Andhra Sugars Ltd Management Discussions.

SUGAR:

Sugar Industry is an important Agro-based Industry that impact the rural livelihood of 50 Million farmers and around 5 lakh workers directly employed in Sugar Mills. This also generates indirect employment like transport services, trade servicing of machinery and supply of Agricultural inputs.

However, it is depressing that for the past several years, this Industry has been passing through a difficult phase which has culminated into a crisis. Measures are being taken by the Central Government to help the Industry to come out of this crisis. Minimum support sale price, retaining the same Fair Remunerative Price for the coming season 2019-20, Export Subsidies, permitting production of Sugar directly from B Molasses are some of the incentives that are being provided. But still there is a need that these measures are required to be reviewed from time to time to suit the prevailing circumstances keeping in view the long term perspective to bring much needed stability for survival of the Industry. Mis-match of cost of production and the sales realisation has severally impacted the profitability of this Industry, as Mills are not able to even recover the cost of production. High Cost of Sugarcane, high labour cost and other Duties have been the cause for the high production cost in India, which is one of the highest in the world. The Cane Pricing Policy of the Central and State Governments without linking to the Sugar price has been detrimental to the financial health of Sugar Industry. This has made many Sugar Mills sick in view of the mounting arrears of cane payments. It is welcoming that to give encouragement to Mills to step-up Ethanol production, a significant step has been taken by the Government permitting production of Ethanol directly from Sugarcane juice. This will facilitate the Mills in creating new Ethanol capacities. This would also give impetus to the Governments Ethanol Fuel Blending Programme. However, it is important that the price paid by Oil Manufacturing Companies commensurate the efforts and cost of production of Ethanol.

Major problems faced by Sugar Industry :

i) Low yield of Sugarcane:

Even though India has the largest area under Sugarcane cultivation and the yield per hectare is extremely low as compared to some of the major sugarcane producing Countries of the World.

ii) Fluctuating Production Trends :

Sugarcane crop has to compete with several other food and cash crops like Oil Seeds, Paddy, Maize etc., Consequent upon which the area available for sugar- cane cultivation has been decreasing year by year, thereby affecting the supply of Sugarcane to the Mills and production of Sugar.

iii) Low rate of Recovery :

The average rate of recovery in India is less than 10% which is low as compared to other major Sugar producing Countries.

Further, lack of Harvesting Labour, increasing labour hiring cost has also added to the high cost of production which does not match with the sale price realisation.

In such a scenario, your Company is focusing to increase yield per Acre and in this regard following steps have been taken :

i) Harvested 21,067 M.Ts. of Cane using Mechanical Harvesters in zones of the three Sugar Units.

ii) Encouraging wide row spacing Sugarcane plantation to suit Mechanical Harvesting to get around the harvesting labour problem and to ensure the manual harvesting cost is minimum.

iii) Factory level :

a) Vaccum Pan No.4 & 5 calendria were converted in to Low Head and High Heating Surface for improving the Sugar quality and reduce the final Molasses % on Cane due to better circulation and exhaustibility.

b) Poly Baffle Save-all has been provided for the above pans to minimize the entrainment losses.

c) Auto PH Control System was installed for juice clarification to maintain the consistency in clear juice quality and to avoid human errors. The System was successfully operated which improved the Sugar quality.

iv) Field Level :

a) Seedings of the varieties that passed through final stage of our R&D Cane were supplied to cane growers for planting to improve the yield and recovery.

b) High yielding varieties of SI 2010 - 123, SI 2010 - 309, 2003V46 and ROC 16 were raised on cane growers field with a view to demonstrate improvement in quality and quantity of cane.

c) Mechanical Harvesters were introduced to show the farming community that there is an equipment available to overcome the labour problem.

CHLOR ALKALI :

Your Company has an Integrated Chemical Complex at Saggonda manufacturing Caustic Soda, Chlorine and other Allied Products. A 400 TPD Caustic Soda Plant is in operation at Saggonda village of Gopalapuram Mandal and a 25 TPD Caustic Potash Plant at Kovvur, West Godavari, Andhra Pradesh.

Government of India has implemented Indian Standards specification for import of Caustic Soda. This is a welcome step as it would curb the imports of inferior and non complaint quality goods entering into Domestic Market. Consequent upon the enforcement of these Standards import of Caustic Soda has declined significantly thereby giving much needed relief to the Domestic Industry which would enable the Industry to increase their market share. This has made your Company to go in for expansion of Caustic Soda Plant.

