Avadh Sugar & Energy Ltd Management Discussions

Economic Outlook:

Global Economy

The Global Economy in 2025 and 2026 is projected to experience steady, albeit subdued, growth. Global GDP growth is forecasted at 3.3% for both years, slightly below the historical average of 3.7% observed from 2000 to 2019. The forecast for 2025 remains largely unchanged from the previous outlook in October 2024, with a notable upward revision in the United States helping to offset downward revisions in other major economies. This global economic outlook is shaped by diverse factors across regions, reflecting both resilient growth in certain economies and challenges in others. Inflationary pressures are expected to ease globally, with global headline inflation projected to decline to 4.2% in 2025 and further to 3.5% by 2026. However, this decline is not uniform across regions; advanced economies are likely to achieve their inflation targets sooner, while emerging market and developing economies are expected to face a slower path to disinflation.

This evolving global economic landscape demands a balanced approach to policy-making, where managing inflation while supporting real economic activity remains a critical priority. Structural reforms, alongside stronger international cooperation, will be essential to enhancing medium-term growth prospects and addressing existing economic vulnerabilities.

Outlook

The Global Economic Outlook for 2025 remains stable but lacks dynamism, with projected growth of 3.3%, in line with 2024, and below the historical average of 3.7%. The growth pattern reflects diverging economic trajectories across advanced economies and emerging markets.

Growth outlook of major economies

¦ Advanced Economies: Growth in advanced

economies is expected to be uneven. The U.S. shows a more optimistic outlook with growth projected at 2.7% for 2025, driven by strong domestic demand, a less restrictive monetary policy, and robust labor markets. In contrast, the Euro area faces slower growth, revised down to 1.0% for 2025, primarily due to weaker-than-expected momentum in manufacturing and geopolitical tensions. Other advanced economies will experience stable growth, supported by recovering real incomes, though dampened by trade uncertainties.

¦ Emerging Market and Developing Economies: Growth in emerging markets is expected to remain stable, with China slightly revised upward to 4.6% in 2025 due to the fiscal stimulus and carryover effects from 2024. In India, growth is projected to be solid at 6.5%, in line with potential. Latin America and sub-Saharan Africa show modest growth, with slightly better projections for the latter, while growth in Central Asia is set to underperform due to the extension of OPEC+ production cuts.

Trade and investment:

The global trade volume outlook is slightly revised downward for 2025 and 2026, driven by increased trade policy uncertainty, which disproportionately affects investment, especially among trade-intensive firms. The uncertainty is expected to be temporary, and the nearterm effects could be mitigated by the front-loading of trade flows and expectations of tighter trade restrictions.

Inflation outlook:

Inflation is projected to continue its gradual decline, supported by cooling labour markets and falling energy prices. In the U.S., inflation is expected to remain above the 2% target, while inflation in the Euro area is expected to be more subdued. China is projected to experience persistently low inflation.

Monetary policy:

Central banks in major economies are expected to lower interest rates gradually, with the U.S. maintaining higher rates compared to other regions due to relatively higher inflation. The pace of policy rate cuts will vary, with the U.S. leading the charge, while the Euro area and others follow at a slower pace.

Source: World Economic Outlook

World output projections

Regional growth (%)	2024	2025 (E)	2026 (E)
Global Economy	3.3	2.8	3.0
Advanced Economies	1.8	1.4	1.5
Emerging Market & Developing Economies	4.3	3.7	3.9

Source: World Economy Outlook, International Monetary Fund April 2025 (Data not yet released)

Indian Economy

Indias economic trajectory in FY 2024-25 remained robust, with the economy estimated to grow at 6.5%, despite facing significant external headwinds. The growth momentum picked up during the year, with GDP growth improving from 5.6% in Q2 FY 2024-25 to 6.2% in Q3 FY 2024-25, driven by a strong performance in the agriculture and services sectors on the supply side and steady improvements in domestic consumption and core exports on the demand side. Notably, all major sectors of the economy are estimated to have grown close to their long-term trend rates. The International Monetary Fund (IMF), in its report released in February 2025, reaffirmed Indias position as the fastest-growing major economy, attributing this resilience to prudent macroeconomic policies and sustained structural reforms.

Inflationary pressures moderated significantly during the year. Retail inflation eased to 3.6% in February 2025, primarily due to a favorable trend in food prices, including a seasonal correction in vegetable prices and easing prices of pulses, aided by proactive administrative measures. As per the second advance estimates, kharif and rabi

foodgrain production is expected to grow by 6.8% and 2.8% respectively, supporting a stable inflation outlook.

