Dalmia Bharat Sugar & Industries Ltd Management Discussions

Global economy

The world economy appears poised for another year of sluggish growth in 2024, with lingering concerns of potential drawbacks. The delayed effects of previous monetary policies could exacerbate the deceleration of growth, compounded by elevated geopolitical tensions. Furthermore, a packed political schedule injects a significant level of ambiguity and the possibility of increased volatility into the equation.

It benefited from the sharp fall in commodity prices from their 2022 peaks and the continued recovery of global supply chains and normalisation of service sectors, while economies proved more resilient than expected to the aggressive increases in central bank interest rates.

This probably reflects the support to consumer spending from excess savings built up during the pandemic, as well as the fact that many households and firms had previously locked in low interest rates. There was, nonetheless, still a divergence in performance among the major economies.

The U.S. and India performed strongly, the Chinese recovery was disappointing, while growth was weak in the euro area. Overall, the global economy is still thought to have grown by well below its annual average of recent decades. The World Bank has estimated that in 2023 there was an expansion of just 3% (see Table 1), similar to the OECDs 2.9% estimate from November (OECD 2023) Throughout 2023, business surveys consistently indicated a gradual slowdown in global economic activity. According to the Global Economic Conditions Survey (GECS) (ACCA/IMA, 2024), confidence among accountants and financial professionals worldwide steadily declined over three consecutive quarters since Q1 (refer to Chart 1). Similarly, the widely observed J.P. Morgan Global Composite Purchasing Managers Index (PMI) experienced a significant decline from its peak in the spring, although it has shown slight improvement in recent months (S&P Global 2024). In various sectors, the manufacturing PMI either hovered around or approached contractionary levels for much of

2023 (S&P Global 2024), reflecting the sluggishness in global trade growth. However, it was the deceleration of the service sector PMI that primarily contributed to the decline in the Composite index. Despite these downturns, the surveys do not currently suggest a major global economic downturn.

Looking ahead to 2024, its anticipated that global growth will once again fall below its average, maintaining a pace of expansion similar to that of the previous year. The World Bank projects a 2.9% increase in global gross domestic product (GDP) (refer to Table 1), while the OECD predicts a slightly slower growth rate of 2.7% (OECD 2023). Growth in advanced economies is expected to remain well below average due to the persistence of restrictive monetary policies aimed at combating inflation, despite the likelihood of some easing possibly starting in the summer. The fiscal policies in major advanced economies are poised to be contractionary. The looming specter of political uncertainty, highlighted by significant elections this year, along with increased geopolitical tensions, could dampen confidence and consumer spending.

Overview:

The global disinflation of 2022–23. Growth in employment and incomes has held steady as favorable demand and supply developments have supported major economies, despite rising central bank interest rates aimed at restoring price stability. As inflation converges toward target levels and central banks pivot toward policy easing, a tightening of fiscal policies aimed at curbing high government debt levels, with higher taxes and lower government spending, is expected to weigh on growth. The pace of expansion is also expected to remain low by historical standards as a result of factors including the long-term consequences of the COVID-19 pandemic, Russias invasion of Ukraine, weak growth in productivity, and increasing geoeconomic fragmentation.

In late 2023, headline inflation neared its prepandemic level in most economies for the first time since the start of the global inflation surge

Sources: Haver Analytics; and IMF staff calculations.

Note: Panels 1 and 2 plot the median of a sample of 57 economies that accounts for 78 percent of World Economic Outlook world GDP (in weighted purchasing- power-parity terms) in 2023. Vertical axes are cut off at-4 percent and 16 percent. Panel 3 plots the median of a sample of 44 economies. The bands depict the 25^th to 75^th percentiles of data across economies. "Core inflation" is the percent change in the consumer price index for goods and services, excluding food and energy (or the closest available measure). AEs = advanced economies; EMDEs = emerging market and developing economies; SAAR = seasonally adjusted annual rate.

In the last quarter of 2023, headline inflation for advanced economies was 2.3% on a quarter-over-quarter annualized basis, down from a peak of 9.5% in the second quarter of 2022. For emerging market and developing economies, inflation was 9.9% in the last quarter of 2023, down from a peak of 13.7% in the first quarter of 2022, but this average was driven by high inflation in a few countries; for the median emerging market and developing economy, inflation declined to 3.9%.

This progress notwithstanding, inflation is not yet at target in most economies. As global inflation descended from its peak, economic activity grew steadily, defying warnings of stagfiation and global recession. During 2022 and 2023, global real GDP rose by accumulative 6.7%.

The cost of Brent crude oil averaged $83 per barrel in 2023, down from $101per barrel in 2022, with crude oil from Russia finding destinations outside the European Union and global crude oil demand falling short of expectations.

Regional growth (%)	2023	2022
World output	3.1	3.5
Advanced economies	1.69	2.5
Emerging and developing economies	4.1	3.8

Performance of major economies, 2023

United States: Reported GDP growth of 2.5% in 2023 compared to 1.9% in 2022 China: GDP growth was 5.2% in 2023 compared to 3% in 2022 United Kingdom: GDP grew by 0.4% in 2023 compared to 4.3% in 2022 Japan: GDP grew 1.9% in 2023 unchanged from a preliminary 1.9% in 2022 Germany: GDP contracted by 0.3% in 2023 compared to 1.8% in 2022

(Source: PWC report, EY report, IMF data, OECD data, Livemint) Outlook: Asia is expected to continue to account for the bulk of global growth in 2024-25. Infiation is expected to ease gradually as cost pressures moderate; headline inflation in G20 countries is expected to decline. The global economy has demonstrated resilience amid high inflation and monetary tightening, growth around previous levels for the next two years (Source: World Bank).

