H1.6 Lakh crore. For FY 2022–23, the government collected H16.61 Lakh crore in direct taxes, according to data from the Finance Ministry. This amount was 17.6% more than what was collected in the previous fiscal. Per capita income almost doubled in nine years to H172,000 during the year under review, a rise of 15.8% over the previous year. Indias GDP per capita was 2,320 US$ (March 2023), close to the magic figure of $2500 when consumption spikes across countries. Despite headline inflation, private consumption in India witnessed continued momentum and was estimated to have grown 7.3% in FY 2022-23.

Outlook

There are green shoots of economic revival, marked by an increase in rural growth during the last quarter and appreciable decline in consumer price index inflation to less than 5% in April 2023. India is expected to grow around 6-6.5% (as per various sources) in FY2024, catalysed in no small measure by the governments 35% capital expenditure growth by the government. The growth could also be driven by broad-based credit expansion, better capacity utilisation and improving trade deficit. Headline and core inflation could trend down. Private sector investments could revive. What provides optimism is that even as the global structural shifts are creating a wider berth for Indias exports, the country is making its largest infrastructure investment. This unprecedented investment is expected to translate into a robust building block that, going ahead; moderates logistics costs, facilitates a quicker transfer of products and empowers the country to become increasingly competitive. This can benefit Indias exports in general, benefiting several sectors. The construction of national highways in FY 2022-23 was 10,993 kilometres; the Ministry of Road Transport and Highways awarded highway contracts of 12,375 Km in the last financial year (Source: IMF). The global landscape favours India: Europe is moving towards a probable recession, the US economy is slowing, Chinas GDP growth forecast of 4.4% is less than Indias GDP estimate of 6.8% and America and Europe are experiencing its highest inflation in 40 years.

Indias production-linked incentive appears to catalyse the downstream sectors. Inflation is steady. India is at the cusp of making significant investments in renewable energy and other sectors and emerging as a suitable industrial supplement to China. India is poised to outpace Germany and Japan and emerge as the third-largest economy by the end of the decade. The outlook for private business investment remains positive despite an increase in interest rates. India is less exposed to Chinese economic weakness, with much less direct trade with China than many Asian peers.

Broad-based credit growth, improving capacity utilisation, governments thrust on capital spending and infrastructure should bolster investment activity. According to our surveys, manufacturing, services and infrastructure sector firms are optimistic about the business outlook. The downside risks are protracted geopolitical tensions, tightening global financial conditions, and slowing external demand.

Union Budget FY 2023-24 provisions

The Budget 2023-24 sought to lay the foundation for the future of the Indian economy by raising capital investment outlay by 33% to H10 Lakh crores, equivalent to 3.3% of GDP and almost three times in FY 2019-20 outlay, through various projects like PM Gatishakti, Inclusive Development, Productivity Enhancement & Investment, Sunrise Opportunities,

Energy Transition and Climate Action, as well as Financing of Investments. An outlay of H5.94 Lakh crore was made to the Ministry of Defence (13.18% of the total Budget outlay). An announcement of nearly H20,000 crores was made for the PM Gati Shakti National Master Plan to catalyse the infrastructure sector. An outlay of H1.97 Lakh crore was announced for Production Linked Incentive schemes across 13 sectors. The Indian government intends to accelerate road construction in FY24 by 16-21% to 12,000-12,500 Km. The overall road construction project pipeline remains robust at 55,000 Km across various execution stages. These realities indicate that a structural shift is underway that could strengthen Indias positioning as a long-term provider of manufactured products and its emergence as a credible global supplier of goods and services.

(Source: Ragus, usda.gov)

Overview of the global sugar industry

The International Sugar

Organization (ISO) released data on Sugar Season 2022-23, indicating that global sugar production is projected to reach 180.431 MT. This figure was revised downwards from a previous estimate of 182.14 MT due to various factors, including disappointing EU harvest results and truncated UK beet harvests caused by cold temperatures and heavy snowfall in mid-December. In addition, sugar yields from

India were lower than anticipated, with only 35.5 MT being produced compared to the earlier estimate. Global consumption is expected to reach a record, driven by growth in markets such as China, Indonesia, and Russia. It is anticipated that the global sugar consumption in FY 2022-23 would surpass 176 Million tonnes, reaching an all-time high. This represents an increase of nearly 3 Million tonnes compared to the previous year, which was impacted by the Covid-19 pandemic. Exports were projected to increase, as the decrease in Indias exports is offset by higher exports from Brazil and Thailand. Stocks were estimated to decrease, as the growth in global consumption surpassed the increase in production. Among major exporters, China was predicted to import less and instead rely on its own stocks for consumption, while Indias reduced production was expected to decrease its stocks. Thailand was also expected to decrease its stocks to meet the high demand for exports.

