Davangere Sugar Company Ltd Management Discussions

Global Economic Overview

The global economy entered 2025 facing heightened uncertainty after a relative period of stabilisation in 2024. According to the April 2025 IMF World Economic Outlook, global GDP growth is projected at 2.8%, down from 3.3% in the January 2025 forecast. This downward revision largely reflects the sharp escalation of trade tensions, triggered by the United States near universal tariff announcements in April 2025.

Advanced economies are projected to grow by 1.4% in 2025, with the U.S. slowing to 1.8% amid trade related uncertainty and weaker domestic demand. In contrast, emerging markets and developing economies (EMDEs) are expected to grow at 3.7%, though countries with high exposure to global trade disruptions are facing steeper slowdowns.

Global currency markets have also witnessed heightened volatility, with the U.S. dollar strengthening on account of risk aversion and elevated yields. This has placed depreciation pressures on several emerging market currencies, including the Indian rupee. While tariff hikes have been temporarily paused for 90 days for most U.S. trading partners, the lack of clarity on post pause trade dynamics continues to weigh on global sentiment, investment planning, and supply chain resilience.

Industry Structure and Developments

Overview of the Global Sugar Sector

According to the International Sugar Organization (ISO) Quarterly Market Outlook, May 2025, the global sugar market is undergoing its sharpest imbalance in nearly a decade. The ISOs latest revision projects a global sugar deficit of 5.466 million tonnes in 2024/25, the largest in nine years, and an upward revision of 0.585 million tonnes compared to its February forecast.

Supply Demand Dynamics

World production for 2024/25 is estimated at 174.795 million tonnes, down 6.469 million tonnes from the previous season, driven primarily by weaker output in India and Pakistan.

World consumption is forecast to reach a record 180.261 million tonnes, reflecting resilient demand despite high prices. This marks a marginal downward adjustment from earlier projections but still represents year on year growth from the revised 179.225 million tonnes in 2023/24.

The widening gap between consumption and production has intensified market tightness.

Price Trends and Weather Impacts

Global sugar prices surged by nearly 55% in 2024, reaching their highest levels since 2011. The sharp rally was fuelled by severe droughts in India and Thailand, the worlds second and third largest sugar

exporters, exacerbated by the El Nino weather pattern. These climatic disruptions significantly reduced sugarcane yields and exports, leaving importing countries — particularly in sub Saharan Africa vulnerable to rising costs and food insecurity.

Although Brazil, the worlds largest producer, achieved a robust harvest, this was insufficient to offset shortfalls in Asia. More recently, prices have moderated on expectations of improved supplies in the upcoming 2025/26 season.

Trade and Policy Developments

The global sugar trade is also being shaped by shifting trade policies:

The U.S. administrations tariff re imposition in 2025 has injected new uncertainty into global trade flows. Retaliatory measures from major trading partners have strained supply chains and distorted pricing dynamics.

The U.S. continues to operate tariff rate quotas (TRQs) for imports, with allocations for Brazil, Mexico, and the Philippines. While providing limited access, these quotas cap duty free volumes, restricting broader global trade.

South Africa raised its sugar import duty in August 2024 — doubling the rate — to protect domestic producers from depressed global prices, adding another layer of trade friction.

Brazils Dual Role: Sugar and Ethanol

Brazils biofuel policy under the RenovaBio program, mandating a 27% ethanol blend, continues to influence the global sugar balance. While ethanol remains a priority, the favourable sugar price environment has encouraged mills to divert more cane toward sugar production.

In 2025/26, Brazil is expected to produce 36.8 billion litres of ethanol, a 1% decline from the previous season, reflecting this shift toward sugar.

Increased sugar allocation from Brazil is expected to ease global tightness somewhat, but not fully offset the deficits from Asia.

Outlook

The global sugar sector remains at the crossroads of climate risk, trade policy shifts, and energy linkages. Weather driven supply disruptions in Asia, ongoing trade barriers, and Brazils production mix will be the key determinants of market stability. While recent price corrections provide temporary relief, the underlying fundamentals continue to point to a fragile balance, keeping global sugar markets highly sensitive to both policy actions and climatic developments in the near term.

