Bannari Amman Sugars Ltd Management Discussions.

Management Discussion & Analysis

INDUSTRY STRUCTURE AND DEVELOPMENT

In the World more than 110 countries are producing sugar either from cane or beet. EWorld sugar trade averages about 64 million tonnes per year. Raw sugar accounts for around 60% of internationally trade volumes. Although many countries are producing sugar, the top exporters are Brazil, Thailand, EU, Australia and India. Brazil, as the largest producing and exporting country in the World dominates world trade.

India is the largest consumer of sugar and the second largest producer next to Brazil. India became the Worlds largest sugar producer in 2018-19 be ating out Brazil for the first time in 16 years. India produced 33 million tonnes of sugar out of World sugar production of 179 million tones in 2018-19. However in 2019-20 the country expects sugar production drop by approximately 20%. According ISMA s expectation sugar production in the year 2019-20 is expected to fall to 27.0 million tones due to drought prevailed in Maharashtra and Karnataka.

Domestic Sugar Statistics

(in lakh tonnes)
Particulars 2015-16 2016-17 2017-18 2018-19 2019-20* (Estimate)
Opening Stock as on 1st Oct. 90.80 77.52 38.80 107.20 145.79
Production during the Season 251.25 202.85 324.79 331.62 270.00
Imports 0 4.46 2.15 0 0
Total Availability 342.05 284.83 365.74 438.82 415.79
Off-take
i) Internal Consumption 247.97 245.61 253.90 255.00 255.00
ii) Exports 16.56 0.46 4.64 38.00 50.00
Total off-take 264.53 246.07 258.54 293.00 305.00
Closing Stock as on 30th Sep 77.52 38.76 107.20 145.82 110.79
Stock as % of off-take 31.3% 15.8% 42.2% 57.2% 43.45%

(Source: Indian Sugar Mills Association (ISMA)

Opportunities and Threats in sugar Industry

The Company has built excellent relationship over the years with the local farming community. It is financially fit and well positioned to meet the challenges.

Sugar industry being agro based and vulnerable to commodity cycles is fraught with several risks. It has to source sugarcane from its command area where growth and availability would depend on monsoon.

Sugar follows 3-5 years cycle which is a function of prices. There is always a risk of bearish phase following excess supply. Sugar business is intrinsically cyclical. Market sentiments move disproportionate to demand-supply parity causing volatile change in product pricing.

Power price is subject to State Governments decision and fluctuating open market prices. Ethanol off take and movement are yet to be regularized, pending over a long period of time.

Performance of the company

Particulars Year Ended 31.03.2020 Year Ended 31.03.2019
Sugar
Installed Capacity (TCD) 23700 23700
Sugarcane Crushed (Lakh Tonnes) 39.84 37.33
Recovery % 9.38 9.65
Sugar bagged (Lakh Quintals) 37.64 35.97
Power
Installed Capacity
Co-gen Power (MW) 129.80 129.80
Wind Mills (MW) 8.75 8.75
Units Generated (Million Units) 490.20 478.86

 

Particulars Year Ended 31.03.2020 Year Ended 31.03.2019
Distillery
Installed Capacity (KLPD) 127.50 127.50
Alcohol Produced (Million B. Ltrs) 16.67 21.45
Granite Products
Polished slabs produced (Sq mtrs) 88483 142748
Polished tiles produced (Sq mtrs) 28560 59775

Financial Performance of the Company

(Rs. in Lakhs)
Particulars Year Ended 31.03.2020 Year Ended 31.03.2019
Revenue from operations
Sugar 133024.51 80150.52
Power 15742.57 15435.09
Distillery 8677.31 11296.26
Granite Products 3484.74 5616.74
Total Expenses (Excluding interest)
Sugar 128845.89 81841.42
Power 5406.98 3243.80
Distillery 5970.23 8321.78
Granite Products 3667.97 6855.38
Profit Before Interest and Tax (PBIT)
Sugar 4178.62 (1690.90)
Power 10335.59 12200.29
Distillery 2707.08 2974.48
Granite Products (183.23) (1238.64)
Profit After Tax (PAT) 9563.58 7593.85
Earnings per Share (Basic and Diluted) 76.27 60.56