(Source: Ragus, usda.gov)

Performance of key sugar producing countries

Brazil: Brazils sugar production is projected to increase by 2.6 Million Tonnes to 38.1 Million Tonnes due to favorable weather conditions leading to higher sugarcane yields. However, the area of sugarcane harvested is expected to decrease as some areas shift to growing soybeans and corn. The ratio of sugar to ethanol production is predicted to remain at 45% sugar and 55% ethanol, as producers are expected to continue to prioritize sugar production. Domestic consumption is expected to stay the same while exports are forecast to increase with the higher availability of supplies. Stocks are projected to double as a result of the increase in production.

Thailand: Thailands sugar production is projected to increase by 343,000 Tonnes to 10.5 Million Tonnes. Domestic consumption is expected to rise as the economy recovers from the pandemic-induced recession, driven by an improvement in business activity and the return of foreign tourists, which will boost the hotel and food service sectors. Exports are forecast to increase as well, due to the higher availability of exportable supplies. However, stocks are expected to decrease significantly as a result of the strong exports.

European Union: Sugar production in the European Union is forecasted to decrease by 329,000 Tonnes to 16.2 Million Tonnes as farmers have shifted to growing more profitable crops such as corn and sunflower instead of sugar beet. Domestic consumption and imports are expected to remain the same while exports and stocks are projected to decrease due to the lower availability of supplies.

U.S.: Sugar production in the United States is forecasted to remain unchanged at 8.2 Million Tonnes. Imports are projected to decrease by 6% to 3.1 Million Tonnes due to minimum levels set by World Trade Organization, free-trade agreement obligations, expected imports from Mexico, re-exports and high-tier tari_ imports. Domestic consumption is expected to remain the same while stocks are forecasted to decrease due to the decline in production and imports. (Source: usda.gov)

Indian sugar sector overview

The forecast for Indian sugar production has been adjusted downward from an initial projection of 36.5 Million tonnes to a range of 34-35.5 Million tonnes, primarily due to reduced yields in the states of

Maharashtra and Karnataka. Given the domestic consumption rate of 27.5 Million tonnes, the projected ending inventory for FY 2022-2023 year is anticipated to be between 6-6.3 Million tonnes which is higher than the previous years 5.7 Million tonnes. This increase in inventory is expected to result in a higher closing stock-to-use ratio from 21% in FY 2021-2022 to 23% in FY 2022-2023. Despite this, domestic sugar prices are expected to remain stable due to ample availability and may fluctuate depending on any additional export quota allocation. Indian sugar producers have experienced favorable prices for the 6 Million tonne export quota previously announced and the industry anticipates an additional export quota of 1-2 Million tonnes to be released in the coming months. In FY 2022-23 SS, the total area of sugarcane cultivation in the country is expected to be around 59 Lakh hectares, a 6% increase from the previous years 56 Lakh hectares. The sugar industry in India has become a focal point for socio-economic development in rural areas by utilizing local resources, providing jobs and increasing farm income. The sugar industry plays a significant role in creating employment opportunities in rural areas, both directly and through its associated industries. It is estimated that around 50 Million farmers and their dependents are involved in growing sugarcane and about half a Million skilled and unskilled workers are employed in sugar factories and related industries.

(Source: Reuters.com, nfsm.gov. in)

Sugar balance sheet 2022-23

(in Million Tonnes)

Opening stock	5.7
Estimated production during sugar season FY 2022-23	35.0
Sugar availability	40.7
Estimated domestic consumption	27.5
Targeted exports during sugar season FY 2022-23	7
Closing stock	6.2

Source: Industry (Sugar year 2023-October 2022-September 2023)

Sugar opening stock, production, consumption and closing stock in India over the years (in Million Tonnes)

Year	Opening balance	Production	Consumption	Closing balance
2012-13	6.60	25.1	22.8	9.3
2013-14	9.3	24.4	24.2	7.47
2014-15	7.47	28.3	25.6	9.08
2015-16	9.08	25.1	24.8	7.75
2016-17	7.75	20.3	24.5	3.88
2017-18	3.38	32.5	25.4	10.72
2018-19	10.72	33.16	26	14.5
2019-20	14.5	27.4	25.3	10.7
2020-21	10.7	30.8	26	8.5
2021-22	8.5	36	27.5	7
2022-23	5.7	35.0	27.5	6.2

(Source: Financial express, Mordor Intelligence, Outlook India, Economic Times)

Top sugar-producing states and their performance, FY 2022-23

Uttar Pradesh: Uttar Pradesh is projected to have an area of 23.08 Lakh hectares in FY 2022-23 dedicated to sugarcane cultivation, which is a 3% increase from the previous years 23.01 Lakh hectares. As a result, the projected sugar production before diversion is expected to be 123 Lakh Tonnes, compared to 114 Lakh Tonnes in the previous year. Additionally, the estimated actual sugar production after diversion is expected to be 365 Lakh Tonnes in FY 2022-23, as opposed to 102 Lakh Tonnes in FY 2021-22.