Indian economy

"In 10 years, India has moved from the 10^th largest economy of the world to the 5^th largest economy of the world. In 10 years, India is now seen as a country with immense potential which is backed by impressive performance." -Shri. Narendra Modi, Prime Minister of India

Overview:

Over the course of the last decade, India has showcased a robust and resilient growth story driven by perseverance, ingenuity, and vision. In the face of unprecedented challenges such as the Covid pandemic and geopolitical conflicts, the Indian economy has demonstrated a remarkable ability to bounce back and convert challenges into opportunities while striving to achieve strong, sustainable, balanced, and inclusive growth.

India reached a pivotal phase in its S-curve, characterized by acceleration in urbanization, industrialization, household incomes and energy consumption. India emerged as the fifth largest economy with a GDP of US$3.6 trillion and nominal per capita income of Rs. 123,945 in 2023-24.

The Indian economy was estimated to grow 7.8% in the 2023-24 fiscal against 7.2% in 2022-23 mainly on account of the improved performance in the mining and quarrying, manufacturing and certain segments of the services sector. India retained its position as the fifth largest economy. The Indian rupee displayed relative resilience compared to the previous year; the rupee opened at Rs 82.66 against the US dollar on the first trading day of 2023 and on 27 December was Rs 83.35 versus the greenback, a depreciation of 0.8%.

In the 11 months of FY 2023-24, the CPI inflation averaged 5.4% with rural inflation exceeding urban inflation. Lower production and erratic weather led to a spike in food inflation. In contrast, core inflation averaged at 4.5%, a sharp decline from 6.2% in FY 23. The softening of global commodity prices led to a moderation in core inflation.

Growth of the Indian economy

	FY 21	FY 22	FY23	FY24
Real GDP growth (%)	-6.6%	8.7	7.2	7.8
	Q1FY24	Q2FY24	Q3FY24	Q4FY24
Real GDP growth (%)	8.2	8.1	8.4	8.2

Indias monsoon for 2023 hit a five-year low. August was the driest month in a century. From June to September, the country received only 94% of its long-term average rainfall. Despite this reality, wheat production was expected to touch a record 114 million tonnes in the 2023-24 crop year on account of higher coverage. Rice production was expected to decline to reach 106 million metric tons (MMT) compared with 132 million metric tonnes in the previous year. Total kharif pulses production for 2023-24 was estimated at 71.18 lakh metric tonnes, lower than the previous year due to climatic conditions.

As per the first advance estimates of national income released by the National Statistical Office (NSO), the manufacturing sector output was estimated to grow 6.5 per cent in 2023-24 compared to 1.3% in 2022-23. The Indian mining sector growth was estimated at 8.1% in 2023-24 compared to 4.1% in 2022-23. Financial services, real estate and professional services were estimated to record a growth of 8.9% in 2023-24 compared to Indias net direct tax collection increased 19% to Rs. 4.71 lakh crore by January 2024. The gross collection was 24.58% higher than the gross collection for the corresponding period of the previous year. Gross GST collection of Rs 20.2 lakh crore represented an 11.7% increase; average monthly collection was Rs 1,68,000 crore, surpassing the previous years average of Rs 1,50,000 crore. The agriculture sector was expected to see a growth of 1.8% in 2023-24, lower than the 4% expansion recorded in 2022-23. Trade, hotel, transport, communication and services related to broadcasting segment are estimated to grow at 6.3% in 2023-24, a contraction from 14% in 2022-23. The Indian automobile segment was expected to close FY 2023-24 with a growth of 6-9%, despite global supply chain disruptions and rising ownership costs.

Outlook: The Indian economy is anticipated to surpass USD 4 trillion in 2024-25.

Industry overview

Overview of global sugar sector

Global production is estimated up 8.2 million tons year-over-year to 183.5 million with higher production for Brazil and India expected to more than offset a decline for Thailand and Pakistan. Consumption is anticipated to rise to a new record due to growth in markets including India and Pakistan. Exports are estimated higher as Brazil and Thailand are expected to more than offset lower shipments from India and Pakistan. Stocks are estimated lower to help meet domestic demand and higher exports from markets including Brazil and Thailand.

Global sugar consumption exceeded 178 million tonnes in 2022-23. This trend is anticipated to persist alongside population growth, resulting in an additional 2 million tonne consumption increase into 2023-24 at a growth rate of 1.45%.

Particulars	2019- 20	2020- 21	2021- 22	2022- 23	2023- 24(P)
Production	172	169	173	178	180
Consumption	170	171	175	178	180

The world sugar trade volume for the 2023-24 period is projected at 60.7 million tonnes, showing a slight decrease compared to the estimated volume for 2022-23. This decline is attributed to anticipated reductions in exportable sugar supplies from major producers such as Brazil, India and Thailand. Global import demand is expected to be subdued, with a notable forecasted decline in imports by both the European Union and the United States of America. However, there is an anticipated recovery in sugar purchases by China, following a decline in the 2022-23 period.

