zuari global ltd Management discussions

The Board of Directors is pleased to present the business analysis and outlook for Zuari Industries Limited (Formerly Zuari Global Limited) (ZIL) based on the current Government policies and market conditions.

1. GLOBAL ECONOMY

The Covid-19 pandemic has created an economic disruption whose depth was surpassed only by the two World Wars and the Great Depression. Although global economic activity is showing green shoots of growth, it is unlikely to return to full potential in the immediate term. The pandemic has caused a severe loss of life, has thrown millions of people specially in the underdeveloped countries into extreme poverty, and is expected to inflict long lasting scars which will cast their shadow on economic activities for a prolonged period.

Even as the world was struggling to cope with the aftermath of the pandemic, a severe geopolitical tension emerged by the end of financial year. The Russia-Ukraine war will have a long-lasting effect on the world economy, if not brought to a close within a reasonable time period.

Russian invasion of Ukraine led to imposition of severe sanctions by the USA and NATO countries. Since Russia is the second largest producer and exporter of crude, the international crude prices breached the $100 mark, resulting in an increase in energy price and thereby having a cascading effect on the prices of other commodities.

Spiralling commodity prices due to trade embargo on Russia will significantly impact global growth in 2022. A severe double-digit drop in GDP of Ukraine and a large contraction in Russia are more than likely, along with worldwide spill overs through commodity markets, trade, and financial channels. Even as the war is negatively impacting growth, it has put inflation into another trajectory. Fuel and food prices since the beginning of the war have already spiralled, with vulnerable populations— particularly in low-income countries— most affected. The trade-offs that the central banks make between containing price pressures and safeguarding growth will even become more complicated and challenging. The invasion has contributed to economic fragmentation as a significant number of countries sever commercial ties with Russia and risks derailing the post-pandemic recovery.

Impact on Growth: As predicted by International Monetary Fund (IMF) in its World Economic Outlook of April,2022, the global growth is projected to slow from an estimated 6.1 percent in 2021 to 3.6 percent in 2022 and 2023 [Refer Table Below]. This is 0.8 and 0.2 percentage points lower for 2022 and 2023 than in the January World Economic Outlook update of IMF. The above forecast by IMF, however, assumes that the conflict will remains largely confined to Ukraine, further sanctions on Russia is with exemption on the energy sector, and the pandemics health and economic impacts abate over the course of 2022. The downside risk of possible worsening of the war, escalation of sanction on Russia, and a renewed flare-up of the pandemic should a new, more virulent virus strain emerge though still exist.

In the medium term, over a period of 3-5 years, the global growth is forecasted to decline and is expected to hover around 3.3%.

KPMG after analysing the current pandemic and geopolitical situation and considering variables such as oil, gas and global food prices have come up with 3 scenarios of GDP growth that ranges from 3.3% to 4% in 2022 and 2.5% to 3.2% in 2023 [Refer Graph Below]. The estimate of KPMG thus generally seems in line with the IMF growth estimate.

Impact on Inflation: As estimated by IMF in its April2022 report, the inflation is projected at 5.7 percent in advanced economies and 8.7 percent in emerging market and developing economies—1.8 and 2.8 percentage points higher than projected in Januarys estimate of IMF.

Impact on World Trade: The growth in world merchandizes trade volume as per the latest update released by WTO (in April,2022) has been revised to 3% (down from the earlier forecast of 4.7%) mainly on account of the ongoing Russia Ukraine war. Despite their small share in world trade and output, Russia and Ukraine are key suppliers of essential goods including food, energy and fertilizers, supplies of which are threatened by war. Besides the war, fresh lockdowns in China to prevent the spread of pandemic has again started affecting the seaborne trade at a time when supply chain seemed to be easing.

2. INDIAN ECONOMY

Like all major economies, India has been grappling hard to come out of the aftereffects of Covid-19 pandemic. The country witnessed the first wave of pandemic in 2020, second wave in April 2021 and then the latest wave of Omicron, a Covid-19 variant by the end of calendar year 2021. Besides the pandemic waves, since the country is a net importer of crude, Russia-Ukraine war, that started in February 2022 will also have an adverse impact on countrys economy.

First Wave and Second Wave:

The country went through unprecedented health crisis in 2020-21 with the highly contagious corona virus (Covid-19) spreading across the country. The government took immediate proactive measures to mitigate the impact by imposing a strict 21 day nationwide complete lockdown to contain the spread of virus while ramping up the health infrastructure in the country. The lockdown measure, however, came at a heavy cost as it deeply affected employment, business, trade, manufacturing, and other services activities. The government in its bid to bring the economy back on track also announced a special economic and comprehensive package of 20 lakh crore under Atmanirbhar Bharat, which included structural reforms related to agricultural sector, banking sector, coal mining, defence & space sector, incentive schemes, funding for social infrastructure, etc.

At the beginning of FY 2021-22, as the country was reviving itself from the effects of the first wave, it was again struck with second wave of pandemic driven by a mutated version of virus. This wave badly crippled the countrys healthcare system and brought it on the verge of collapse. The pandemic engulfed the younger generation this time around and the country logged an increase of more than 4 Lakh cases a day (as against less than a lakh in first wave) with more than 4000 deaths in day. Since the government had garnered some experience from the first wave lockdown, it resorted to state wise localized lockdown. Even though the fatality rate of this wave was much higher, the economic indicators reflected lesser economic effects of second wave as compared to the first wave owing to localized lockdowns.