Maharashtra: Maharashtras sugarcane acreage is expected to rise by 7% to 14.5 Lakh hectares from 13.5 Lakh hectares in the previous year. As a consequence, the projected sugar production before diversion in FY 2022-23 is forecasted to reach 150 Lakh Tonnes compared to 149 Lakh tones in FY 2021-22. Furthermore, the estimated actual sugar production after diversion is expected to be 365 Lakh Tonnes in FY 2022-23 compared to 137 Lakh Tonnes in the previous year.

Karnataka: The area of sugarcane cultivation in Karnataka will grow by 11% to reach 6.5 Lakh hectares in FY 2022-23 in comparison to 5.9 Lakh hectares in FY 2021-22. Furthermore, the projected sugar production before diversion is expected to be 70 Lakh Tonnes in FY 2022-23 as opposed to 68 Lakh Tonnes in the previous year. Additionally, the estimated actual sugar production after diversion is expected to be 365 Lakh Tonnes in FY 2022-23, compared to 60 Lakh Tonnes in FY 2021-22.

(Source: chinimandi.com)

It is projected that the net sugar production in FY 2022-23 sugar season, before considering any diversion towards ethanol production, will be approximately 5% higher at 410 Lakh Tonnes, compared to the 392 Lakh Tonnes produced in the previous years 2021-22 sugar season.

Sugar exports and imports

India retains its position as the leading producer of sugar globally and the second largest exporter of the sweetener. India has entered into agreements to export approximately 35 Lakh tonnes of sugar during the ongoing FY 2022-23 season out of which 2 Lakh tonnes have already been shipped in October 2022 as compared to the same month in the previous year which was around 4 Lakh tonnes. The sugar export policy for FY 2022-23 permitted the export of 60 Lakh tonnes of sugar on a quota basis until May 31. Additional quantities for export will be considered after evaluating domestic production.

Many merchants entered into agreement for exporting sugar during the FY 2022-23 sugar season before the offcial announcement of the export policy by the government. Subsequently, there has been an upward movement in the global prices of sugar which has led to sugar mills reevaluating and adjusting the export contract prices. The process of crushing sugarcane has started in the current FY 2022-23 season. By 15th November of the FY 2022-23 SS, mills have generated 19.9 Lakh tonnes of sugar which is slightly less than the 20.8 Lakh tonnes produced during the same period in the previous year.

(Source: Economic Times)

Sugar exports (in Million Tonnes)

Year	Export
2011-12	2.99
2012-13	0.35
2013-14	2.13
2014-15	1.1
2015-16	1.66
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

Fair and remunerative prices

The Cabinet Committee on Economic Affairs has approved the Fair and Remunerative Price (FRP) for sugarcane for FY 2022-23 sugar season (October - September) to be set at H305 per quintal for sugarcane with a basic sugar recovery rate of 10.25%. Additionally, a bonus of H3.05 per quintal will be given for each 0.1% increase in sugar recovery above 10.25% and the FRP will be reduced by H3.05 per quintal for every 0.1% decrease in recovery. The government announced that the cost of production of sugarcane for FY 2022-23 season, including actual paid out cost and imputed value of family labor is H162 per quintal. The approved FRP of H305 per quintal at a recovery rate of 10.25% is 88.3% more than the cost of production, ensuring a profit margin of more than 50% for farmers. The FRP for FY 2022-23 sugar season is 2.6% higher than the previous season, FY 2021-22.

(Source: The Hindu)

FRP over the years (in H)

Year	FRP
2011-12	139
2012-13	145
2013-14	170
2014-15	210
2015-16	220
2016-17	230
2017-18	255
2018-19	275
2019-20	275
2020-21	285
2021-22	290
2022-23	305

(Source: The Hindu)

Minimum support prices

The Indian Sugar Mills Association (ISMA) has requested the government to raise the minimum support price (MSP) of sugar from its current level of H 31 per Kg to a minimum of H 36-37 per Kg in alignment with the fair and remunerative price (FRP) of sugarcane. The last time MSP of sugar was announced in February 2019. The Minimum Support Price (MSP) was implemented to prevent financial losses for sugar mills and restrictions on monthly stockholding are in place to maintain balance between supply and demand in the domestic market.

