Avadh Sugar & Energy Ltd Management Discussions.

Cautionary Statement

Some statements in the Management Discussion and Analysis describing the Companys objectives, predictions, expectations and the macroeconomic estimates may be "forward-looking statements". Actual results may differ from the forward-looking statements contained in this document due to various uncertainties. These uncertainties may be due to various factors affecting global supply-demand and export import trend, macro-economic policy fluctuations, new regulations and pricing. The Company does not assume responsibility for any of the forwardlooking statements contained in this report as the same may be altered in future due to the subsequent development and events.

Global Economy

According to latest outlook by IMF it is observed that the global expansion has weakened. Global growth for 2018 is estimated at 3.7 percent, as in the October 2018 World Economic Outlook (WEO) forecast, despite weaker performance in some economies, notably Europe and Asia. The global economy is projected to grow at 3.5 percent in 2019 and 3.6 percent in 2020, 0.2 and 0.1 percentage point below last Octobers projections. The potential reasons for the downward projections are because of the negative effects of tariff increases enacted in the United States and China followed by introduction of new automobile fuel emission standards in Germany and Italy where concerns about sovereign and financial risks have weighed on domestic demand. Further to add to this, the weakening financial market sentiments and contraction in Turkey makes the world economy sentiments weaker. Across all the economies, improvement measures to boost potential growth and strengthen fiscal and financial stability would be essential to maintain the growth outlook for coming years.

Indian Economy

According to the International Monetary Fund (IMF) Indias GDP growth for 2019-20 is projected to grow at 7.3% in 2019 (2019-20) and 7.5% in 2020 (2020-21). This growth is supported by recovery of investment and robust consumption among a more expansionary stance of monetary policy and some expected impetus from fiscal policy. The focus of central bank has shifted from inflationary concerns to sustaining the growth momentum; RBI effected two back-to-back rate cuts of 25 basis points each to boost growth. Strengthening goods and services tax compliance and further reducing subsidies will lead to bring down Indias elevated public debt. Enhancing governance of public sector banks and reforms to hiring and dismissal regulations that would incentivize job creation and focus on spending on infrastructure, will enhance growth of the Indian economy going forward.

Global Sugar Economy

According to ISO global production is projected to achieve178.68 mln tons in sugar season (SS) 2018-19 compared to 182.97 mln tons in SS 2017-18. Projected lower production outlook for Brazil and the EU fuelled to lower production in current sugar season. Thailand is expected to witness an increase in production. Indias output to be a deciding factor for world sugar outlook for current season 2018-19.


World Sugar Balance Sheet (mln tons)



2018-19 (Projected) 2017-18 (Actuals) in mn tonnes in %
Production 178.68 182.97 -4.28 -2.34
Consumption 178.04 175.19 2.85 1.63
Surplus/Deficit 0.64 7.77 - -
Import demand 58.75 59.27 -0.33 -0.55
Export availability 58.82 60.19 -1.37 -2.27
End Stocks 93.27 92.71 0.76 0.82
Stocks/Consumption ratio in % 52.50 52.92 - -

Source: International Sugar Organisation

World Production Outlook

World production is forecast at 178.68 mln tons in 2018-19, the change in the world total, as against that projected in November, can be mainly attributed to the downward revisions introduced for Brazil and the EU. Indias output remains probably the main uncertainty. According to ISO, the global usage of sugar is anticipated to grow at the rate of 1.63% against 1.60% in 2017-18. Modest decrease in exports is expected on account of difference in stock dynamics in exporting countries in 2017-18 and in-significant increase in inventories for 2018-19 is projected. ISO expects world imports to decline by 0.3 mln tons compared to about 9 mln tons recorded in 2017-18. Thus, our third assessment shows a well- balanced global trade as the difference between global import demand and export availability is minuscule.

Production Falls and Rises in 2018/19 (October / September)

Falls Changes from 2017/18 in mln tons Rises Changes from 2017/18 in mln tons
EU -2.67 Cuba +0.45
Brazil -1.35
Thailand -0.92
Russia -5.56
Pakistan -0.52
Source: International Sugar Organisation World production in 2018-19 - 178.7 mln tonnes
World production in 2017-18- 182.9mln tonnes

Global Price Scenario

The world standards have remained on a neutral note. Indeed, in November raw sugar spot prices (the ISA Daily Price) were hovering around 13.00 cents/lb. Up to mid-February, prices varied in a relatively narrow range between 11.83 cents/lb and 13.30 cents/lb (the limit was broken on February 19th, but it remains to be seen whether the recent price rises will result in a rally). In terms of monthly averages, the ISA Price fell slightly in December from 12.91 cents/lb to 12.65 cents/lb before recovering to 12.81 cents/lb in January. The average for the first 21 days in February was 12.91 cents/lb.