With the vaccine being the only antidote to counter the pandemic, the government was faced with a herculean task of vaccinating ~1.3 billion people twice with numerous challenges such as unavailability of vaccine, inadequate supply chain and infrastructure, myths related to aftereffects of vaccination etc. However, with proactive measures from the government and positive awareness on the efficacy of vaccine, India could successfully vaccinate more than 60% of its population by December 2021.

Third Wave (Omicron) and Russia-Ukraine War:

The country witnessed another spike in infection during Jan,2022 predominantly through a new variant of corona virus. This highly virulent omicron variant was looked upon with extreme caution (due to the mayhem created during the second wave) and hence necessary infrastructure were ramped up to cater to any eventuality. However, due to extensive mass vaccination (as on the 16^thJan,2022, India completed one year of its COVID-19 vaccination effort, administering more than 1.56 billion doses of vaccine), the new variant had relatively lesser health impact than the earlier variants. Even though all India per day increase of case load surpassed the second wave numbers, this variant had extremely low fatality rate and hence the country followed the localized state wise lockdown as was done during the second wave. The economic impact of third wave was arguably the least as the business and industry, in general, was more prepared to cater to such health crisis and had developed necessary IT infrastructure to tide through such waves. The third wave spiked quite rapidly but subsided even faster.

As the third wave started dwindling and the economic activities were picking up, an important global geopolitical tension emerged, which may have long lasting strategic, economic, and political implications for the country. Since Russia and Ukraine both contribute towards global trade, tension between the two countries will impact the world trade balance, spur inflation, and cause major supply chain disruptions. As per Indias Economic Outlook Report (April22) of Deloitte, since India is a net importer of crude, the countries energy security remains on a tight rope, if this tension persists. In March 2022, crude oil prices jumped above US$100 per barrel, wheat and many other commodity prices escalated by more than 50% , edible oil prices rose by 20%. India also imports potash fertilizer and is partly dependent on the region to meet its fertilizer needs. Higher fuel and fertilizer prices will have an adverse impact on government revenues and increase subsidy costs. Furthermore, capital outflows and rising import bills will weigh on the current account balance and currency valuation.

Though the country has been grappling with the above short-term turbulence, the long-term growth story remains intact, with the country still being one of the preferred destinations for global investors. As per Deloitte report, the results of growth-enhancing policies and schemes (such as production-linked incentives and governments push toward self-reliance) and increased infrastructure spending will start kicking in from 2023, leading to a stronger multiplier effect on jobs and income, higher productivity, and more efficiency—all leading to accelerated economic growth. Furthermore, the emphasis on manufacturing, various government incentives such as lower taxes, and rising services exports

on the back of stronger digitization and technology transformation drive across the world will aid in further growth. Also, several spillover effects of geopolitical conflicts would enhance Indias status as a preferred alternate investment destination.

India is expected to have ~100 unicorns by 2025 and will create ~1.1 million direct jobs according to the Nasscom- Zinnov report ‘Indian Tech Start-up. It is the third- largest unicorn base in the world with over 83 unicorns collectively valued at US$ 277.77 billion. Indias foreign exchange reserves stood at US$ 60 billion as of April 8, 2022, according to data from RBI.

The nominal gross domestic product (GDP) of the country at current prices stood at Rs 232.15 lakh crore, as per the second advance estimates (SAE) for 2021-22. The second advance estimates (SAE) for 2021-22 released by the National Statistical Office (NSO) on February 28, 2022, placed Indias real gross domestic product (GDP) growth at 8.9 per cent, 1.8 per cent above the pre- pandemic (2019-20) level. On the supply side, real gross value added (GVA) rose by 8.3 per cent in 2021-22, with its major components, including services, exceeding pre- pandemic levels.

For the FY2022-23, the Reserve Bank of India (RBI) has projected a GDP growth of 7.2% (with quarterly breakup as Q1: 16.2%, Q2: 6.2%, Q 3:4.1%; Q4: 4.0%) whereas International Monetary Fund (in its World Economic Outlook report of April 2022) has predicted GDP growth of 8.2 percent after taking into account the effects of Russia-Ukraine war, inflation and supply chain disruptions. Asian Development Bank (ADB) growth projection of 7.5% (Refer Table Below) is seems more in line with the RBIs estimate.

Selected economic indicators (%) - India	2020-21	2021-22	2022-23 (F)	2023-24(F)
GDP Growth	-6.6%	8.9%	7.5%	8%
Inflation	6.2%	5.4%	5.8%	5%
Per Capita GDP Growth Rate	-7.6%	7.9%	6.5%	7%
Current Account Balance	0.9%	-1.6%	-2.8%	-1.9%

Source: Asian Development Bank. Asian Development Outlook (ADO) 2022 (April 2022)

3. GLOBAL SUGAR INDUSTRY AND INTERNATIONAL SUGAR PRICES

As per Ragus Global Sugar Market Report of February 2022, the global sugar market is projected to remain in deficit for three years in a row as demand still exceeds the supply. For 2021-22 season, the deficit is expected at 3.9 million tonnes compared to the deficit of 1.4 million tonnes (in season 2020-21) and 1.39 million tonnes in season 2019- 20. The production of Brazil, the largest sugar producer, is again expected to fall which will be compensated to an extent by increased production in EU, India and Thailand. On the consumption side, it is expected that there will be a steady rise, owing to increased consumption from countries such as India, China and Russia.