Overview of key sugar manufacturing geographies

Brazil: Production is estimated up 3.0 million tons to a near-record 41.0 million as favorable weather and increased area are expected to result in additional sugarcane available for crushing. Favorable sugar prices encouraged farmers to use their land for growing sugarcane instead of grains. The sugar/ethanol production mix is expected to favor sugar relative to the previous season; sugar will rise from 48 to 49% and ethanol will fall from 52 to 51%. Consumption and stocks are down while record exports are projected with the higher supplies.

China: Production is anticipated up 1.0 million tons to 10.0 million as favorable weather is expected to result in higher sugarcane yields. Consumption is estimated unchanged. Imports are expected to rise to help fill the gap between supply and demand but total supply remains tight due to curbed imports related to high world prices. Stocks are projected down 50% due to lower beginning stocks and as China sources from stocks to support consumption.

USA: Production is estimated fiat at 8.4 million tons. Imports are estimated down 10% to 2.8 million tons based on projected quota programs set at minimum levels consistent with World Trade Organization and free-trade agreement obligations and on projected imports from Mexico, re-exports and high-tier tari_ imports. Consumption is up slightly while stocks are reduced with the lower imports, modest growth in consumption and decline in production.

Thailand: Production is estimated to drop 1.7 million tons to 9.4 million tons due to drought during the intensive growth stage. Consumption is expected up in line with anticipated economic recovery and tourism that will boost domestic demand for sugar. Exports are estimated higher and are expected to exceed production, while stocks are projected to drop sharply following strong domestic and export demand.

(Source: usda.gov)

Overview of Indian sugar sector

The Indian sugar sector holds significant importance in the countrys agro-based economy. As the worlds second-largest producer of sugar, trailing only behind Brazil, India contributes approximately 20% to the global sugar production. This sector plays a pivotal role in providing livelihoods, offering direct employment to over 50 million individuals, including farmers, mill workers and transporters. Indias sugar industry operates within both organized and unorganized sectors. The organized sector encompasses sugar factories responsible for processing sugarcane into refined sugar and generating byproducts such as molasses, bagasse and press mud. On the other hand, the unorganized sector involves traditional products like gur (jaggery) and khandsari (semi-processed sugar). Sugarcane stands as the primary raw material for sugar production in India, with the country boasting one of the largest global areas dedicated to sugarcane cultivation. Uttar Pradesh, Maharashtra and Karnataka emerge as the top sugarcane-producing states in India, collectively contributing significantly to the nations robust sugar industry.

As per the Indian Sugar and Bio-energy Manufacturer Association (ISMA), this sugar season (October 1, 2023, to September 30, 2024) has seen 520 mills in operation, up from 515 last year. The 23/24 crush is nearly done. Uttar Pradesh mills have struggled to meet high initial expectations, as yields took a hit from intensive cane cultivation, while Maharashtras crop did better than expected due to late rains. Based on the latest data, 23/24 sugar output is likely to be 32 mln mt (Maharashtra at 11 mln mt, UP at 10.35 mln mt).

Media reports suggest the government is now likely to relax some restrictions on sucrose use for ethanol, by allowing 800k MTs of sugar equivalent feedstock to be diverted to Ethanol. Nearly all of this Sugarcane Juice Ethanol / B-molasses and B molasses ethanol was produced before restrictions were first introduced around mid-Dec 23. High sugar ending stocks in Sep 24, an improved 2024 monsoon outlook and Indian Govt focus on Ethanol Blending Program for fuel ethanol support our view that the government is likely to allow use of sucrose for ethanol in the 24/25 crushing period. We need to see how the coming monsson progresses and its spread over cane regions to estimate the quantum of diversion.

With a revised diversion of about 8 lakh metric tonnes (LMT) for ethanol production, Maharashtras net sugar production finished at 110 LMT. The sugarcane acreage in Maharashtra for the 2023-24 season is expected to be substantially lower lower at 13 lakh hectares, compared to the current seasons 14.5 lakh hectares. The lower area is on back of below normal monsoon of 2023. Over the past seven years in Uttar Pradesh, sugar production has undergone a shift, increasing from the 65-75 LMT range to the current range of 11-12 LMT. The states sugar production is relatively less affected by El Nino, due to its extensive irrigation system supplied by perennial rivers. In the last four seasons, sugar production in Uttar Pradesh has consistently ranged from 105 to 110 LMT, primarily due to the diversion of sugarcane towards ethanol. For the upcoming 2023-24 season, sugarcane acreage in Uttar Pradesh is anticipated to be marginally higher at 24.2 lakh hectares compared to the 22-23 seasons 23.9 lakh hectares. The crush has also come to an end in Uttar Pradesh and a total of 10.35 mn MTs of sugar has been produced. This is over an above the 5.5 Lakh MTs of sugar diverted to Sugarcane Juice and B Heavy Ethanol.

Anticipated net sugar production in Karnataka for the 2023-24 season is expected to reach 5.3 LMT. The estimated diversion for ethanol is 7 LMT, resulting in a gross sugar production estimate of about 60 LMT. Sugarcane acreage in Karnataka is estimated to be lower at 5.8 lakh hectares for the upcoming season, compared to 22-23 seasons 6. lakh hectares.