Domestic price changes in LCU and USD in Selected Countries

Particulars Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 3-month change (Nov-Jan*)
ISA DP USD/ton 244.5 250.7 292.8 284.6 278.9 282.4 -1%
Brazil BRL/ton 1,029.8 1,213.8 1,287.4 1,354.8 1,371.4 1,376.7 2%
USD/ton 262.0 295.7 342.7 357.6 353.1 368.4 3%
China CNY/ton 4,803.7 4,638.4 4,883.9 4,952.7 4,925.3 4,912.2 -0.01
USD/ton 701.1 676.6 704.4 713.6 715.2 723.9 1%
EU EUR/ton 350.0 347.0 320.0 320.0 - - -0.08
USD/ton 404.2 404.6 367.5 363.7 - - -10%
India INR/ton 31,682.4 31,025.6 31,272.4 30,708.0 29,959.5 30,320.4 -1%
USD/ton 455.5 429.6 424.8 427.1 423.7 428.7 0%
Mexico MXN/ton 14,130.1 13,934.0 13,023.1 12,778.5 12,082.4 12,120.8 -0.05
USD/ton 749.4 732.7 678.9 630.3 600.5 632.8 0%
Philippines PHP/ton - 1,696.8 1,628.6 1,541.7 1,563.1 1,521.7 -0.01
USD/ton - 630.6 602.5 580.8 592.9 579.8 0%
Russia RUB/ton 31,182.6 33,361.9 38,700.9 39,211.6 38,697.2 38,212.3 -3%
USD/ton 470.9 494.2 587.9 590.3 576.0 575.5 -3%
US USD/ton 793.7 793.7 735.9 769.4 771.6 771.6 0.00

Demand Outlook

Global use of sugar is anticipated to grow at a rate of 1.63% in 2018-19 against 1.60% growth rate in 2017/18. In 2018-19 there is no expectation of higher consumption which will aid to increase in import demand in 2018-19. ISO projected increase in consumption in importing countries of ~1.62 mln tons is expected to be covered by higher domestic production of ~1.28 mln tons and modest releases of sugar from stocks in the US ~0.21 mln tons as well as lower reexports by a number of importing countries down by ~0.19 mln tons in 2017-18 rather than higher imports.

Consumption Outlook

World sugar balance in 2018-19, estimated global import demand at 58.75 mln tons as against 59.27 mln tons in the previous season. World imports are anticipated to decline by modest tonnage of 0.3 mln tons as compared to 9 mln tons in 2017-18.

Global Ethanol

Higher global production in 2018 is yet to be matched by the establishment of long-term higher presence rates while political progress towards reduced carbon emissions are also yet to receive firm backing from all corners. Production expanded significantly in the USA by +0.9 bln litres and Brazil +7.4 bln litres which are the two biggest markets whereas leaving a separate indication on the demand side. US demand was little changed while Brazilian ethanol demand grew substantially. Two other developments within the ethanol market in 2019 are moving towards greater production in India and the continued government support for higher blending rates in China. Indian ethanol demand rose mainly on account of increased blending with petrol . Furthermore, the continuous support from government including loans for the construction of distilleries, feedstock flexibility and a huge increase in buying programme from the Oil Marketing Companies, have pushed inclusion rates up significantly. Chinese ethanol programme faced a slow down on account of China - US trade dispute.

Country 2013 2014 2015 2016 2017 2018e 2019f
Argentina 476 653 804 910 1,050 1,100 1,150
Australia 255 233 205 185 190 205 205
Brazil 21,456 24,085 28,796 26,200 25,562 29,740 31,000
Canada 2,730 2,875 2,820 3,000 3,100 3,150 3,200
China 2,890 3,050 3,200 3,200 3,500 4,500 5,500
Colombia 394 419 459 427 470 590 600
EU 5,430 5,453 5,340 5,188 5,298 5,350 5,400
India 270 360 953 1,000 778 1,464 2,300
Japan 340 485 550 700 870 900 900
Paraguay 174 200 160 180 252 215 215
Peru 160 160 160 180 190 190 200
Philippines 363 425 475 540 590 660 660
Thailand 948 1,186 1,302 1,431 1,536 1,700 1,800
US 49,930 51,030 52,760 53,750 54,442 54,182 56,000
Others 595 629 630 591 485 650 550
Total 86,411 91,242 98,614 97,483 98,313 1,04,596 1,09,705

According to ISO world production in 2019 is expected to reach 110.1 bln litres, down marginally from a previous estimate of 110.2 bln litres.