China, Indonesia and EU are expected to have increased import numbers due to decrease in land area along with climate change which has adversely affected the production. Chinas domestic sugar production and consumption is expected at 9.9 million tonnes and 15.6 million tonnes respectively. However, the country has already imported 7.1 million tonnes of sugar in 21-22 which is way above the quantity needed to offset the decline in domestic production.

Global sugar prices have increased drastically since last Oct20 [Refer Care Rating Graph Below]as depicted in the graph below due to demand supply imbalance created on the back of decreased production from Brazil, increased imports from China and an increase in overall consumption worldwide. International sugar prices continued their steady rise, ending 2021 at 18.88 c/lb compared to 15.49 c/lb a year ago. Prices peaked in November21 at 20.69 c/lb as Brazils harvest continued to underperform.

The international sugar prices are projected to remain stable in the near terms unless there is an increase in production from Brazil in the next sugar session. Other macroeconomic and geopolitical factors such as future Covid waves, Ukraine- Russia war also may have an impact on the trade balance and overall international sugar prices.

4. INDIAN SUGAR INDUSTRY & DOMESTIC SUGAR PRICES

With an opening stock of 8.3 million tons at the start of SS 2021-22, estimated sugar production of 35 million tons and consumption and export pegged at 27 million tons and 9 million tons respectively, the country is set to have an opening stock of around 7 million tons during the start of SS 2022-23. Since the opening stock is well within the normative three-month consumption norms, the domestic sugar prices are projected to remain steady throughout the year.

The sugar industry in India is estimated to have higher sugarcane production during SS22-23, owing to good monsoon and higher reservoir level. In addition to this, increase in FRP and SAP by 2% and 8% respectively will definitely entice farmers towards sugarcane cultivation. Crisil expects cane production to increase by around 3% in SS 2022-23.[Refer Graph Below]

Sugar Production and Stock Situation:

According to the Indian Sugar Mills Association (ISMA), sugar production in the country increased by 11.2% year on year (y-o-y) to 31 million tonnes during the first six months of the SS 21-22 on account of significantly higher yields per hectare and higher sugar recovery. The increase in output primarily came from Maharashtra and Karnataka, with these states producing around 11.9 million tonnes and 5.8 million tonnes, respectively, during the period. This is a significant growth a top last years output from these states at 10 million tonnes and 4.2 million tonnes respectively for Maharashtra and Karnataka during the same period last year (first six months of the sugar season from October to March).

India started the current SS 2021-22 with a sharp 23.6% decline in opening stock at 8.2 million tonnes from 10.7 million tonnes in the previous SS of 2020-21. This significant fall in the opening stock was primarily on account of increasing exports by India over the past few years (Refer Table Below) mainly backed by assistance from government in the form of subsidies.

In the previous sugar season of 2020-21 (starting October 2020), the exports had touched a peak of 7.2 million tonnes driven by a spike in global sugar prices. The international sugar prices had increased by 23%-30% in 2020- 21 season and hence the export subsidy of Rs.5.8 per kg (announced in late Dec,2020) was reduced to Rs.4 per kg (from May 20, 2021) on account of high sugar exports volumes getting contracted for the season.

With an estimated production of 35 million tonnes (after taking into account sugar diversion to ethanol), and with an opening stock of 8.2 million tonnes, the total availability of sugar is expected to be around 43.2 million tonnes in SS 2021 -22 . After considering an estimated domestic consumption of around 27.2 million tonnes (as per ISMA) and exports of about 9 million tonnes, India is set to have a closing stock of around 7 million tonnes for the year SS 2021-22. With low levels of closing inventory than the normative range of 3 months consumption, the country is expected to have stable sugar prices in the upcoming year. As per the Care Rating April22 report, this closing stock will be at 5 years low and much less than the level of closing stock seen in the past three sugar seasons 2017-18 to 2019-20 where the closing stock ranged between 10 million tonnes - 15 million tonnes. The closing stock for SS 2020-21 however was lower at 8.2 million tonnes [ Refer Graph Below].

Closing Stock of Sugar, Source: ISMA, CareEdge Research Report,April22

According to ISMA, 516 sugar mills were operating in SS2021-22 as against 503 in the last season.

Consumption of Sugar

The demand for sugar that got impacted due to lower industrial offtake last year is estimated to revive. As per Crisil Research Report, January 2022, while biscuits, chocolates and bakeries will drive the industrial consumption, lesser sugar content in beverages and ice creams will limit their offtake. About one-fifth of sugar demand is driven by bakery industry that is growing at a rate of 9% CAGR. The consumption pattern is further driven by higher disposable income, pleasure eating and a general shift towards processed food that uses sugar extensively.

Sugar Export & Associated Subsidy:

According to the latest estimates by ISMA, the sugar exports may touch 9 million tonnes in SS 2021-22 due to a deficit created in international sugar market due to underproduction of Brazil. During the last year, the minimum indicative export quota (MIEQ) scheme (along with associated subsidy on export) was prevalent which encouraged and mandated exports and thereby preventing glut within the country. However, taking cue from the uptick in the international prices, the subsidies and MIEQ have been removed by the government, despite which the export volumes have jumped. The outbound shipments surged by 91.8% to 5.7 million tonnes as against 3 million tonnes last year) from October 2021 to March 2022. As per ISMA, around 7.4 million tonnes of export contracts have already been entered into as of April 8, 2022.