(Source: Financial express, The Hindu Business Line)

Indian ethanol sector overview

The Indian ethanol sector reached a volume of around 3200 thousand tonnes in the fiscal year 2022 and is expected to grow at a CAGR of 5.64% during the forecast period until the fiscal year 2035. This growth is driven by increased consumption of Ethanol in fuel additives and beverages. Additionally, significant investments by the Indian government in converting excess sugar to ethanol, along with the governments goal to establish an ethanol economy, will further boost the demand for ethanol in the forecast period.

The Indian ethanol sector is expected to experience significant growth in the forecast period due to the implementation of the National

Biofuel Policy 2018, which aims to increase ethanol blending from the current rate of 2-3% to 10% by 2022 and 20% by 2025. In the past five years, the Indian government has been promoting the expansion of ethanol capacity to decrease its reliance on imported crude oil and convert excess sugar inventories into ethanol production. These factors will contribute to the ethanol market in India reaching a volume of around 6400 thousand tonnes by the fiscal year 2035.

India will require an annual consumption of 10 Billion liters of ethanol to meet its target of 20% blending by 2025, and an additional 3-4 Billion liters for the liquor and chemical industries, bringing the total demand to 14 Billion liters per year. The potential success of flex-fuel vehicles could increase ethanol demand in India to 30 Billion liters per year, similar to the levels seen in Sao Paulo, Brazil, where 66% of fuel consumption is ethanol and 33% is petrol. To meet this growing demand, India must increase cane production, develop alternate crops such as corn and sweet sorghum, and implement second generation ethanol production from agricultural waste to increase blending beyond 20%. However, there are some delays in the execution of grain-based capacity and industry experts estimate that two third of ethanol supply will come from sugar-based distilleries and one third will come from grain-based, as opposed to the 50:50 mix projected by NITI Aayog.

(Source: Chemanalyst)

Co-generation

Sugarcane is a major agricultural source of biomass energy. It produces two types of biomass, including sugarcane trash and bagasse. Bagasse is the remaining fibrous material left after the milling process, with a moisture content of 45-50%. It is a combination of hard fibers and soft, smooth tissue that has a high water-absorbing property. For every 100 Tonnes of sugarcane processed, a sugar factory produces about 30 Tonnes of wet bagasse. This fibrous residue is commonly utilised as a primary source of fuel for sugar mills. When combusted in large quantities, it generates significant amounts of heat and electricity to power the entire operations of a typical sugar factory. When sugarcane is processed, it leaves behind a residue called bagasse. This fibrous material, which is about 45-50% moisture and made up of a combination of hard fibers and soft, smooth tissue, is often used as fuel in sugar mills. Burning bagasse in large quantities generates heat and electricity, providing all the energy needed to run the mill. Additionally, the CO2 emitted during this process is equal to the amount absorbed by the sugarcane during growth, making the process of creating electricity from bagasse carbon-neutral.

The estimated quantity of biomass obtainable in India at present is around 750 Million metric tonnes per annum. India has successfully attained its goal of generating 10 gigawatts of power from biomass sources by 2022, with a current installed capacity of 10.17 GW. 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. Additionally, it is estimated that by utilizing technically and financially optimal methods, the countrys 550 sugar mills have the potential to generate an additional 14 GW of power through the use of cogeneration using bagasse, a byproduct of sugar production.

(Source: mnre.gov.in)

Government initiatives

The government has set specific sugar export quotas for the SS 2022-23 season based on average production of each mill and the national average production in the previous 3 years. Mills have the option to surrender or swap their export quota with domestic quota within 60 days of the quota allocation order. The swapping system would reduce transportation needs, improve liquidity of sugar stocks, and balance regional supply and demand by allowing mills close to ports to export surplus while allowing those far from ports to fulfill domestic needs through swaps. The sugar export policy aims to result in successful sales of sugar by mills in the domestic or international markets by the end of FY 2022-23 season, enabling prompt payment of cane dues to farmers. Its expected to benefit both sugar mills and farmers.

The government is also emphasizing ethanol production to decrease dependence on fuel imports and promote green energy. Higher ethanol prices have incentivised distilleries to shift more sugar production to ethanol. The sugar export policy helps secure enough sugarcane, sugar, and molasses for ethanol production. Its expected that 45-50 LMT of sugar will be directed towards ethanol production in FY 2022-23 season.

Demand drivers in the sector

Growing population: India became the most populated country surpassing China in 2023 with a population of 1.41 Billion. Indias population grows by approximately 15 Million people annually, the largest increase globally. This sustained growth ensures a growing market for the Company.