Domestic Sugar Industry Overview

According to ISO, India stood as the worlds largest sugar producer for the second consecutive season. As reported by Indian Sugar Mills Association (ISMA), total sugar production in India hit 32.12 mln tons as on 30th April, 2019 as compared to 31.18 mln tons manufactured in 2018.

The sugar recovery in Northern India has been substantially better than the sugar recovery achieved in the last season. In the other parts of the country, including Maharashtra and Karnataka also, the sugar recovery is better than last year, though not as high as achieved in North India. Therefore, even though the quantum of sugarcane crushing in the current season is less than that in the last season, the sugar production in current sugar year 2018-19 will be marginally more than last year. Therefore, the sugar production in the current sugar year for the whole country is expected to be around 33.0 mln tons which is about 0.5 mln tons more than the last year.

Regional Overview

The sugar recovery has been higher across India compared to last season, whereas the estimation for SS 2019-20 has been projected lower sugarcane crop on account of higher diversion of crop for ethanol manufacturing. Centre has raised sugar sales quota to 2.1 mln ton for May and a similar quota is expected for June 2019.

According to Indian Sugar Mills Association (ISMA), water in Maharashtra reservoirs was below normal levels due to lower rainfall in the last monsoon season. Portraying cane acreage in the state will be significantly lower in the coming season. Even at the pan-India level, there is expectation that sugarcane availability will be much lower compared to the SS 18-19, thereby reducing sugar production in next sugar season.

With additional green field and brown field ethanol production capacities coming up, the sugar industry would be better placed to divert larger quantities of B heavy molasses/sugarcane juice, away from sugar into ethanol. This would further reduce sugar production in 2019-20 and insulate the industry from market glut conditions. Production upto April 30, 2019 in Uttar Pradesh reached 112.65 lac tons of sugar in 2018-19 while Maharashtra produced 107.0 lac tons and Karnataka too produced 43.20 lac tons of sugar. Considering higher production, GOI has allowed to export, 50 lac tons of sugar out of 2018-19 production.

Demand Supply Scenario

According to India Ratings production in SS 2018-19 is likely to exceed sugar demand of around 26 mln tons. With a high opening stock of 10.7 mln tons, India is likely to end SS 2018-19 with a stock of around 11 mln tons (including a buffer stock of 3 mln tons).

Particulars 2013-2014 2014-2015 2015-2016 2016-2017 2017-2018 2018-2019E
Opening Stock 8.2 6.5 8.8 7.7 4.02 10.72
Production 24.3 28.3 25.1 20.3 32.5 33.0
Increase in Production -3.19% 16.46% -11.31% -19.12% 60.10% 1.54%
Internal Consumption 24.0 24.8 24.6 23.98 25.8 26.0
Closing Stock - net of exports/imports 6.5 8.8 7.7 4.02 10.72 14.22
FRP 210 220 230 230 275 275
SAP (UP) 280* 280* 280 305 315 315

Domestic Ethanol

Total quantity for ethanol in India was up while the overall tender volume was reduced from 3.3 bln litres to around 2.6 bln litres after offers had been evaluated. The increasing quantity of OMCs will increase acceptance of ethanol and would help to increase the total volume of ethanol blended into domestic fuel by a further 800 mln litres this year, after a similar increase last year. The feedstock of choice for most of the ethanol production is likely to be C-molasses. Last season saw record production of over 14 million tonnes of molasses, in line with record sugar output. This gave some storage problems at the mills and resulted in a fall in molasses prices on the domestic market. The government has opened a soft-loan programme in order to expand ethanol capacity at sugar mills. The overall loan book value was increased to INR 74 bln, from INR 44 bln previously due to high interest.

In the recent past, Indias ethanol production had picked up. However, for India to be a leading producer of ethanol will require a long road to march as the lag between worlds largest producers of ethanol USA and Brazil are way too ahead on their production capacities. India clocked ethanol production of 1,250 mln liters in 2018 against 350 mln liters in 2014 which is 1.2% and 0.4% of global production of ethanol; whereas USA and Brazil together account for 83% of global ethanol production in 2018 and 87% of global ethanol production in 2010. Government of India is encouraging the ethanol production by various initiatives and monetary support to millers.