The high exports in the current sugar season were led by a 19.3% and 26.7% spike in white sugar prices in London (that averaged USD 504 per tonne) and raw sugar prices in New York (that averaged US 18.8 cents per lb), respectively, during the period October 2021-March 2022. Estimated y-o-y lower output in Brazil by almost 6 million tonnes to around 36 million tonnes (as per the United States Department of Agriculture November 2021 release) during the SS 2021-22 (Brazils sugar season is April-March) due to dry conditions and frosts primarily triggered the spurt in prices.

Domestic Sugar Price & MSP

The domestic sugar prices in India have primarily remained range bound in the past few years due to bumper sugar production and minimum sugar exports during sugar season 2017-18 and subsequent 2.1% growth in sugar output during sugar season 2018-19. The opening inventory of sugar, in fact, peaked in SS 2019-20 with 14.6 million tonnes [Refer Care Rating Graph Below] of sugar due to bumper production in the previous sugar season. The introduction of MSP in June 2018 and subsequent increase from Rs 28/Kg to Rs 31/Kg in February ,2019 greatly contributed to preventing a major downslide. Had it not been for the MSP of Rs.31 per kg, the domestic sugar prices would have fallen beyond the range of Rs.33-Rs.34 per kg.

During the last financial year, the rise in international sugar prices and growth in exports had started influencing the domestic prices to an extent that the wholesale sugar prices averaged higher by 7.8% to Rs.36 per kg during the period October 2021 - to March 2022 [Refer Graph Below]. The prices continued the uptrend during 1 April - to 13 April 2022 as well where the international white sugar prices in London and raw sugar prices in New York averaged USD 547 per tonne and US 20 cents per lb, respectively.

Ethanol Blending Program /Use of B Molasses for Ethanol Production

The Ethanol Blending Program (EBP), introduced by the government is a good opportunity for the sugar industry to clear their cane arrears and work on improving their margin. The Government of India notified the National Policy on Biofuels in 2018, wherein, under the Ethanol Blended Petrol (EBP) Program, an indicative target of 20% blending of ethanol in petrol by 2030 (later the target was revised to 2025) was laid out. For achieving the target of 20% blending, the government allowed the use of sugarcane juice, sugar, heavy molasses, damaged food grains, maize, and surplus rice for ethanol production. It has also advised automobile manufacturers to develop vehicles that can run not only on ethanol blended fuel but also work on the R&D of engines based solely on ethanol. In its bid to promote production of ethanol through grain, the government in 2021, further included grain-based ethanol producing distilleries also in its interest subvention scheme.

The government also introduced differential pricing of ethanol based on raw material used to encourage sugar mills to cut short sugar production and use B molasses/ Syrup to produce ethanol. The percentage increase in price for B molasses for 2022 was 2.6% (increase of Rs.1.47) as compared to that of C- Molasses of 2.1% (increased of Rs 0.97). [ReferGraph Below].

The differential pricing of ethanol based on raw material used has now greatly incentivized sugar mills to cut short sugar production and use B molasses/Syrup to produce ethanol. With sugar prices to remain under check, more and more integrated sugar players are now compromising on sugar production to produce ethanol from B Molasses/Syrup route. Since ethanol produced through B molasses/Syrup route gives better margins, the overall sugar recovery in India is projected to come down and integrated sugar players would have better operating margins and would now enjoy a better working capital management cycle.

Till the year 2014, ethanol distillation capacity of molasses- based distilleries was less than 200 Cr litres, however, with concerted effort from the government, in the past 6-8 years the capacity of molasses-based distilleries has more than doubled and is currently more than 500 Cr litres. The country has already blended more than 9% of ethanol by February 2022 and is well on its course to achieve the 20% blending target by 2025.

As per the latest report released by NITI Aayog in June 2021 the government has set a target of augmenting the ethanol production capacity to ~1500 Cr litres by 2025 so that an assured supply of ~1350 Cr litres (90% of 1500 Cr litres) can be obtained.

Out of the ~1350 Cr litres supply, ~1000 Cr litres would be utilized for the blending purposes and the balance for other uses [Refer Graph Below]. The government has projected the above numbers considering the growth of petrol vehicles in India over the next 3-5 years.

Further, the government intends to give a significant boost to grain based distillers for ethanol production with almost 50% of ethanol production coming from grain. Sugar/Molasses is projected to contribute the balance 50% for ethanol production. [Refer Graph Below].

Cogeneration for Power: After the crushing of sugarcane to extract the juice, the residue left over is bagasse which is used to generate steam. This is used as a biofuel in co-generation power plant to meet power requirement of the sugar mill. The surplus power is supplied to the grid. Being produced from a waste residue, this energy is eco-friendly and reduces greenhouse gas emissions besides also bringing additional revenue to the sugar mills.

The margins from cogeneration plant across the country have been under pressure due to reduction in power tariff owing to availability of cheap thermal and renewable power and the same is expected to continue in the near future.

5. OVERALL INDUSTRY OUTLOOK (SUGAR BUSINESS)

Despite higher projected sugar cane production in SS 2021-22, the sugar inventory will remain in check owing to diversion towards ethanol, high export momentum and stable domestic demand. Further, increasing diversion towards ethanol through B Heavy and sugar cane juice route due to remunerative prices will benefit profitability of integrated sugar mill. Export momentum is likely to continue in SS 21 -22 despite no export subsidy given the favourable global sugar prices and demand supply situation. Higher distillery contribution will strengthen the credit profiles of the integrated players while non- integrated players with low profitability will remain susceptible to cyclicity in the sugar segment.