Estimated Cane Area for Harvesting 2023-24 SS (All _gs in LHa)

S.No. STATES	2022-23	23-24 Est	% Change over Last Year
1 Uttar Pradesh	23.86	24.20	1%
2 Maharashtra	14.50	13.00	-10%
3 Karnataka	6.50	5.80	-11%
4 Tamil Nadu	2.85	2.58	-9%
5 Gujarat	2.24	2.25	0%
6 Andhra Pradesh	1.57	1.57	0%
7 Bihar	2.52	2.59	3%
8 Punjab	0.90	0.96	7%
9 Haryana	1.25	1.20	-4%
10 Madhya Pradesh+Chhattisgarh	1.47	1.46	-1%
11 Odisha	0.41	0.41	0%
12 Uttarakhand	1.00	1.00	0%

The Indian sugar industry is committed towards nation building and striving to achieve the ethanol blending target fixed by the Government and therefore in 2023-24 season, sugar diversion towards production of ethanol is estimated to be 25 LMTs LMT against 45 LMT estimated in 2022-23 season which looking at a lower acreage and crop is substantial contribution from the sugar industry.

Sugar opening stock, production, consumption and closing stock in India over the years (in Lakh Metric tonnes)

Particulars	2019-20	2020-21	2021-22	2022 -23	2023-24
Opening Stock as on 1st Oct.	146	107	82	70	56
Production during the Season	274	312	358	328	320
Imports	0	0	0	0	0
Total Availability	420	419	440	398	376
Off-take:
I) Internal Consumption	253	266	273	279	295
ii) Exports	60	72	111	64	0
Total Off take	313	337	384	343	295
Closing Stock as on 30th Sept.	107	82	56	56	81
Stock as % of internal consumption	42%	31%	21%	20%	27%
Sugar Diverted to ethanol	7	21	36	45	25
GROSS SUGAR PRODUCTION	281	333	394	373	345

* 22-23 opening Stocks considered as 70 lakh MTs as declared by DFPD

- the 2023-24 crop nos. are derived on basis of latest crushing updates of various states and also as per ISMA press release dated 13^th March 2024 - Consumption nos. are basis DBSIL internal estimates vs ISMA consumption nos . 285 LMTs for 23-24 crop season - Govt is likely to announce additional diversion of 800k MTs which will take total diversion to 25 LMTs

Note: Stocks include only milled sugar, as all khandsari sugar produced is consumed within the marketing year. Virtually no centrifugal sugar is utilized for alcohol, feed, or other non-human consumption. All figures in raw value. To convert raw value to refined/crystal white sugar, divide by a factor of 1.07. Forecast for 2021/2022; market years 2022/2023 and 2023/2024 are estimates. Source: FAS New Delhi historical data series.

Indian cane cost trends

The Cabinet Committee on Economic Affairs approved the Fair and Remunerative Price (FRP) of sugarcane for Sugar Season 2024-25 at Rs. 340/quintal at sugar recovery rate of 10.25%. This is historic price of sugarcane which is about 8% higher than FRP of sugarcane for current season 2023-24. The revised FRP will be applicable w.e.f. 01 Oct 2024.

Fair and Remunerative Price (FRP) for sugarcane for the sugar season 2023-24 was Rs. 315 per quintal at a basic sugar recovery of 10.25%, with Rs. 3.07 per quintal as premium for every 0.1 percentage point increase in recovery.

At 107% higher than A2+FL cost of sugarcane, the new FRP will ensure prosperity of sugarcane farmers. It is noteworthy that India is already paying the highest price of sugarcane in the world and despite that Government is ensuring the worlds cheapest sugar to domestic consumers of Bharat. This decision of Central Government is going to benefit more than 5 crore sugarcane farmers (including family members) and lakhs of other persons involved in sugar sector. It re-confirms fulfilment of Modi ki Guarantee to double farmers income.

With this approval, sugar mills will pay FRP of sugarcane @ Rs. 340/ quintal at recovery of 10.25%. With each increase of recovery by 0.1%, farmers will get additional price of Rs. 3.32 while the same amount will be deducted on reduction of recovery by 0.1%. However, Rs. 315.10/quintal is the minimum price of sugarcane which is at recovery of 9.5%. Even if sugar recovery is lesser, farmers are assured of FRP @ Rs. 315.10/quintal.

(Source: PIB, Commission for agriculture costs and prices)

Sugarcane area, yield, prices and arrears

Sectorial demand drivers

Population growth: As of July 1, 2024, Indias population is projected to reach 1.44 billion, reflecting a 0.92% increase from the previous year. This sustained growth assures the company of an expanded market and catalysing sugar consumption (Source: Indianexpress.com, Weforum.org)

Confectionary segment growth: In 2024, the confectionery segment in India recorded revenues of US$1.19 trillion and is projected to grow at a compound annual growth rate (CAGR) of 5.78% from 2024 to 2028. (Source: Statista.com, Expertmarketresearch.com)

Soft drink consumption: The global soft drinks market reached a size of US$ 604.0 billion in 2023 and is expected to grow at a CAGR of 4.18% to reach US$ 872.8 billion by 2032. However, this trend is anticipated to fuel an increase in sugar consumption. (Source: Livemint.com, Business Today, Economic Times, IMARC Group)