Climatic factors: Sugar cultivation is expected to grow in India due to the absence of extreme heat in South India during summer and a moderate winter without frost. FMCG-driven: Indias low per capita beverage consumption compared to the global average offers potential for growth.

Rising demand for supplementary goods: The tea industry in India is projected to generate US$16.66bn in 2023 and have an annual growth rate of 0.96% from 2023 to 2025. Sugar, a complementary item for tea, is expected to correspondingly grow.

Export earnings: Sugar exports are a valuable source of foreign exchange for India, boosting the development of the Indian sugar industry. Indias sugar exports saw a tremendous increase of 291% from $1,177 Million in fiscal year 2014 to $4,600 Million in fiscal year 2022.

Government actions: The governments focus on ethanol production through its new Biofuel Policy is transforming the industry by allowing surplus sugar to be redirected towards ethanol production.

Preference for value-addition: Rising demand for value-added items is leading to an increase in packaged products.

Increasing demand of end-products: The growth of sweets and chocolate consumption is directly tied to the rise in sugar demand.

Pharmaceutical industry: The

Indian pharmaceutical sector is predicted to grow to $65 Billion by 2024 and reach $130 Billion by 2030. The sugar industry is poised to grow as sugar is an essential component in the drug-making process.

(Sources: Worldometer, Business wire, Expert market research, IBEF, Statista, The Wire)

SWOT analysis

Strengths

• Sugar cane is a lucrative cash crop in India • India leads in sugar consumption and ranks second globally in sugar production.

• The sugar sector plays a significant role in the growth of related industries and contributes to the well-being of the rural economy in India. • The Indian government now acknowledges the sugar industry as a catalyst for the local economy. • The Indian sugar industry has a significant impact on the livelihoods of approximately 50 Million sugarcane farmers and provides direct employment to 500,000 workers.

Weaknesses

• Prices of cane are significantly elevated compared to the global average.

• Many companies in the industry still utilize outdated equipment.

• Many mills experience financial difficulties due to a scarcity of funds.

Opportunities

• The average per capita sugar consumption in India is around 20 Kg, which is lower than the global standard of 23 kgs • Adopting improved farming techniques can significantly increase yields and efficiency. • The governments mandatory ethanol blending policy is driving the demand for ethanol.

• Upgrading technology can lead to better utilization of by-products.

Threats

• Climate change affects cropping patterns and yield levels.

• The sector heavily depends on the unpredictable nature of monsoon seasons.

• Lack of sufficient infrastructure often leads to cane farming being heavily dependent on unpredictable weather patterns.

Analysis of the profit and loss statement

Revenues: Revenues from operations reported from H2162.98 Crores in FY 2021-22 to H2874.02 Crores in FY 2022-23. Other Income of the Company reported a 45.49% increased and accounted for a 0.54% share of the Companys revenues, reflecting the Companys dependence on its core business operations.

Expenses: Total expenses increased by 35.23% from H1972.04 Crores in FY 2021- 22 to H2666.71 Crores. Raw material costs, accounting for a 58.85% share of the Companys revenues, increased by 5.68% from H1600.55 Crores in FY 2021- 22 to H1691.47 Crores in FY 2022-23. Employees expenses, accounting for a 2.92% share of the Companys revenues, increased by 7.55% from H78.16 Crores in FY 2021-22 to H84.06 Crores in FY 2022-23.

Analysis of the Balance Sheet

Sources of funds: The capital employed by the Company were H1825.95 Crores as on March 31, 2023 as against H1794.15 Crores as on March 31, 2022. Return on capital employed, a measurement of returns derived from every rupee invested in the business, was 14.61

% in FY 2022-23 as against 14.03% in FY 2021-22.

The net worth of the Company was H1043.04 Crores as on March 31, 2023 as against H884.98 Crores as on March 31, 2022. The Companys equity share capital, comprising 6,63,87,590 equity shares of H10

each, remained unchanged during the year under review.

Long-term debt of the Company was H217.05 Crores as on March 31, 2023. The debt-equity ratio of the Company stood at 0.70 in FY 2022-23 compared to 0.99 in FY 2021-22.

Finance costs of the Company decreased by 12.40% from H50.16 Crores in FY 2021-22 to H43.94 Crores in FY 2022-23. The Companys debt service coverage ratio stood at a comfortable 2.80x at the close of FY 2022-23 as against 2.67x at the close of FY 2021- 22.

Applications of funds: Fixed assets (gross) of the Company was H1686.46 Crores as on March 31, 2023 as against H1619.42 Crores as on March 31, 2022. Depreciation on tangible assets was H47.40 Crores in FY 2022-23 as against H47.41 Crores in FY 2021-22 during the year under review.