Key Profitability Ratios

Particulars Year Ended 31.03.2020 Year Ended 31.03.2019
Profitability Ratios
Operating Profit Margin (EBIDTA/SALES %) 14.62 16.82
Net Profit Margin (PAT/SALES %) 5.94 6.75
Return on net Worth (PAT/Net Worth %) 7.65 6.49
Balance Sheet Ratios
Debt Equity Ratio (times) 0.21 0.23
Current Ratio (times) 1.46 1.48
Debtors Turnover (days) 35 24
Inventory Turnover (days) 210 176
Interest Coverage Ratios (times) 3.84 4.13

Turnover . Net Sales + Closing Stock - Opening Stock

The receivable has been increased due to delay in payment from TANGEDCO

Outlook

The EWorld sugar production was 179 million tonnes in the marketing year 2018-19 and 166 million tonnes in 2019-20 a nd the expected production for the marketing year 2020-21 will be around 188 million tonnes. The current outlook for low crude oil prices and a weak Brazilian Real are expected to continue to drive high sugar production in Brazil in 2020-21. Indias production is expected to rebound in the year 2020-21 at 33.7 million tonnes.

The demand and supply will be tied to measures implemented to control COVID-19 and the speed of economic recovery worldwide.

Risks and Concern

The drawdown of sugar stocks in India slowed in the second quarter of 2020 because of impacts of COVID-19. The National lockdown significantly reduced sugar consumption in India and limited port operations disturbed Indian exports.

The degree to which countries worldwide contain COVID-19 and resume social and economic activities remains uncertain. Out-of-home consumption will increase with the reopening of confectionary and beverages businesses.

Risks from possible supply-chain disruptions in different countries are being factored in to international contracts for the sale of sugar. This will continue to affect supply relationships as markets assess relative risks imposed by COVID-19 in different countries.

Details of Adequacy of Internal Financial Controls

The Companys internal control system is aimed at proper utilization and safeguarding of the Companys resources and promoting operational efficiency. The internal audit process reviews the in-system checks, covering significant operational areas regularly.

The Companys Audit Committee is responsible for reviewing the Report submitted by the Internal Auditors. Suggestions for improvements are considered and the Audit Committee follows up on the implementation of corrective actions. The Audit Committee also invites the Statutory and Internal Auditors for regular meetings to ascertain their vie* s on the adequacy of internal control systems and keeps the Board of Directors informed of its observations from time to time.

Human Resources and Industrial Relations

The Company employs 1846 permanent employees and the company maintains excellent relationship with its employees during the year under review. No case was filed under Sexual Harassment of women at workplace (Prevention Prohibition and Redressal) Act, 2013.

The company has created an excellent relationship with the farmers as well as other stakeholders including bankers.

CSR Activities

The Company is working tirelessly to enrich the lives of people in the rural community by providing them with a host of amenities that not just make their lives a whole lot easier but also ensures agricultural, educational and economic independence. Activities carried out by the Company includes Health camps in rural areas, Sanitation facilities, Check dams construction, desilting of tanks water bodies and contribution to Public authorities including State Disaster M anagement Authority.

Cautionary Statement

Statements made in this M anagement Discussion and Analysis Report may contain certain forward-looking statements based on various assumptions on the Companys present and future business strategies and the environment in which it operates. Actual results may differ substantially or materially from those expressed or implied due to risk and uncertainties. These risks and uncertainties include the effect of economic and political conditions in India and abroad, volatility in interest rates and in the securities market, new regulations and Government policies that may impact the Companys businesses as well as the ability to implement its strategies. The information contained herein is as of the date referenced and the Company does not undertake any obligation to update these statements. The Company has obtained all market data and other information from sources believed to be reliable or its internal estimates, although its accuracy or completeness cannot be guaranteed.