The new EBP programme stipulates procurement of ethanol produced directly from B-grade molasses, sugarcane juice, and damaged food grains such as wheat and broken rice. Separate pricing has been decided for three different routes namely conventional, B-grade and directly from sugarcane. The government has reduced GST rate on ethanol reduced to 5% from 18% earlier to boost production. Control of production, movement and storage of ethanol has been passed on to the central government under the new scheme in order to ensure smooth implementation of EBP programme and to facilitate centralised monitoring. Under the new programme, ethanol blending target of 10% by 2022 and 20% by 2030 has been proposed and 5% blending of biodiesel with diesel by 2030 is also proposed.

The government announced a soft loan of INR 4,400 cr and provided an interest subvention of INR 1,332 cr to mills for the next five years, including a moratorium period of one year, to enhance ethanol output. In February 2019 an extra soft loan of INR 15,500 cr was cleared and agreed to bear an interest subvention of INR 3,355 cr. In order to incentivize molasses based standalone distilleries, the government also allocated INR 2,600 cr. Till date, the Food Ministry has received application worth over INR 13,400 cr and has approved loans amounting to INR 6,000 cr.

Increased ethanol blending will to help to curtail the demand - supply scenario of sugar imbalance. Millers diverting their capacities of sugar towards ethanol will reduce the consumption of sugar, which would help in reducing the demand supply imbalance of sugar rise due to over production of sugar. In SY20E, it is estimated that around 2 mln ton of sugar will get diverted for ethanol production. Higher ethanol production would also help in reducing Indias oil imports by $1.7 billion annually. Indias ~80% of the domestic oil consumption is imported. Indias annual oil trade balance is $92 billion, which is more than 50% of the total trade balance. At 6% ethanol blending rate in SY19E, India is estimated to save $1 bn of foreign currency outgo. At 10% ethanol blending rate target, overall saving to the import bill would be $1.7 bn, 1.8% of Indias oil trade balance.

Indian Sugar Prices

Recently, the Government has raised the minimum support price (MSP) of sugar by Rs 2 per kg which is expected to generate an additional income of ~INR 3,000-3,500 crore for the sugar producers in the SS 2018-19. According to ISMA, the hike in MSP would amid at addressing the issue of mounting cane arrears. In SS 2018-19 India started with a pretty high opening stock of 10.72 lac mln tons up from the 2017-18 level of 4.02 lac mln tons. According to ISMA, India is likely to end the current SS 2018-19 with a stock of 14.22 Lac MT mt including a buffer stock of 30 Lac MT. The same was created for one year in July 2018 adjusting for this buffer stock, the stock-to-consumption ratio could exceed 33% compared to the normative carry forward requirement of 25%-27%.


In India, bagasse-based generation amounted to 13,307 GWh in 2018, up significantly from 9,777 GWh generated in 2017 and slightly above the previous record of 13,208 GWh established in 2015. The state of Maharashtra generated 1,489 GWh, Uttar Pradesh generated 1,130 GWh and Karnataka generated 974 GWh which is around 84% of Indias total bagasse generation in the 3-month period.

Company Overview

Avadh Sugar and Energy Limited is a part of the prestigious K. K. Birla Group of Sugar Companies. Established since 1932, the Group is in sugar business over 7 decades and consequent upon various schemes of merger and demerger, this Company was formed in 2015. Avadh Sugar & Energy Limited (Avadh) is an integrated sugar player dealing in sugar, spirits & ethanol, cogeneration and other byproducts. Avadh has four sugar mills at Uttar Pradesh and a combined crushing capacity of 32,000 TCD. Avadh has two distilleries with a total capacity of 200 KLPD, to be further expanded to 220 KLPD in 2019. Cogeneration facilities with capacity of 74 MW to be increased upto 80 MW on account of distillery expansion. Avadh is strategically located in Uttar Pradesh, a major State in manufacturing for sugar and best recovery pan India, since last two years.