Investments: Non-current investments of the Company were H1.80 Crores as on March 31, 2023 as

against H5.14 Crores as on March 31, 2022.

Working capital management:

Current assets of the Company were H964.36 Crores as on March 31, 2023 as against H1113.52 Crores as on March 31, 2022. The Current and Quick ratios of the Company stood at 1.24 and 0.38 respectively at the close of FY 2022-23 compared to 1.12 and 0.26, respectively at the close of FY 2021-22.

Inventories, including raw materials, work-in-progress and finished goods, among others, was H666.75 Crores as on March 31, 2023 as against H852.35 Crores as on March 31, 2022. The inventory: turnover ratio was 3.14 times as against 2.35 times in FY 2021-22.Trade receivables were H194.49 Crores as on March 31, 2023 as against H159.91 Crores as on March 31, 2022. All receivables were secured and considered good. The Company contained its debtors turnover ratio at 9.36 times in FY 2022-23 compared to 6.69 times in FY 2021-22.

Cash and bank balances of the Company were H38.44 Crores as on March 31, 2023 as against H44.55 Crores as on March 31, 2022. Margins: The EBIDTA margin of the Company is 5.56 % in 2022- 23 while the net profit margin of the Company is 9.69percent.

Key ratios

Particulars	FY 2022-23	FY 2021-22
EBITDA/Turnover (%)	11.03	13.90
EBITDA/Net interest ratio (x)	7.26	6.02
Debt-equity ratio	0.70	0.99
Return on equity (%)	16.39	17.31
Book value per share (H)	157.04	133.31
Earnings per share (H)	23.72	21.70
Debtors turnover ratio	9.36	6.69
Inventory turnover times	3.14	2.35
Current ratio (x)	1.24	1.12
Net profit margin (%)	5.50	6.66

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

Overview

With nearly nine decades of experience in sugar manufacture, Dhampur Sugar has established itself as a leading player in the industry. As of March 31, 2023, the Company possessed an aggregate cane crushing capacity of 23500 TCD across Dhampur and Rajpura (cane-rich western Uttar Pradesh). The Company is respected for the production of quality white and retail sugar. The Company made forward-looking investments in advanced technologies, training and quality improvement.

Sectorial context

Indias sugar production is estimated at 34.5 Million tonnes in FY 2022-23 sugar season; sugar consumption is projected at 29 Million metric tonnes. In FY 2022-23 fiscal year, 530 sugar mills were operational (516 in the previous year). Uttar Pradesh, the second-largest sugar-producing state in the country, reported a slight increase in sugar production to 51 Lakh tonnes from 50.3 Lakh tonnes in the previous year. The Indian Government authorised an increase in the Fair and Remunerative Price (FRP) of sugarcane to H305 for FY 2022-23 sugar season, compared to H290 for the previous year, for a basic recovery rate of 10.25%.

Highlights

• The EBIT margin for this business was 3.18% against 3.73% in FY 2021-22.

• The business crushed 39.01 Lakh Tonnes of cane as against 35.83 Lakh Tonnes in FY 2021-22.

• The business diverted 8.09 Lakh Tonnes sugar cane (out of a total of 39.01 Lakh Tonnes) towards ethanol production.

• The business manufactured 3.06 Lakh Tonnes of sugar (comprising raw sugar of 0.25 Lakh Tonnes).

• The business reported 1.20 Lakh Tonnes of inventory as on March 31, 2023, valued at an average H 32897 per Tonne.

52.57

% of the Companys revenues derived from the sugar business, FY 22

51.61

% of the Companys revenues derived from the sugar business, FY 23

6.24

% of sugar business revenues derived from institutional customers, FY 22

14.31

% of sugar business revenues derived from institutional customers, FY 23

B U S I N E S S S E G M E N T R E V I E W

Our co-generation business

Overview

Dhampur entered the power co-generation business in 2007 to increase the utilization of bagasse, a byproduct derived from sugar production. The Company has since emerged as one of the largest power co-generators in the country, with a consolidated capacity of 121 megawatts. The Companys presence in this space has been marked by distinction. To enhance the yield ratio of steam to bagasse, Dhampur was one of the first companies in the sector to implement a 105 kgs/ square centimeter multi-fuel high-pressure boiler and 30 MW turbine. As a result, the Company is able to use the bagasse-generated power in sugar production. Approximately 55% of the power generated is consumed in-house, while the remaining 45% is exported to the state electricity grid. Dhampurs power business has allowed the Company to increase bagasse utilization, generate power for in-house use and export to the state grid, and earn tax-free revenues.