The above-mentioned outlook however needs to be looked at in conjunction with the disruption ongoing pandemic may impose. Though the third wave of pandemic, did not cause any major disruption albeit localized lockdown imposed by states, the threat of any major catastrophic wave cannot be ruled out completely.

Sugar millers have been continuously pursuing the government for increasing the Minimum Support Price of sugar from the existing Rs. 3,100/- per quintal to Rs. 3,300/- per quintal which if materialises would help the sugar mills.

6. OUTLOOK (SPE DIVISION)

The radical transformation that the SPE division of the Company underwent in the last decade, has transformed the company from a standalone sugar unit to an integrated sugar plant with cogeneration, distillery, and sugar refining facility. The Company is now better placed to extract more value out of its by products and has also developed an intrinsic flexibility in the system to navigate through the tough times posed due to cyclicity of sugar business.

During FY 2021-22, the SPE division of the Company crushed ~128.09 lakh quintal sugarcane with recovery of 9.43%. There was a substantial drop in recovery primarily due to low sunshine, untimely rain and flood in the area which led to an inundated crop, inadequate photosynthesis, resulting in major drop of sugar content and an increase in mud/dust on the periphery of the cane. The problem was further exacerbated by the popular Co238 variety of cane getting infected by red rot disease. The above issues were, however, not specific to the Company and were observed in all the surrounding mills of the area.

As per the directive of the State Government, the cane price (UP State Advisory Price or SAP) was increased from Rs 325/quintal to Rs 350/quintal (an increase of ~7.6%) from the start of SS 2021-22. With no substantial increase in the realization price of sugar, the increase in the raw material cost adversely affected the profitability/margins of the Company.

At current sugar price levels, using B molasses or syrup to manufacture ethanol is fast becoming the preferred route by almost all the sugar mills and the same is promoted by the government as well. The Company too opted to manufacture ethanol fully through B molasses route (instead of the usual C molasses route) in this financial year for better margins and hence mitigated the impact of increase in cane price to an extent.

During the year under review, the company produced 12.08 lakh quintal of sugar and with an opening stock of 9.77 lakh quintal, was able to liquidate 12.23 lakh quintal during the FY 21 -22. The distillery plant of the company produced 233.19 lakh Litres of ethanol and with an opening stock of 41.45 Lakh Litres, sold 255.08 Lakh Litres whereas the cogeneration plant generated 96.14 million units of Power and exported 73.80 million units to the UP State Electricity Board.

Considering the above production and sale numbers, the SPE division of the Company registered a revenue of Rs.623 Cr and an EBITDA margin of 9.3%. The margins of the Company were adversely impacted due to fall in sugar recovery and an increase in sugarcane prices. On the sales front, the SPE division of the Company was allotted a cumulative domestic quota of 11.20 lakh quintal in the FY 2021-22 as against 14.55 lakh quintal in FY 2020-21 a drop of 23% YOY.

Management is confident of turning things around in upcoming sugar season. With an integrated and modern asset in place, the Company plans to focus on optimum utilization of assets, improving the systems and processes, increasing operational efficiency, reducing downtime, extensively use digitalization for better results in the next financial year. Various steps have been initiated to address low sugar recovery, availability of cane, risk posed due to infected variety of cane. On the ethanol side, the company plans to operate the distillery for longer duration on dual mode (syrup and B molasses) thereby easing out the liquidity and in turn improving the cane payment cycle. Management will also explore ways to sell power in open market for better utilization of its power plant asset.

In the opinion of the Management, the domestic sugar prices would remain stable throughout the financial year. Governments focus on ethanol production, strong international sugar prices (leading to an increase in export orders) will keep a check on the opening stock for the SS 2022-23, which is expected to remain within the normative range of 3 months consumption, leading to stable domestic sugar prices throughout the financial year. Margins will improve in case Central Government decides to increase the Minimum Support Price (MSP).

The refined sulphur-free sugar manufactured by the Company is of high-grade quality and has been well received in both domestic and international markets. Starting with modest numbers in 2018, the Company was able to scale sales up to 4200 MT and 8200 MT in the FY 2019-20 & FY 2020-21 respectively. The Company has registered a further 56% growth, selling 12787 MT of refined sugar in FY 2021-22. The Company caters to all the major North Indian states such as Delhi, Haryana, Punjab, J&K, Rajasthan, UP, Uttarakhand, Madhya Pradesh, Himachal Pradesh through its wide product basket comprising of 5 Kg, 1 Kg, Super Fine 1 Kg, Sachet White/Brown 5gm, Bura 1 Kg, Icing 1 Kg and 25 Kg .

The Company also has immediate plans to increase its B2B customer base by supplying high grade sugar to pharma and other food processing industries. The Company is in advanced stage of discussion with pharma companies and has already shared samples with the prospective clients. The Company is expecting final statutory approvals after which it would start selling pharma sugar to institutional buyers. Catering to this segment will lead to improved margins.