On the fiscal front, the Union Government maintained a balanced approach between fiscal consolidation, welfare, and growth. The Union Budget 2025-26 laid out a credible medium-term fiscal path, targeting a reduction in Union government debt by 5.1 percentage points over six years, from FY 2024-25 to FY 2030-31. Preliminary data for FY 2024-25 indicates alignment of actual fiscal indicators with budget estimates, reflecting strong fiscal discipline.

The Union Budget 2025-26, anchored in the vision of Viksit Bharat, outlines a strategic growth agenda with a focus on agriculture, MSMEs, investments and exports as key growth drivers. It underscores the governments commitment to long-term development and economic resilience. While geopolitical tensions, global trade uncertainties, and commodity price volatility continue to pose risks to the global and domestic outlook, Indias economic fundamentals remain sound. In FY 2025-26, private sector capital formation, along with supportive fiscal policy, an accommodative monetary stance, and a reform-oriented policy framework, is expected to drive continued growth and stability.

Global sugar industry

The global sugar market outlook for the 2024/25 season indicates a widening deficit, with production expected to decline significantly from the previous year. Global sugar production is forecasted to fall by 5.844 Million Tonnes, reaching 175.540 Million Tonnes, while consumption is revised downward to 180.421 Million Tonnes, reflecting

slower growth. Key production regions such as Brazil, India, and the southern hemisphere have experienced disappointing seasons, contributing to the overall deficit. Despite lower prices, stock levels are projected to decrease, leading to a reduction in global sugar inventories. This shift, combined with modest trade deficits and challenges in production costs, suggests a tightening of the market

Overview

Particulars	2024/25	2023/24	Change in Million Tonne	Change in %
Production	175.540 \	181.384	-5.844	-3.22
Consumption	180.421 1	179.972	0.449	0.25
Surplus/Deficit	-4.881 \	1.412
Import demand	63.324N	69.119	-5.795	-8.38
Export availability	62.661N	69.635	-6.974	-10.02
End Stocks	93.597 \	97.815	-4.218	-4.31
Stocks/Consumption ratio in %	51.88 \	54.35

Source: ISO - Quarterly Market Outlook, February 2024

Production:

Global sugar production in 2024/25 is projected to reach 175.54 million tonnes, a decrease of 5.84 million tonnes from the previous season. The revision is mainly due to poor harvests in southern hemisphere countries like Brazil, Australia, and South Africa, and a significant decline in Indias production due to disease and poor yields. Indias

output is now expected to fall by 5.82 million tonnes compared to 2023/24, partly due to a larger diversion of sucrose to ethanol production, early closure of mills due to low yields and delay in crushing season. Other key revisions include a lower-than-expected sugar output in Brazil and Pakistan, with a small increase in Thailands production. Despite the drop in global production, sugar prices remain strong in domestic markets worldwide.

Production rises and falls in 2024/25 (October/September)

Rises	Changes from 2023/24 in Million Tonnes, tel quel	Falls	Changes from 2023/24 in Million Tonnes, tel quel
Thailand	+ 1.675	India	-5.82
EU	+ 1.021	Brazil	-3.979
China	+0.950	Pakistan	-0.686

Consumption:

Global sugar consumption for the 2024/25 season is forecasted to reach 180.421 Million Tonnes, marking a modest growth of 0.25%, a significant slowdown from the previous years 1.46% increase. Several regions are experiencing declines in consumption, particularly in Western Europe and North America, where health concerns, obesity issues, and product reformulations are driving down sugar demand. The rise of sugar alternatives like high-intensity sweeteners and fructose syrups further

contributes to this trend. In contrast, regions such as Equatorial & Southern Africa and South America are seeing higher growth rates, with Equatorial & Southern Africa leading at 1.6%. However, Far East & Oceania is projected to experience a decline of 0.4%, primarily due to reduced sugar imports in China and market access restrictions in countries like Indonesia and the Philippines. While overall global growth is slower, regions in Africa, South America, and parts of Asia are still driving moderate increases in consumption.

Exports:

In 2024/25, global sugar exports are projected to total 62.661 Million Tonnes, down 10% from the previous season. Brazils exports are expected to decline by 6.568 million tonnes to 32.140 Million Tonnes, while Thailands exports are set to rise by 1.675 Million Tonnes to 7.600 Million Tonnes, reaching a four-season high. Despite

Brazils increasing dominance in the global sugar market, challenges such as supply-chain considerations and freight costs may affect its future market share. Exports from Thailand and Central America are expected to help fill the supply gap. Indias export program for 2024/25, mainly driven by SEZ-based refining, faces slow progress, with only 40% of the planned volume being traded so far.