Sectorial context

As of 31 December 2022, the installed capacity of the national electric grid in India was 410.3 GW. In the past year, Indias power demand grew approximately 8%. Over the next five years ending March 2027, it is expected that the countrys annual electricity demand is expected to increase at an average 7.2%, driven by growing consumption in the industrial and residential segments.

Highlights

• For this business, EBIT margin was 37.58% as against 38.68% in FY 2021-22. • The business produced 39.00 Crores units as against 40.01 Crores units in FY 2021-22.

• The business exported 17.77 Crores units as against 19.53 Crores units in the previous year.

• The business average realization per unit was H3.54 per unit as against H3.46 per unit in FY 2021-22 The Company is taking initiatives to upgrade operations: converting a 30 MW condensing turbine into a back pressure turbine to improve efficiency and optimize energy utilization; it is implementing the latest Honeywell software version in one unit to enhance operational capabilities and reliability; it intends to enhance its electrostatic precipitator capacity by adding one more field to existing three for superior control, pollution management and regulatory compliance. The Company is also purchasing truck tipplers for improving further capacity utilization of the plant.

B U S I N E S S S E G M E N T R E V I E W

Our distillery business

Overview

In 1995, Dhampur launched distillery operations. This was done with the express objective of maximizing the utilization of byproducts, enhancing revenues, strengthening value addition and broadbasing risks. The Company commenced molasses processing with a capacity of 100 KLPD, its product mix comprising ethanol, SDS, extra neutral alcohol, and related products. The Company was at the forefront in the adoption of the encillium process in India.

Product: Ethanol

Dhampur is a significant supplier of B-heavy ethanol in Uttar Pradesh, with a production capacity of 350 liters per day (KLPD) at present. During the reviewed year, the Company supplied a total of 89.79 Million liters of ethanol, of which 27.94 Million liters were generated through the B-heavy route and 61.85 Million liters from the syrup route. Average ethanol realization was H63.23 per liter; while syrup route realization was H64.82 per liter and B-heavy route realization was H59.71 per liter. The Company utilised its in-house molasses (B-heavy route) as raw material. The Company has expanded its distillery capacity to 350 KLPD and 100 KLPD of grain-based distillery capacity expected to be completed in May 23 on duel feed basis.

Indias ethanol production capacity is set to increase from the current 700 crore litres to 1500 crore litres. To incentivize production, the government increased the prices of ethanol extracted from sugarcane juice and molasses. The price of ethanol extracted from sugarcane juice was raised to H65.60 per litre, up from H63.45 per litre; prices for ethanol from C-heavy molasses and B-heavy molasses were increased to H49.40 per litre and H60.73 per litre, respectively. In two years, India doubled its ethanol blending ratio with petrol from 5% to 10%, which is expected to reach 12% and the governments targeted 25% by 2025.

This is what the business achieved in FY23

• EBIT margin for the business stood at 22.14% as against 30.89% in FY 2021-22.

• The business sold 8.98 Crores bulk litres of ethanol at an average H63.23 per litre as against 6.96 Crores bulk litres at an average realisation of H58.18 per litre in FY 2021-22.

B U S I N E S S S E G M E N T R E V I E W

Ethyl acetate business

Overview

For more than three decades, Dhampur has been producing ethyl acetate. As of March 31st, 2023, the Company enjoyed a registered non-EU manufacturer status with a production capacity of approximately 50000TPA. The Companys ethyl acetate products were exported to Europe and Gulf countries. The Company addressed the stringent quality standards required by the pharmaceutical and flexible packaging industries. The India ethyl acetate market was estimated at of US$ 645.44 Million in 2021 and is projected to grow at a CAGR of 8.07% to reach a value of

US$ 1200.88 Million by 2029. The significance of Ethyl Acetate is on the rise owing to its widespread applications in various industries such as furniture manufacturing, instrument production, mining equipment, agricultural machinery, and marine equipment. Furthermore, Ethyl Acetate is widely used in the manufacturing process of flexible packaging sheets through the solvent cast process.

(Source: maximizemarketresearch.com)

Highlights, FY23

• Our unwavering commitment to maintaining consistency in the quality, quantity, and supply of our products has significantly bolstered customer confidence in our company.

• The Company produced 345.45 Lakh Kg in FY 2022-23 as against 272.74 Lakh Kg in FY 2021-22. • EBIT margin of this segment was 7.53% in FY 2022-23 as against 7.06% in FY 2021-22.

• The business sold 351.91 Lakh Kg as against 270.74 Lakh Kg in FY 2021-22.

• The average realisations stood at H85.68 per Kg as against H102.49 per Kg in FY 2021-22.