Financial Parameters

Particulars Year ended 31 March 2019 (Amount in Rs.)
1 Total Income from Operations 2,13,016.59
2 Net Profit / (Loss) for the period(before Tax, Exceptional and / or Extraordinary items) 15,436.64
3 Net Profit / (Loss) for the period before tax(after Exceptional and / or Extraordinary items) 4 Net Profit / (Loss) for the period after tax(after Exceptional and / or Extraordinary items) 15,436.64 11,987.40
5 Total Comprehensive Income for the period[Comprising Profit / (Loss) for the period (after tax) and Other Comprehensive Income (after tax)] 11,921.91
6 Equity Share Capital 1,000.92
7 Other Equity 49,850.62
8 Earning Per Share (Basic & Diluted) 119.76

Disclosure under Regulation 34(3) read with Schedule V Clause B of SEBI (LODR) Regulations, 2015

Ratio 2018-19 2017-18
1 Debtor Turnover 20.09 31.89
2 Inventory Turnover 1.25 1.71
3 Interest Coverage Ratio 3.04 2.39
4 Current Ratio 1.01 0.83
5 Debt Equity Ratio 3.05 3.46
6 Operating Profit Margin (%) 11.90% 9.93%
7 Net Profit Margin (%) 5.62% 3.72%
8 Return on Networth 30% 25%

Operational Highlights Sugar Production

Human Resources management and Industrial relations

The Company aspires to act as a catalyst for transforming its human capital necessary for a sustained business outperformance. The human resource makes the heart and soul of the organisation. The Company is committed to encourage and inspire its employees to realise their maximum potential thereby adding value to the organisation. Regular training and development sessions are conducted to upgrade its employees and keep them abreast of latest industry trends. Health and safety are paramount for the Companys employees. All manufacturing facilities are closely monitored in terms of safety of operations of machinery. We are proud of our talent pool. We encourage healthy conversations for employees with their supervisors and leaders to maintain transparency. The Company believes in offering equal opportunity toeveryone in the organisation. The Company does not distinguish between people on basis of caste, creed, gender and physical abilities. The current strength of management staff in 2018-19 is 98 and non-management staff is 1790.

Corporate Social Responsibility

We demonstrate environmental and social responsibility at every step. We aim to benefit the communities around us - workforce, public and environment. We organise regular medical camps, give free medicines and also any emergency medical equipment required by the deprived. We are sowing the seeds for a budding nation by providing education to the underprivileged children and giving them access to free books. We also run an inter-level college for the students. We consider ourselves responsible for the environment around us and consciously take efforts for its upliftment.

Internal Control Systems

Avadh Sugar & Energy has a vigorous internal control system in place. The internal control system is designed to maintain efficiency measurability and verifiability, reliability of accounting and management information. Internal audit is conducted for all the processes to identify risks and verify whether all systems and processes are commensurate with the business size and structure. Usage of SAP has increased the operational efficiency significantly. Adequate internal control systems safeguard the assets of the company with timely identification and intervention to alleviate risks. The internal controls are verified by the members of Audit Committee to keep a check on the existing systems and take corrective action to further enhance the control measures.

Risk Management

The risk committee comprises members of the Board of Directors. The committee has prepared a complete Risk Management policy that is imbibed at the operations level to curb internal and external risk challenges. The committee also spreads awareness among employees about various risks associated with the market. An enterprise-wide risk identification, management and reduction programme helps Avadh Sugar & Energy take risk-eliminating. actions more proactively and in advance.

The Committee implements measures to counter all risks. Structural risks like sugar price volatility, low sugar recovery, State Advised Price fixation by Government and other industry risks are mitigated through R&D, organising seminars to educate farmers about efficient harvesting practices and adopting operational efficiency at the facilities. These help increase cane yields, improve sugar recovery and help the Company navigate various industry risks and challenges.


Financial year 2018-19

Financial year 2017-18

Hargaon Seohara Rosa Hata Hargaon Seohara Rosa Hata
Sugarcane crushed (lac quintals) 215.78 171.99 80.65 100.55 190.24 182.42 63.58 82.27
Recovery % 11.62 11.88 11.67 12.21 11.30 11.61 10.56 11.16
Sugarcane produced (lac quintals) 25.06 20.40 9.42 12.26 21.47 21.12 6.68 9.11
Crushing days 221 172 190 148 188 179 149 128

Alcohol Production (including Ethanol)


Financial year 2018-19

Financial year 2017-18

Hargaon Seohara Hargaon Seohara
Alcohol Produced (lac litres) 310.79 261.76 274.11 221.14
Recovery (%) (litres per quintal) 22.76 23.22 22.78 23.10
No. of distiliery operational days 296 253 273 230

Power Generated, Consumed and Sold


Financial year 2018-19

Financial year 2017-18

Haragon Seohara Hata Hargaon Seohara Hata
Power generated 739.87 895.99 729.32 624.89 963.51 553.00
Power sold to grid (units in lac) 470.13 558.28 874.36 422.67 626.05 663.17
No. of days worked 223 175 178 189 186 128