The SPE division of the Company has put a concerted effort in export market by making strong representations in various International Food festivals such as Dubai Food Festival etc to understand the demand, price dynamics, logistics and requirements of international customers. The Company has thus been able to cater to its export requirements with ease due to a strong brand, excellent sugar quality and cordial relation that it enjoys with its international buyers. The SPE division of the Company already supplies sugar to countries such as Doha, Nepal, Canada, Bangladesh etc. and is in the process of further enlarging its marketing reach. For the SS 2020-21, the SPE division of the Company was allocated export quota of ~ 2.97 lakh quintal which was duly complied with and closed in the first quarter of FY 2021-22 itself. For the SS 2021-22, the government has not allocated any export quota and hence there is no subsidy attached with the export of sugar. However, with strong international sugar prices, the Company took a proactive approach and has already contracted ~1.75 lakh quintal of sugar by the end of April 2022. Management will be closely monitoring the international sugar prices and shall take advantage of the same, as and when opportunities to export present themselves.

In view of the foregoing, Management is expects better revenues and margins from the business.

RISK MANAGEMENT (SPE DIVISION)

Risk: Lower sugar realizations

Lower sugar realisations can directly impact the top and bottom line of the Company, making it difficult to meet its day-to-day expenses. As mitigation measures, the Company has adopted a three-pronged strategy of expansion, diversification, and integration. The company has focused on generating additional revenue stream through the better usage of by-products, bagasse, and molasses, through the newly set up Cogen Power Plant and 100 KLPD Ethanol plant.

Risk: Lower recovery

The Company may fail to leverage higher cane production owing to lower recovery rate. As mitigation measures, the Company has put concerted effort towards putting in place latest methodology/techniques along with varietal shift (towards high yielding cane varieties) for generating higher recoveries. The company is also enhancing efforts towards cane development by use of IT interventions for data capturing, monitoring cut to crush time, soil data mapping and providing valuable suggestions to farmer. The Company plans to have more than 90% of cane supplies from early varieties which shall yield better recovery.

Risk: Farmer relationship

Non-availability of cane due to inharmonious farmer relation may result in lower crushing, impacting the overall performance of the Company. As mitigation measure, the Company maintains a harmonious and cordial relationship with its farmers. Besides ensuring timely payments to the extent possible, it also helps them by assisting them in seed selection and fertilizers.

KEY OPERATIONAL PARAMETERS (SPE DIVISION)

The comparative operating performance of the Company for the last two FY is given below:

Parameters	FY 2020-21	FY 2021- 22
Sugarcane crushed (Lakh Qtls)	142.09	128.09
Crushing days	161	137
Recovery (%)	10.38%	9.43%
Sugar Production (Lakh Qtls)	14.75	12.08
Power generated, (Mn Units)	111.97	96.14
Ethanol Production (KL)	24175	23319
Sugar Sales (Lakh Qtls)	18.80	12.22
Power exported (Mn Units)	78.64	73.80
Ethanol Sales (KL)	21154	25508

REAL ESTATE OVERVIEW

The real estate sector is one of the most globally recognized sectors. Real estate sector in India is expected to reach US$ 1 trillion by 2030. By 2025, it will contribute 13 per cent to countrys GDP.

According to the data released by Department for Promotion of Industry and Internal Trade Policy (DPIIT), construction is the third-largest sector in terms of FDI inflow. FDI in the sector (including construction development and construction activities) stood at US$ 52.48 billion between April 2000 and December 2021. Office space has been driven historically by growth in ITeS/IT, BFSI, Consulting and Manufacturing sectors but during the second wave of COVID-19 (starting March21) a measured approach towards leasing activities were seen in the following months as organizations adopted hybrid work model for their employees thereby generating lesser demand for leasing. During 2021, the office leasing space reached 27.34 msf across seven major cities, registering a marginal growth of 2% y-o-y.

Housing sales reached approximately 1.24 lakh units in 2021 across seven major cities indicating a strong growth of 66% y-o-y because of lower interest rates & reduced impact of covid-19 during the later part of the year.

The residential real estate market in 2021 has seen 472,253 units of unsold inventory across the seven cities translating to 56 Months of time to liquidate the inventory.

The commercial real estate market performance was moderate in year 2021 compared to year 2020 with new supplies (45.67 msf) increasing by 23% y-o-y as business sentiments improved across the country. Bengaluru lead the revival of this segment by capturing 33% of the new supplies made available during the year, followed by Hyderabad (20%) and Delhi NCR (19%). IT and ITES Sector lead the demand of office space (39% share) followed by Flex operator (Co-working) and Manufacturing sectors with 15% and 11% shares respectively. Occupiers have reworked their leasing strategies as more and more organizations started adopting Hybrid Work model for their employees. Rental prices remained stable during the year except marginal increases seen in Bengaluru and Pune.

The Indian real estate sector has witnessed high growth in recent times with the rise in demand for office as well as residential spaces. Real estate attracted around US$ 4.3 billion of investments in 2021 which is 14% less on y-o-y basis due to the fact that in 2020 there were 2 large deals worth US$3.2 billion while in 2021 there were more number of smaller deals (57 in total compared to 27 in 2020). As per Department for Promotion of Industry and Internal Trade Policy (DPIIT), construction was the third largest sector in terms of FDI inflow in 2021.

Private equity (PE) and VC funds contributed US $3.3 billion in year 2021 - Blackstones investment in Embassy Industrial Parks at US$ 716 million, Ascendas Indias purchase of 16-storey Commercial Tower from Aurum Venture at US$ 47 million, GICs acquisition of minority stake in Phoenix Mills portfolio at US$ 733 million are some of the high value transactions completed during this period.