Global Sugar Price

Domestic sugar industry Overview

The Indian sugar industry is navigating a dynamic and transformative period, influenced by evolving domestic policies, volatile global markets, and a significant pivot towards green energy. Despite headwinds such as declining production and subdued domestic prices, recent policy shifts and strategic government support have set the stage for structural changes that are expected to redefine the sectors long-term.

Indias sugar production for the 2024-25 crushing season is projected to decline to approximately 26 Million Metric Tonnes, a significant drop from the 32 Million Metric Tonnes produced in the previous year. This downward trend reflects lower sugarcane yields, particularly in key producing states like Maharashtra, Karnataka, and Uttar Pradesh, which collectively contribute over 80% of national output. Even delayed starting of crushing in state like Maharashtra is also one of the vital reason. As of March 2025 prodction stood at 24.85 Million Metric Tonnes marking a 17.85% decrease compared to the same period in previous year.

The challenges facing the industry stem not only from climatic and agronomic factors but also from the growing diversion of sugarcane for ethanol production. The sugar industry had offered to divert 50 LMTs of equivalent sugar for Ethanol Supply Year (ESY) 2024-25. Out of this, Oil Marketing Companies (OMC) have allocated 40 LMT of diversion. The originally expected diversion of 35 LMT is now likely to be around 32 LMT. So far, approximately 29 LMT of sugar has been diverted for ethanol production. The lower than expected diversion is primarily due to absence of a price increase for ethanol derived from sugarcane juice & B-Heavy molasses. Consequently, producing sugar has now become more economically viable & it is expected that this will result about additional sugar production of 3 LMT, instead of diversion of ethanol.

Production: As of 31st March, 2025, Indias sugar production for the 2024-25 season reached 248.50 Lakh Tonnes, according to data released by the National federation of Co-operative Sugar Factories Ltd (NFCSF). The sugar season in India typically spans from October to September, and as of the reporting date, 113 factories remain operational across the country.

Uttar Pradesh has led the national production, contributing 87.7 Lakh Tonnes of sugar, supported by 57 operational factories. It is expected that production for the full season will reamin around at 92.50 LMT. This strong performance is attributed to improved yields from plant cane, better cane availability, and enhanced sugar recovery rates in the latter half of the season. These factors have collectively led to extended factory operations, with many units expected to remain active until mid to late April 2025.

Maharashtra recorded the second-highest production, with 80.20 Lakh Tonnes, despite only six mills currently in operation and expected production for season is 80.95 LMT

Karnataka contributed 39.90 Lakh Tonnes, with only four mills still operational out of the initial 80. However, certain mills in South Karnataka are anticipated to resume crushing during a special season scheduled from June/July to September 2025, potentially adding to the final production tally. Considering production of special season, estimated production for the full season in Karnataka is 42LMT.

Taking into account the diversion of 32 Lakh Tonnes of sugar for ethanol production, it is estimated the gross sugar production for the 2024-25 season to be 260.85 Lakh Tonnes.

State	No. of working factories		Actual sugar production (after diversion into ethanol)
	N=RIGHT>2024-25	2023-24	2024-25	2023-24
1 Uttar Pradesh	57	74	87.70	97.20
2 Maharashtra	6	67	80.10	107.30
3 Karnataka	4	4	39.90	50.10
4 Others*	46	59	40.80	47.90
Total	113	204	248.50	302.50

Source: ISMA (as of 31/3/25)

Indian sugar Balance Sheet

Particulars I 2024-25 (E)

Opening balance as on October 1 (LMT) 85.15

Sugar production (LMT) 260.85

Domestic consumption (LMT) 290.0

Sugar exports (LMT) 10

Closing balance as on September 30 (LMT) 46

Source: ISMA, *after verification of stocks by

the Government.

Exports: India has received government approval to export 1 Million Metric Tonnesons of sugar for the 2024-25 season, aimed at alleviating surplus stocks and supporting domestic prices, which are at their lowest in 18 months.. The limited export quota this year is expected to put pressure on global sugar prices but provide much-needed relief to local mills. However, it is projected that India will export upto 8 Lakh Tonnes of sugar in 2024-25 season, falling short of 10 Lakh Tonnes Quota. As of now, 3 Lakh Tonnes have been shipped with another 60000 Tonnes in port. With stronger production anticipated next year, this move is seen as a temporary but positive measure for the sugar sector.

Sugar price scenario: Sugar prices in the global market have surged to near decadal highs on fears of lower production in a few countries, including India. While Global crude oil & sugar market have experienced

significant decline due to US tariff & trade tension, Indias sugar market has remained relatively stable, insulated by domestic policies & limited exposure to International market volatility.