Government initiatives

National Biofuel Policy: The Indian government aims to achieve national ethanol blend rates of 10% and 20% in gasoline by 2022 and 2025 respectively, as per the 2018 National Biofuel Policy. This initiative intends to enhance ethanol production from various sources including sugarcane and broken grains. To meet these targets, sugar mills and distilleries are encouraged to divert surplus sugar derivatives towards ethanol production. India surpassed the 10% blending target in June 2022, with plans underway to reach 20%. The Ministry of Petroleum and Natural Gas has raised procurement prices for ethanol derived from sugarcane derivatives for the ethanol supply year 2022-23. (Source: USDA)

Sugar subsidy scheme: The Indian government has revised the sugar subsidy scheme for distribution through the Antyodaya Anna Yojana program, offering sugar at Rs18.50/kg ($0.24/kg), providing 1.0 kg per family per month. The states and union territories can include shipping and handling fees directly to the beneficiary, adding to the retail issue price of Rs 13.50/kg ($0.16/kg).

Sugar Development Fund: The Indian governments Sugar Development Fund (SDF) provides financial support to enhance sugarcane production and facilitate various initiatives such as mill renovations, cane varietal development and bagasse-based power projects. Currently, SDF loans are offered at a two percent lower rate than the standard bank rate. In the Indian Fiscal Year (IFY) 2023-2024, approximately $9.5 million (INR 779 million) has been allocated to the sugar industry for various assistance programs, including mill distillery renovations for ethanol production. The budgetary allocation for ethanol production in sugar mills increased by 54 percent in FY 2023-2024 compared to FY 2022-2023.

SWOT analysis of Indian sugar industry

Strengths:

1. Abundant Sugarcane Availability: India is one of the worlds largest producers of sugarcane, providing a robust raw material base for the sugar industry.

2. Diverse Geographical Presence: The sugar industry is spread across various regions in India, reducing the impact of adverse weather conditions on production.

3. Growing Domestic Market: India has a large and growing domestic market for sugar and sugar-based products, driven by population growth and increasing urbanization.

4. Government Support: The Indian government provides various subsidies, incentives, and price support mechanisms to the sugar industry, promoting its growth and stability.

5. Skilled Labor Force: India possesses a skilled labor force with expertise in sugarcane cultivation, harvesting, and processing, contributing to the efficiency of the industry.

6. Integrated Value Chain: Many sugar mills in India have integrated operations, including sugar production, ethanol distillation, and power generation, allowing for optimization of resources and revenue streams.

Weaknesses:

1. Cyclical Nature: The sugar industry is prone to cyclical fluctuations in prices and production due to factors like weather conditions, government policies, and global market trends.

2. Aging Infrastructure: Much of the sugar processing infrastructure in India is outdated and in need of modernization, leading to ine_ciencies and higher production costs.

3. Price Volatility: Sugar prices in India are subject to significant volatility, influenced by factors such as global market trends, domestic demand-supply dynamics, and government intervention.

4. Dependency on Monsoons: The Indian sugar industry heavily relies on monsoon rains for irrigation, making it vulnerable to fluctuations in rainfall patterns and droughts, affecting crop yields.

5. High Transportation Costs: Sugarcane is bulky and perishable, leading to high transportation costs from farms to processing mills, especially in regions with inadequate infrastructure.

Opportunities:

1. Diversification: The industry can explore opportunities for diversification by expanding into related sectors such as ethanol production, cogeneration of power, and value-added products like confectionery and beverages.

2. Export Potential: With increasing global demand for sugar and related products, there is an opportunity for Indian sugar producers to explore export markets and capitalize on their competitive advantage in terms of cost and quality.

3. Technological Advancements: Adoption of advanced technologies and modern farming practices can enhance productivity, reduce costs, and improve the overall efficiency of the sugar industry.

4. Government Initiatives for Ethanol Blending: With the government promoting ethanol blending with petrol, there is a significant opportunity for the sugar industry to expand ethanol production, diversify revenue streams, and reduce dependence on sugar prices.

Threats:

1. Global Competition: Indian sugar producers face sti_ competition from other major sugar-producing countries, which can impact their market share and pricing competitiveness.

2. Government Policies: Changes in government policies related to pricing, subsidies, and import-export regulations can significantly impact the profitability and stability of the sugar industry.

3. Environmental Regulations: Increasing environmental regulations and concerns about sustainability could pose challenges for the sugar industry, particularly in terms of water usage, land management, and waste disposal.

4. Disease Outbreaks: Outbreaks of diseases affecting sugarcane, such as red rot or sugarcane mosaic virus, can significantly impact production and quality, leading to financial losses for the industry.

5. Fluctuating Sugar Prices: The volatility of sugar prices in the international market, influenced by factors like weather, government policies, and trade agreements, poses a threat to the profitability of Indian sugar producers.

6. Land Availability and Competition: Limited availability of arable land and competition from other crops for land use, such as food grains or cash crops, could restrict the expansion of sugarcane cultivation and production capacity.