Primarily disposal of Chlorine, which comes out of the Production of Caustic Soda, has been a cause of concern for Caustic Industry. This concern is further aggravated due to coming of Chlorine based products into the Country from overseas destinations. This has made the disposal of Chlorine further difficult resulting in piling of Chlorine Inventory and consequent upon this situation the realization from the sale of Chlorine in domestic market is on a lower side.

Secondly, the Power which is a major input for the production of Caustic Soda is required to be available at an economical price. There is a need for the Government to classify this Industry under "Energy Intensive industry" in order to get the benefit of availing Power at a concessional rate.

Despite the market constraints, due to Goodwill, your Company is getting consistent support from the bulk Customers and Traders who have been honouring their offtake of Liquid Chlorine. This has given an advantage to your Company to produce Caustic Soda as per the Production and Marketing Plans drawn out.

ASPIRIN :

As the International Regulatory market for Aspirin has increased in the recent times, your Companys focus has been on International Market particularly in Regulatory Markets. With a view to expand the avenue of this business, your Company is meeting the international standards under the Current Good Manufacturing Practices (CGMP). To fulfill the regulatory requirements of USA and European countries, your Companys Aspirin Plant has been audited and approved by USFDA and EDQM. Apart from this, US DMF, EU DMF / CEP, WHO GMP certificate and WC have been obtained for the Aspirin, issued by concerned International and National level Statutory Authorities for facilitating our customers to register their product in their respective Regulatory Markets.

Besides above, to explore new markets abroad, recently we have been successfully audited by Australian Regulatory Authority TGA (Therapeutic Goods Administration) and are making efforts to cater to East Asian and Chinese markets.

These certifications enable the Company to enter into a long-term supply contracts with the Multinational Companies and their supply Agents with a view to increase the sales volume and realisation.

Many of the customers, Overseas and Indian, have approved the quality of Aspirin for meeting their standards, and have initiated their validation process.

Considering the increased demand for Aspirin in Regulatory Markets, capacity of Aspirin Plant has been expanded to 2,000 MT / annum.

In the coming years, the focus would be on to widen International Client base.

POWER :

Your Company operates Chlor Alkali Plants which are Power Intensive with Power constituting a major input cost. Therefore, it is essential for your Company to ensure the availability of quantity and quality of Power to be self-sufficient in production and remain competitive. Keeping this in view, your Company successfully implemented and commissioned a 33 MW Captive Generation Thermal Plant at Saggonda. This is in addition to Solar Power Plant in operation at Kovvur. These two Plants will ensure adequate Power for Chemical Plants. Apart from this, the Company also as a Shareholder avails power from Andhra Pradesh Gas Power Corporation Limited (APGPCL), a gas based Power Generation Company. The Power availed from this source is cheaper compared to State Electricity Board Power. As and when required, the Company also opts to avail Open Access Power in order to ensure that the Power is obtained at an economical rate. This would facilitate in augmenting the Power requirements of Chemical Plants.

INTERNAL CONTROL SYSTEM

Your Company conducts a review of the financial and operating controls of the various Units. The Internal Control System of your Company is commensurate with its size and nature of business.

As per the provisions of the Companies Act, 2013 the Statutory Auditors have annexed a report on Internal Control System to the Independent Auditors Report pertaining to Financial Year 2018-19.

SEGMENT-WISE PERFORMANCE

Segment-wise performance has been given separately vide Annexure - II of Group Consolidated Accounts.

FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

Your Company has earned a Gross Profit of Rs. 332.99 Crores (before interest and depreciation) against Rs. 227.32 Crores (before interest and depreciation) in last year.

The Fund based working capital limits is Rs.140.00 Crores.

The gross Fixed Assets of your Company as on 31.3.2019 is Rs.839.33 Crores compared to Rs.736.08 Crores during the previous year 2017-18. Your Company has a net worth of Rs.1005.99 Crores.

HUMAN RESOURCE DEVELOPMENT / INDUSTRIAL RELATIONS

Your Company continuously reviews and monitors its manpower requirements to ensure that it has human skills commensurate with its needs. Industrial relations continued to be cordial. As on 31.3.2019 your Companys employees strength stands at 2,116.