Indian sugar price

Policy and market developments

In recent years, the government has implemented various policies aimed at supporting the sugar industry, with a specific focus on benefiting farmers. This ongoing support, coupled with a growing emphasis on diverting resources towards ethanol production to bolster the Ethanol Blending Program in India, indicates promising prospects for the sugar sector in the future.

On 18th January, 2024, the Government of Uttar Pradesh revised the State Advised Price (SAP) of sugarcane for sugar season 2023-24 as follows: 1. Sugarcane price for early variety has been revised from H350 to H370 per quintal 2. Sugarcane price for general variety has been revised from H340 to H360 per quintal 3. Sugarcane price for rejected variety has been revised from H335 to H355 per quintal.

The press note also notified that the transportation charges for lifting of sugarcane from outside centres has been revised by @45 paisa per quintal up to a maximum H9.00 per quintal.

The Government of India imposed 50% export duty on molasses- by-product of sugar industry used in alcohol production, with effect from 18th January, 2024.

Ethanol industry

The Ethanol industry in India has undergone significant transformation, driven by government policy initiatives and a strategic push towards energy security, rural development and environmental sustainability. . Central to these efforts is the National Policy on Biofuels, 2018, as amended in 2022, which set ambitious targets to reduce Indias dependence on crude oil imports and enhance domestic renewable fuel production.

Ethanol Blending Program (EBP)

As of 28th February, 2025, the blending rate is 17.98% and it is estimated that India will achieve 20% ethanol blending rate in petrol by March 2025, five years ahead of the original 2030 deadline. The government is now considering to increase the ethanol blending target to 30% by 2030, reflecting the rapid progress and success of the current program. As of January 2025, monthly blending rate was 19.6% and as of February 2025, it was 19.68%.

The governments accelerated timeline and commitment to the ethanol blending program have placed India on track to meet the target of 20% ethanol blending in petrol by FY 2025-26, contributing to reduced fuel import bills, cleaner-burning fuels and also to support for sugarcane/ grain based rural economies.

Ethanol supply and feedstock utilization

To ensure stable ethanol production, the government allows a flexible feedstock policy. Approved materials include:

¦ Sugarcane-based sources: Juice, syrup, B-heavy and C-heavy molasses

¦ Grains: Surplus broken rice, maize, and others

¦ Biomass residues: Bagasse, cotton stalks, cassava, etc.

To meet increasing demand for ethanol, India has shifted from being a net exporter to a net importer of corn, primarily sourcing from Myanmar and Ukraine. This multi-feedstock approach enhances supply reliability and buffers against agricultural or market fluctuations. Usage is regulated by the National Biofuel Coordination Committee (NBCC) to balance ethanol demand and food security.

Impact on vehicle performance

The roadmap for ethanol blending in India, 2020-25, prepared by an inter-ministerial committee, indicates that the blending of ethanol up to 20% (E20) will result in only a marginal reduction in fuel efficiency for vehicles originally designed for E10. The Society of Indian Automobile Manufacturers (SIAM) has reported that, with modifications in engine hardware and tuning, any potential efficiency losses can be minimized. Furthermore, no major issues have been observed in terms of vehicle performance, engine wear, or deterioration of engine oils with the use of E20 fuel. This ensures that the transition to higher ethanol blending levels is both technically feasible and commercially viable.

Company Performance

Overview

Avadh Sugar & Energy Limited, a prominent member of the esteemed K. K. Birla Group of Sugar Companies, boasts over seven decades of industry expertise. With its roots tracing back to 1932, the company was formally established in 2015 through strategic mergers and demergers. As a diversified sugar player, Avadh engages in the production of sugar, spirits, ethanol, and other by-products, including cogeneration and sanitizers. Strategically located in Uttar Pradesh, Indias largest sugarcane-producing state, Avadh operates four state-of-the-art sugar mills with a combined licensed crushing capacity of 34,800 TCD. The company has distilleries with a total capacity of 325 KLPD and cogeneration facilities capable of producing 74 MW. This solidifies Avadhs reputation for exceptional efficiency and recovery rates, earning it a top spot in Indias sugar industry for the past two years

Segmental performance

Particulars	Sugar
	FY25	FY24
Sugar cane crushed (Lakh Tonnes)	49.46	61.90
Sugar recovery (%) (C equivalent)	10.80	11.24
Segmental revenue (H Crore)	2557.37	2502.76
PBIT (H Crore)	160.37	160.39
Production qty (In Lakh Tonnes)	4.57	6.40
Sales qty (In Lakh Tonnes)	5.09	5.09
Average realisation (H/ Lakh Tonnes)	384	373