Overview of Indian Biofuel sector

With the Government of India showing increased support for alternative energy sources, the Indian biofuel industry is experiencing rapid growth. Its exploring various forms of renewable bio-energy sources such as sustainable aviation fuel (SAF), compressed biogas, 2G ethanol, and green hydrogen, while also promoting the manufacturing and consumption of fermented organic manure. Currently, the biofuel market in India is primarily focused on ethanol and biodiesel, with ethanol constituting a significant portion. Notable investments, particularly by the government, are being made to convert surplus sugar into ethanol, strengthening the countrys aim to establish an ethanol economy. India is projected to potentially surpass China and become the worlds third-largest ethanol consumer by 2026, trailing only behind the US and Brazil.

For more than a decade, ethanol has served as Indias predominant biofuel. Its demand surged following the implementation of the Ethanol Blending Program in 2001, steadily rising ever since. With the government of India aiming for increased blending targets, set at 20% by 2025, the ethanol market is poised for further expansion, especially within the blending sector. Over the years, the Government of India has implemented various initiatives to stimulate demand and promote the growth of the ethanol industry In 2023, Indias ethanol market reached $6,512.27 million, with a projected CAGR of 8.84% through 2029, potentially reaching $10,456.98 million by 2029. The governments ethanol program aims to reduce reliance on imported crude oil and promote ethanol as a transportation fuel. Launched in 2003, the program has led to several initiatives to boost ethanol production and usage. India is expected to become the worlds third-largest ethanol market by 2026, after the US and Brazil, according to the International Energy Agency. This program offers multiple benefits, including reducing air pollution and providing additional income for farmers. Blending ethanol with petrol has stabilized the sugar industry by reducing its cyclical nature. The government has set a target of achieving a 20% ethanol blending ratio by 2025, up from 10.02% in ESY 2021-22 and has implemented various measures to promote ethanol production and usage in India. This includes: Incentives for ethanol production from various sources Minimum ethanol blending requirement in petrol National biofuels policy framework Diversification of feedstocks for ethanol production Subsidies for ethanol production facilities Starting from April 1, 2023, all passenger vehicles manufactured in India must adhere to E20 standards, allowing them to operate on a 20% ethanol blend. This move aims to align with Indias target of achieving a 20% ethanol blend by 2025.

Indias fuel ethanol program is experiencing rapid growth, driven by the governments emphasis on renewable fuels and the nations abundant sugarcane and grain resources. The Indian Biofuel Policy, initiated in 2009 and updated in 2018, aims to reduce Indias reliance on imported fossil fuels, enhance energy security and promote sustainable development. The policy encourages research and development investment to enhance biofuel production efficiency and explore new feedstocks and technologies. It also advocates for the establishment of biofuel corridors and hubs to facilitate distribution and usage.

India has set a ambitious goal to boost ethanol production capacity to approximately 15 billion litres, necessitating substantial infrastructure investments. Many sugar companies have already established dual-feed ethanol plants, incorporating corn and grains alongside sugarcane and molasses to ramp up production. Despite progress, challenges persist, including feedstock availability, storage infrastructure, distribution and research and development investment.

The ethanol production capacity is projected to reach around 12 billion litres by 2025, a significant increase from current levels. Sugar mills and distilleries have the freedom to establish ethanol plants upon obtaining necessary clearances. The government has introduced an interest subvention scheme to facilitate the establishment of these plants.

(Source: Gktoday.in, International sugar journal.com, ISMA, The Hindu, Mint, Economic Times, Business Standard, Fas.usda.gov)

Indian co-generation sector overview

Sugarcane processing yields bagasse, a valuable biomass used for power cogeneration. This process generates heat and electricity, contributing to energy security and lower emissions. Bagasse utilization offers benefits like zero carbon emissions, reduced fuel costs and enhanced energy security. Its a cleaner alternative to traditional energy sources, aligning with increasing demand for refined sugar in the domestic market.

DBSILs sugar business

The company has significantly redirected its focus towards the ethanol segment by increasing the diversion of sugar. This strategic shift has effectively transformed the business model, making it more stable and less susceptible to cyclical fluctuations. Anticipating lower production levels for the upcoming year, we foresee that this adjustment will contribute to maintaining stability in sugar prices and overall business dynamics in the short run.

Strengths

The company remains the sole private-sector sugar manufacturer originating from Uttar Pradesh, continuing its operations in Maharashtra.

Over the last decade, the company has emerged as one of the largest and fastest-growing sugar manufacturers in India. The company has consistently demonstrated a strong commitment to enhancing operational efficiency, as reflected in its sustained achievement of higher sugar recovery rates.

In its efforts to enhance efficiency and ensure the production of higher quality sugar, the company has implemented an early-harvesting mix, constituting 95% of its operations in Uttar Pradesh.

The company has adopted a balanced approach to expansion and fund deployment.

The company has implemented its most assertive sugar diversion policy.

The company has initiated the early expansion of its grain ethanol capacities.

Transitioning to alternative varieties in a strategic and organized manner.

Sustained enhancements in the fundamentals of the balance sheet.

Challenges: Despite ongoing challenges with sugar stock levels, the governments proactive policies on exporting and the ethanol blending program have played a crucial role in effectively addressing the situation for the overall economy.

Outlook FY 2024-25

DBSILs distillery business

The company boosted its distillery production from 17.08 Crores Litres to 17.64 Crores Litres in the fiscal year 2023-24. The ethanol tender quantity allotted for the Ethanol Year 23-24 amounted to 19.84 Crores litres, surpassing the previous years 15.04 Crores litres. Leveraging its expanded capacity, the company anticipates an annual sale of approximately 23 Crores litres of Ethanol/ENA.