GOVERNMENT INITIATIVES

The Government of India has been supportive towards the real estate sector in these challenging times. In terms of attracting investments Government has raised FDI (Foreign Direct Investment) limits for townships and settlements development projects to 100 per cent. Real estate projects within Special Economic Zones (SEZ) are also permitted for 100 per cent FDI.

The Government of Indias Housing for All initiative is expected to bring US$ 1.3 trillion investment in the housing sector by 2025. The scheme is expected to push affordable housing and construction in the country and give a boost to the real estate sector.

References: Media Reports, Press releases, Knight Frank India, CBRE, JLL Research etc.

ZUARI RAINFOREST PROJECT, GOA

This project is located in Zuari Nagar in close proximity to the Dabolim Airport. Phase 1 of the Project has been developed on 6.8 acres of land with built-up area of 1.67 lakh Sq ft comprising of villas and apartments, along with amenities.

Construction work has been completed, OC (occupancy certificate) has been obtained and handover of units is in progress.

During the year, the Company sold 9 units bringing the tally to 86 overall out of the total of 95. 40 units were registered in favour of buyers during the year.

The Company recognised revenue of 838.84 Lakh from sale of units during the year. The Company has started planning the development of Phase -II of Zuari Rain Forest.

The Company owns approximately 660 acres of land at Sancoale village of South Goa. The Company has signed a Joint Development Agreement ("JDA") for the development of land admeasuring approximately 243 acres.

RISKS & CONCERNS

Year 2021 started cautiously as the lingering effect of COVID-19 pandemic were still felt in the operation of Real Estate sector and impacted both Sales and Construction fronts equally. Social Distancing, Lockdown measures, Job losses and disruption of supply chain and movement of people forced all the real estate developers to extend their timeline of completion of ongoing projects. With increasing fuel prices amidst a war, there lies a very uncertain and tough time ahead for the real estate developers across the country where the need of the hour will be to re- organize and re-structure their operations to sustain their businesses. Till the economic conditions get stabilized in the market, there lies uncertainties in real estate sector on account of increasing cost of delivery that directly impacts profitability of the businesses.

OPPORTUNITIES

COVID-19 pandemic has thrown up new opportunities as peoples mindset slowly started shifting towards purchasing their own house at their native places away from the pandemic-stricken cities utilizing the "work from home" facility extended by their employers. This will be boosting up demand of housing in tier-II and tier-III cities in near future and ZIIL, a subsidiary of your company is well- positioned to take advantage of the same by virtue of being present in Mysore & Goa. Furthermore, people are now looking for larger spaces in their houses to enable them to work from home.

The Company is seeking to monetize its land bank. This will not only unlock value for the shareholders but also help provide capital for growth.

ENTERPRISE RISK MANAGEMENT (ERM)

The Board of Directors has approved a Risk Management Policy which has been formulated in accordance with the provisions of the Act and Regulation 21 of SEBI (Listing Obligation and Disclosure Regulation) Regulation 2015.

Our ERM framework encompasses practices relating to identification, assessment, monitoring and mitigation of strategic, operational, financial and compliance related risks. The coverage includes both internal and external factors. The risks identified are prioritised based on their potential impact and likelihood of occurrence. Risk register and internal audit findings also provide input for risk identification and assessment. The prioritised risks along with the mitigation plan are discussed with the Audit Committee on periodic basis.

The Company has, during the year internally conducted the Risk Assessment exercise for reviewing the existing processes of identifying, assessing and prioritizing risks. Mitigation plans have been defined for the prioritised risks and same are being reviewed for adherence periodically.

The Audit Committee periodically reviews the risks and report to the Board of Directors from time to time.

MATERIAL DEVELOPMENT IN HUMAN RESOURCES

The Company considers its human resources as its most valued asset and has taken several initiatives to build an employee-centric culture.

The Company promotes a work environment that is open, transparent and consultative. The progressive people policies of the Company enable it to attract and retain high quality talent and maintain industrial harmony at its various locations.

During the year under review, the Company supported its employees through the challenging times presented by the pandemic. Apart from following Covid norms at the workplace, the Company pursued vaccination of its workforce and their family members and achieved the vaccination coverage of 100% across all location and businesses.

The Company embraced digitalization with many projects being implemented to ensure employee safety and wellbeing and to facilitate new ways of working.

Employees are empowered to take decisions around their area of work. The Company strives to build agility and the organizational structure and work practices shall continue to evolve towards that objective.

Progressive steps have been further taken to inculcate a performance-oriented culture.

As on 31 March 2022 there were fourteen permanent employees on the rolls of the Company.

KEY FINANCIAL RATIOS

The comparative table showing synopsis of FY 2021 -22 and FY 2020-21 of Key Financial Ratios are given in Note No. 53 of the Financial Statements of the Company.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The company has adequate internal control system to ensure smooth functioning of each and every department of the organization. The internal control system is totally in alignment with the business nature and the size of the company. It tracks various financial transactions effectively and certifies the compliance with statutory rules and regulations, thus contributing to the operational efficiency of the company. The Internal audit of the Company is conducted by a firm of Chartered Accountants. The findings of the internal audit and consequent corrective actions initiated and implemented from time to time are placed before and the Audit Committee of the Board of Directors. The Audit Committee reviews such audit findings and the adequacy and reasonableness of internal control system.