The strengths of this business segment comprised the following:

B U S I N E S S S E G M E N T R E V I E W

Potable spirits business

Overview

Dhampur began producing and selling country liquor in October 2021 and since then, the Company has experienced significant growth. In FY 2019-20, the Company produced 1.86 Lakh cases of liquor; in FY 2020-21, production increased to 3.42 Lakh cases; in FY 2021-22 production jumped to 11.63 Lakh cases; in FY 2022-2023, production was 19 Lakh cases. The Company operates three fully equipped semi-automatic bottling lines and a dedicated tetra pack production line. These facilities have helped the Company establish a prominent position in Uttar Pradesh.

The country liquor industry in India is estimated to be worth H22,000 crore, with annual volume sales of over 200 Million cases. IMFL industry has been growing at more than 10% CAGR since 2010. Over the last three decades, the rate of alcohol consumption in India has been on a rise. Indias sustained population growth has led to approximately 13 Million drinking-age adults being added each year, with at least 3-5 Million consuming alcohol in some form. (Source: indiatimes.com

The strengths of this business comprise the following:

Presence: The Company is located close to customers in North India, especially in the industrial areas of National Capital Region, Uttar Pradesh and Uttarakhand.

Raw material: This business consumes extra neutral alcohol as raw material, resulting in a competitive edge.

This is how the business performed in FY 23:

• The business produced 19.00 Lakh cases as against 11.63 Lakh cases in FY 2021-22.

• The business sold 19.00Lac cases as against 11.63 Lakh cases in FY 2021-22.

• Average realisations were H261.75 per case as against H259.51 per case in FY 2021-22.

• EBIT margin was -0.22% as against -0.27% in FY 2021-22.

Our commitment

Dhampur is fully committed to environmental management and strictly complies with all necessary clearances, consents, permissions, licenses and authorizations. The Company is dedicated to reduce energy consumption, greenhouse gas emissions, and transitioning to cleaner processes. Compliance is driven by subject matter experts, robust processes, advanced systems and information technology.

Our key social initiatives mapped to the UNSDG priority

SDG 3: Good health and well being

Dhampur promotes good health and well-being in local communities through the implementation of the ‘Free Mobile Health Services project in collaboration with PHDRDF.

SDG 4: Quality education

The Company provides support to Pushp Niketan, a school located at Dhampur. This school follows a unique model of thematic, student-centered learning, project-based studies and learning journeys to deliver high-quality education to the rural population, creating a holistic learning experience.

SDG 5: Gender equality

We prioritize equality and inclusivity throughout our value chain; while our factory operations currently have limited representation of women employees at 7% of the workforce, our corporate office, have achieved approximately 30% women employees, demonstrating our commitment to diversity.

SDG 6: Clean water and sanitation

Through our Pond Rejuvenation projects, we actively contribute to SDG 6 by promoting sustainable management of water resources. In the areas surrounding Dhampur and Rajpura, we adopt local ponds and undertake conservation initiatives to revive and sustain groundwater.

SDG 7: Affordable and clean energy

To reduce our carbon footprint, we generate energy from Bagasse and Spent wash/Slop generated in distillery, effectively managing our energy needs while decreasing greenhouse gas emissions.

SDG 12: Responsible consumption and production

Engagging with farmers to impart modern agronomy practices for cane cultivation and irrigation to reduced water usage.

Risk management

Geographical risk: The distance between the mills and cane fields may negatively impact the Companys operations.

Mitigation: The Companys mills are situated within a 30 Km radius of major cane-growing regions and are connected by road for strategic accessibility.

Procurement risk: The Company may face challenges during the procurement of sugarcane. Mitigation: The Company has a longstanding relationship with 141437 cane farmers and has implemented various programs to improve their welfare and productivity.

Quality risk: The Company may face the risk of receiving low-quality sugar cane.

Mitigation: The Company led the cultivation of early-maturing cane varieties and mitigated the risk through subsidised insecticides and increased farmer education on modern farming practices.

Financial risk: The Company may face risks related to increasing debt. Mitigation: The Company has timely repaid its debts, improving its financial stability.

Human capital risk: Inability to attract and retain talent could impact prospects Mitigation: The structured human resource policy of the Company helps in attracting and retaining talent.

Internal control systems and their adequacy

The Company has a robust internal audit system that is regularly monitored and updated to protect assets, comply with regulations, and promptly address any issues. The audit committee regularly reviews internal audit reports, takes corrective action if needed, and maintains communication with both statutory and internal auditors to ensure effective internal control systems.

Human resources and industrial relations

The Company believes that its employees are crucial to its success and is dedicated to equipping them with the necessary skills to keep up with technological advancements. In the past year, it held various training programs covering technical, behavioral, business, leadership, customer service, safety, and ethical skills. The Company had a workforce of 1193 as of March 31, 2023.