Strengths

The distilleries operated at around maximum capacity utilization.

The company possessed the capability to produce various types of alcohol, including ethanol, recti_ed spirit and extraneutral alcohol.

All of the companys plants were equipped with modern technologies aimed at improving operational efficiency and achieving zero liquid discharge.

The presence of quality molasses played a role in enhancing ethanol recovery.

Challenges: With higher cost of production due to cane price rises, ethanol prices need to be significantly increased to make it viable for new capacities to come in and existing capacitities to operate at current levels.

Outlook, FY 2024-25

DBSILs cogeneration business

Strengths

The company fulfills its entire power requirement through its co-generation plant, possessing ample capacity to meet 100% of its power needs.

All the plants are equipped with high-e_ciency boilers.

Challenges: The cogeneration segment faces a significant challenge due to reduced power tariffs in Uttar Pradesh, which are still not sufficient to operate during the off season. Consequently, the Company needs to sell excess bagasse outside Uttar Pradesh. Another major threat to the cogeneration segment is the potential decrease in power tariffs in Maharashtra.

Outlook, FY 2024-25

Financial overview

Key performance metrics

Parameters	FY 2023-24	FY 2022-23
Total revenue (Rs. crore)	3006	3328
EBIDTA (Rs. crore)	539	515
PBT (Rs crore)	363	356
PAT (Rs crore)	272	250
Earnings per share (Rs)	33.57	30.9

Analysis of the Profit & Loss statement

Revenues

The Companys total revenues stood Rs.3006 crore as against Rs. 3328 Crore in the previous year .

Expenses

The Companys total expenses decreased from gap between Rs. 2974 crore in FY 2022-23 to Rs. 2643 crore in FY 2023-24 mainly on account of higher closing inventory. Employees expenses, comprising 7% of the total revenues, increased by 7% from Rs. 187 crore in FY 2022-23 to Rs. 200 crore in FY 2023-24 due to higher season days and annual increment impact.

Analysis of the Balance Sheet

Sources of funds

Net worth: The net worth of the Company increased 8 % from Rs. 2705 crore as on 31^st March 2023 to Rs. 2931 crore as on 31^st March 2024. The Companys equity share capital, comprising 8.09 crore equity shares of Rs.2 each, remained unchanged during the year under review.

Long-term debt: Long-term debt of the Company decreased 3.49% from Rs. 401 crores as on 31^st March 2023 to Rs. 387 crores as at 31^st March 2024 due to repayment of loan. Long-term debt-equity ratio of the Company stood at 0.13 in FY 2023-24 compared to 0.15 in FY 2022-23.

Finance cost: Finance cost of the company increased in comparision to last year. The Companys interest cover stood at a comfortable 15 times in FY 2023-24 (23 times in FY 2022-23), reflecting a comfort in servicing interest.

Application of funds

Fixed assets (gross) of the Company increased from Rs. 2804 crores as on 31^st March 2023 to Rs. 3077 crore as on 31^st March 2024 mainly due to expansion of JWP grain distillery plant capacity.

Investments

Non-current investments of the Company increased from Rs. 636 crore as on 31^st March 2023 to Rs.679 crore as on 31^st March 2024 mainly due to an increase in the marked-to-market gain on long-term equity investments.

Working capital management

Current assets of the Company increased from 1400 crores as on 31^st March 2023 to Rs.2591 crore as on 31^st March 2024. Current Ratio stood at 1.63 in FY 2023-24 compared to 2.73 in FY 2022-23. Inventories, including raw materials, work-in-progress and finished goods, among others, increase from Rs. 1037 crores as on 31^st March 2023 to Rs 1756 crore as on 31^st March 2024, a increase of 69%. Cash and bank balances of the Company increased from Rs. 69 crore as on 31^st March 2023 to Rs. 528 crore as on 31^st March 2024.

Margins

A strong cost control helped the Company in reporting better margins during the year under review. The EBITDA margin of the Company increased from 15 % in FY 2022-23 to 18% in FY 2023-24 while net profit margin increased due to one-time gains in the year.

Key financial ratios

S.no Ratios	Formulae	For the year ended 31st March 2024	For the year ended 31st March 2023	Deviation
a) Current Ratio	Current Asset/Current liabilities	1.63	2.73	-40%
Comment:- Current ratio has reduced on account of substantial increase in sugar inventory due to no exports and restricted
diversion of sugar towards ethanol.
b) Debt-Equity Ratio	Debt/Equity	0.13	0.15	-13%
c) Debt service coverage Ratio	(PBT+Dep+Int on TL) \[Interest +repayment (incl prepayments)]	3.21	5.51	-42%
Comment:- Debt service coverage ratio is impacted due to prepayments during the year.
d) Return on Equity Ratio	Net Income/Average Shareholder Equity	0.10	0.10	-1%
e) Inventory Turnover Ratio	Revenue from operation / Average Inventory { (Closing Inventory + Opening Inventory)/2}	2.08	2.86	-27%
Comment:- Due to lower sugar sales volume and consequential increase in sugar inventory.
f ) Trade Receivable turnover Ratio	Total Sales / Average Accounts Receivable { (Closing Accounts Receivable + Opening Accounts Receivable)/2}	21.56	21.34	1%
g) Trade Payable turnover Ratio	Net Credit purchases/Average account payable	8.98	9.13	-2%
h) Net Capital turnover Ratio	Net annual sales/Shareholders Equity	1.03	1.28	-20%
I) Net profit Ratio	(Net profit Margin Revenue-Cost)/ Revenue	0.09	0.08	21%
j) Return to capital employed	EBIT/Capital employed	0.13	0.13	-4%
k) Return on investment	Net profit/Total Assets*100	5.27	6.58	-20%

Disclosure of accounting treatment

DBSIL has followed Indian accounting standards in the preparation of its financial statements and there has been no deviation.