OTHER RISKS

In addition to the risks specific to the businesses of the Company, the Company is also exposed to market risk, credit risk and liquidity risk. The Audit Committee reviews these risks on an ongoing basis, which are summarised below:

Regulatory Risk

Company has to comply with several statutory obligations as specified by regulatory bodies relating to the Companies Act, Taxation, Environment, Foreign Exchange, etc. Changes in these regulations affect business operations and policies. The Company complies to its statutory obligations with regulations across different functional areas being tracked and complied with to avoid any negative consequences.

Climate Risk

The operations of the Company are dependent on the climate conditions to a large extent. Extreme weather conditions at realty project sites create disruptions in the supply chain, damages to buildings, and reduces the productivity of on-site workers. The Company plans its real estate site activities considering the forecasted weather conditions and adopts all necessary safety measures to counter any hazard at site due to adverse climatic condition. An unfavorable climate deeply impacts sugarcane cultivations impacting sugar recovery and yield. The Company tracks the monsoon forecast, keeps the cane growers updated and informs them of the interventions required.

Cyber Security Risk

Failure of Information Technology can hamper operations of a business and contribute to financial loss. Lack of backup, network connectivity issues and unsecured channels are some of the major concerns in IT. The Company ensures a secure network is in place to protect critical information and confidentiality of data and a robust disaster recovery system in a business continuity plan.

Market Risk

Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: interest rate risk, currency risk and other price risks, such as equity price risk and inventory price risk. Financial instruments affected by market risk include loans and borrowings, deposits, etc.

a. Interest Rate Risk

The Company has various term loans (short term and long term) from banks and financial institutions, inter corporate deposits, bridge loans and cash credit limits from various banks. Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Companys exposure to the risk of changes in market interest rates relates primarily to the Companys debt obligations with floating interest rates (long term and short term). In order to mitigate the risk due to floating interest rates, the Company has entered into interest rate swap transaction (floating to fixed rate of interest) for its foreign currency term loan.

b. Foreign Currency Risk

Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The Companys exposure to the risk of changes in foreign exchange rates relates primarily to the foreign currency borrowings and interest payments thereon. The Company manages its foreign currency risk by hedging payments that are to be made within a maximum of 12 months period through currency futures.

c. Inventory Price Risk

The SPE division of the Company is exposed to the movement in price of principal finished product i.e. sugar. Prices of the sugar cane is fixed by government. Generally, sugar production is carried out during sugar cane harvesting period from November to April. Sugar is sold throughout the year which exposes the sugar inventory to the movement in the price. Company monitors the sugar prices on daily basis and formulates the sales strategy to achieve maximum realization. Ethanol prices are fixed by the central government and are generally fixed for the ethanol season unless the government changes the prices due to change in overall market scenario.

Credit Risk

Credit risk is the risk that counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss and other adverse consequences. The Company is exposed to credit risk from its operating activities primarily from trade receivables including unbilled revenues, cash and cash equivalents, bank deposits, loans receivables and investment in unquoted securities. The credit risk is reduced, presently, since the Company sells sugar on "cash and carry" basis. Surplus power is sold to UP Government based on power purchase agreement with Uttar Pradesh Power Corporation Limited. The risk of not realising power dues is non-existent but there could be delays. Ethanol is sold to Oil Marketing companies which are central government undertaking and risk of not realising the dues non-existent but there could be delays.

Liquidity Risk

The Company monitors its risk of shortage of funds using future cash flow projections. The Company manages its liquidity needs by continuously monitoring cash flows from customers and by maintaining adequate cash and cash equivalents.

CAUTIONERY STATEMENT

The statements in the Management Discussions and Analysis Report detailing the Companys objectives, projections, estimates, expectations, or predictions may be forward looking within the meaning of applicable securities laws and regulations. As these statements are based on certain assumptions and expectations of future events, actual result could differ materially from those expressed or implied. Important factors that could make a difference to the companys operations include economic conditions affecting global or domestic demand and supplies, political and economic developments in India or other countries, government regulations and taxation policies, prices and availability of raw materials, prices of finished goods, abnormal climatic and geographical conditions, etc. The company assumes no responsibility in respect of forward-looking statements contained in this Report as the same may be revised or modified in the future based on subsequent developments, information or events.

REFERENCES

Management has taken references and excerpt from the following sources to arrive at the above referred discussion and analysis.

1. Presentation by Crisil dated Jan2022

2. Care Rating Reports on Sugar Industry dated April19 ,2022

3. Report published by NITI Aayog, June,2021 on Etha- nol Blending Program

4. Indian Sugar Manufacturer Association (ISMA) web- site

5. Indian Economy: Overview, Market Size, Growth, De- velopment, Statistics...IBEF

6. Fitch Global Economic Outlook Dec2022

7. World Economic Outlook, IMF Report, April,2022

8. PIB release dated 7^th Jan,2022

9. World Bank Report

10. https://www.statista.com/

11. https://dfpd.gov.in/gen policy.htm

12. https://www.ragus.co.uk/global-sugar-market-re- port-february-2022/

13. https://rbi.org.in/Scripts/BS PressReleaseDisplay.as- px?prid=53601

14. https://www.adb.org/countries/india/economv

15. https://www2.deloitte.com/us/en/insights/econo- my/asia-pacific/india-economic-outlook.html

16. https://ihsmarkit.com/research-analysis/Glob- al-Trade-Outlook-2022.html

17. https://www.chinimandi.com/season-2021-22-indias- sugar-production-report-till-march-15/

18. https://www. ncbi.nlm.nih.gov/pmc/articles/ PMC8133819/

19. https://www.worldbank.org/en/publication/glob- al-economic-prospects