Segmental performance

Particulars	Distillery (Ethanol)
	FY25	FY24
Segmental revenue (H Crore)	485.00	586.00
PBIT (H Crore)	63.20	123.00
Production qty (In Lakh litres)	735.78	990.75
Sales qty (In Lakh litres)	771.93	950.71
Average realisation (Rs/ Lakh litres)	61.58	61.58

Segmental performance

Particulars	Co-Generation (Power)
	FY25	FY24
Segmental revenue (H Crore)	189.52	200.63
PBIT (H Crore)	14.65	10.39
Production qty (In Lakh units)	2117	2695
Sales qty (In Lakh units)	1175	1741
Average realisation (Rs/ units)	3.37	3.40

Ratio analysis

Key financial ratios and details of significant changes therein (i.e. change of 25% or more in comparison to the previous financial year).

Ratio	FY 25	FY 24	Reason for change of 25% or more
Debtors turnover	50.67	44.71
Inventory turnover	1.47	1.65
Interest coverage ratio	3.26	4.09
Current ratio	1.12	1.05
Debt Equity ratio	1.24	1.28
Operating profit margin (%)	10.60%	12.37%
Net profit margin (%)	3.33%	4.75%	Change in Net Profit Ratio is 29.60% as compared to the preceding year due to lower profit after tax.
Return on Net worth	7.99%	12.46%	Change in Return on Networth is 35.90% as compared to the preceding year due to lower profit before tax and finance costs and availing new disbursements of term loans.

Risk management

At Avadh Sugar & Energy Limited, risk management is an integral and comprehensive aspect of the companys operations. The Risk management committee, established under the Board of Directors, is responsible for setting risk policies and overseeing the risk evaluation and mitigation process. This committee ensures that risk management, internal controls, and assurance processes are deeply embedded in all company activities, enabling effective identification and mitigation strategies across all business segments.

Internal auditors play a vital role in monitoring the effectiveness and adequacy of the companys internal control systems. They conduct regular assessments to ensure compliance with legal and regulatory requirements, evaluate the efficacy of operating systems, and verify adherence to accounting procedures and policies across all company offices. Their findings are directly reported to the Audit and risk management committee, ensuring transparency and accountability.

To address structural risks such as sugar price volatility, low sugar recovery, and government-regulated State Advised Price fixation, Avadh employs a range of proactive strategies. These include research and development initiatives, educational seminars for farmers on efficient harvesting practices, and operational efficiency enhancements at their facilities. These measures help increase cane yields, improve sugar recovery rates, and equip the company to effectively navigate industry risks and challenges.

Through these proactive approaches, Avadh Sugar & Energy Limited continuously strengthens its risk management framework, enhancing its resilience against potential disruptions and ensuring sustained business growth. By embedding risk management into its operations, Avadh demonstrates its commitment to mitigating risks, optimizing opportunities, and driving long-term success.

Human resources and industrial relations

At Avadh Sugar & Energy Limited, employees are recognized as the backbone of the companys success. To empower them with the latest skills and knowledge, the company conducted a range of training programs over the past year. These comprehensive programs covered technical, behavioural, business, leadership, customer service, safety, and ethical skills, ensuring employees stay abreast of technological advancements. As of 31st March, 2025, the companys workforce comprised 2,165, a talented team dedicated to driving growth and excellence.

Corporate social responsibility

At Avadh Sugar & Energy Limited, we prioritise environmental and social responsibility in every aspect of our operations. We strive to create a positive impact on the communities surrounding us, encompassing our workforce, the public, and the environment. Our corporate social responsibility initiatives are multifaceted:

Healthcare: We organise regular medical camps, providing free medicines and emergency medical equipment to those in need.

Education: We support the educational development of underprivileged children, offering them access to free books and educational resources, empowering them to become the leaders of tomorrow.

Environmental conservation: We acknowledge our responsibility towards the environment and actively work towards its betterment, adopting sustainable practices and reducing our ecological footprint.

By integrating social and environmental responsibility into our business model, we aim to contribute to the well-being of our communities and foster a sustainable future for generations to come.

Cautionary statement

The Management Discussion and Analysis section of our report includes several statements that outline the companys objectives, predictions, and expectations, as well as our assessments of macroeconomic conditions. These statements are considered "forward-looking" and are based on the current forecasts and assumptions of management. The actual results may vary from these projections due to a range of uncertainties and factors. These factors include but are not limited to fluctuations in global supply and demand, changes in macroeconomic policies, new regulatory impacts, and variations in pricing strategies. The Company does not assume responsibility for any discrepancies between projected and actual outcomes, as these forward-looking statements may be subject to change based on subsequent developments and events.