Internal control systems and their adequacy

The internal control systems are structured and commensurate with the size of operations of the Company. It is an integral part of the general organizational structure of the Company. The policies and procedures adopted by the Company ensures the orderly and efficient conduct of business, safeguarding of assets, prevention and detection of frauds and errors, adequacy and completeness of the accounting records and timely preparation of reliable financial information. The internal auditors conduct regular internal audits as per approved plans; the Audit Committee reviews periodically the adequacy and effectiveness of internal control systems and takes steps for corrective measures whenever required. There are established Cause-E_ect-Action (CEA) systems and escalation matrices to ensure that all critical aspects are addressed well in time.

Human resources

The company believes that human capital is crucial for sustainable growth and prioritizes the well-being of its employees by providing a supportive environment for their personal and professional development. It aims to nurture a joyful working atmosphere to enhance productivity and efficiency. DBSIL conducts various employee engagement activities such as workshops, events and celebrations to promote its cultural philosophy and keep employees engaged. Continuous learning opportunities are provided through unit-specific training and skill development initiatives, with assistance from the ‘Nalanda team at the Dalmia Group level. Regular training sessions cover policies, code of conduct, safety protocols and other relevant topics to ensure employee awareness. DBSIL places great emphasis on employee health and safety, striving for a "Zero accident" culture and implementing a "safety-first" approach with regular third-party safety audits. The companys human relations and compliance department collaborates with units to prevent human rights violations and any instances of discrimination are addressed promptly. Employees are encouraged to adhere to the companys Code of Conduct. Total number of employees, employed by the Company (Directly and Indirectly) during the year are 3554 as compared to 3471 during the previous year.

Risks and concerns

DBSIL follows a structured mechanism for identifying, mapping, assessing, controlling, reviewing, aligning and ultimately mitigating risks. This approach provides a better understanding of risks and associated controls, enabling the company to evaluate and prepare for situations more effectively. The identified risks and corresponding mitigation methodologies are as follows:

Risk	Mitigation / plan
Political & economical risks	Despite uncontrollable risks, the Government has introduced impactful reforms including setting Minimum Support Prices (MSP), implementing monthly sales quotas and promoting aggressive ethanol blending. These measures have transformed the industry, shifting it from a cyclical commodity market to one with more stable revenue streams.
Sugar price reduction
Cane price increase
Power tariff reduction
Operational risks	The risk of sugar price reduction has been significantly reduced through measures like optimizing varietal composition, cane development efforts, minimizing process losses and benchmarking with industry peers. The risk of equipment failure is mitigated by maintaining comprehensive all-risk insurance coverage and ensuring an ample inventory of insurance spares.
Cane availability
Sugar recovery%
Breakdown of machinery
The main cane variety which accounts for more than 90% of the total cane is prone to red rot infection.	Transitioning to superior varieties through Project Parivartan.
	Educating farmers to encourage adoption of new varieties.
	Offering incentives to promote cultivation of disease-resistant strains.
	Enhancing focus on varietal development and other cane improvement initiatives to breed resilient varieties.
Water conservation: Sugar cane is a water-intensive crop with a significant dependence on groundwater.	Recharging groundwater by constructing ponds and recharge wells.
	Encouraging water conservation via drip irrigation systems.
	Recycling wastewater for irrigation purposes.
Soil health is maintained and improved through soil management practices to enhance soil fertility	Distributing soil health cards to farmers to optimize fertilizer application.
	Encouraging intercropping and adoption of organic fertilizers to preserve soil health.
	Hosting knowledge-sharing sessions with farmers to educate them on soil health management practices.
Financial risks	Robust fundamentals, strengthened by a high credit rating supported by strong brand recognition, mitigate risk.
Interest rate hike and loan availability
Bad and doubtful debts	Implementing cash-and-carry payment terms for non-institutional buyers has significantly reduced this risk.
Foreign currency exposure	A policy mandating 100% exposure hedging has further mitigated this risk.
Legal risks: Non-compliance with pollution and taxation norms is a risk.	The Company minimizes the risk of non-compliance or delayed compliance by maintaining a comprehensive tracker of all regulatory requirements and conducting monthly reviews to monitor them closely.

Cautionary statement

This statement made in this section describes the Companys objectives, projections, expectations and estimations which may be ‘forward looking statements within the meaning of applicable securities laws and regulations. Forward– looking statements are based on certain assumptions and expectations of future events. The Company cannot guarantee that these assumptions and expectations are accurate or will be realized by the Company. Actual result could differ materially from those expressed in the statement or implied due to the influence of external factors which are beyond the control of the Company. The Company assumes no responsibility to publicly amend, modify or revise any forward looking statements on the basis of any subsequent development, information or events..