Source

Sugar Prices Slump on the Outlook for Larger Global Supplies, NASDAQ, April 30, 2025.

Sugar prices soar to record highs due to climate change, World Economic Forum, April 2025.

South Africa: South Africa Revises Sugar Import Duties, US Department of Agriculture, August 2024.

The Indian sugar industry, a cornerstone of the nations agro based economy, is undergoing a significant transition in 2025. As the worlds second largest producer and consumer of sugar, India plays a pivotal role in shaping the global sugar market. The sector directly supports nearly 50 million farmers and provides employment to over 500,000 workers, making it vital for rural livelihoods and economic stability.

In the 2024 25 sugar season, the industry encountered considerable challenges due to erratic weather patterns, including droughts and excessive rainfall across key producing states such as Maharashtra, Karnataka, and Uttar Pradesh. As a result, the Indian Sugar and Bio Energy Manufacturers Association (ISMA) revised its production estimate downward to 26.2 million metric tonnes (MMT), reflecting an 18% decline compared to the previous year. Of this, approximately 3.5 MMT is expected to be diverted for ethanol production, in line with the Governments biofuel blending programme.

Despite the shortfall, domestic supply remains adequate. Indias sugar consumption is projected at 28 MMT, supported by an opening stock of 8 MMT and a closing stock forecast of 5.4 MMT by September 2025 — sufficient to cover more than two months of demand. The Governments decision to allow the export of 1 MMT of sugar earlier in the year, though based on higher initial production estimates, has since raised supply concerns. Nevertheless, authorities continue to assure that current stock levels are adequate to meet domestic consumption and ethanol blending needs.

In a major policy move, the Government increased the Fair and Remunerative Price (FRP) of sugarcane by 4.41%, raising it to ^355 per quintal for the 2025 26 season (from ^340 previously). Based on a 10.25% recovery rate, the policy includes a premium of ^3.46 for every 0.1% increase in recovery, and guarantees a minimum of ^329.05 per quintal for recoveries below 9.5%. This adjustment is expected to benefit millions of farmers, though it may also put pressure on sugar mill margins amid lower cane yields and constrained exports.

A key structural shift is underway in ethanol production. India is targeting an annual capacity of 1,050 crore litres by ESY 2025, driven by a dual feedstock approach:

Grain based ethanol production is expected to expand significantly from 380 crore litres to around 700 crore litres.

Sugarcane based ethanol will supplement this capacity, balancing sugar inventories and helping achieve the national goal of 20% ethanol blending in petrol.

To modernise the sector, the Government introduced the Sugar (Control) Order, 2025. This framework integrates sugar mills enterprise systems with the Department of Food and Public Distributions digital portal, enhancing transparency and efficiency. The order also extends regulatory oversight to raw sugar and khandsari units with capacities over 500 TCD, ensuring accurate stock reporting and fair farmer remuneration. Additionally, it covers by products such as ethanol, thereby supporting balanced sugar diversion and domestic supply stability.

Looking ahead, the outlook for the 2025 26 season is cautiously optimistic. Forecasts of a favourable monsoon and improved water availability are encouraging higher cane planting, particularly in Maharashtra and Karnataka. This rebound could enable India to resume sugar exports of 3 5 MMT, contingent on weather conditions and global market dynamics. With supportive policy measures, increasing ethanol integration, and farmer focused reforms, the Indian sugar sector is positioned to strengthen both its domestic stability and global competitiveness in the years ahead.

Source

Industry body ISMA sees sufficient sugar availability to meet Indias demand, ET, Mar 18, 2025. Sugarcane fair price hiked to 355 a quintal, ET, May 01, 2025.

Grain and sugarcane to power Indias ethanol production boost to 990 crore litres by 2025, ET, Aug 19, 2024.

To streamline regulatory framework governing Sugar Sector, Centre formulates Sugar (Control) Order, 2025, Ministry of Consumer Affairs, Food & Public Distribution, PIB, May 01, 2025.

Major Sugar Importing & Exporting Countries

(000 tonnes raw value)

IMPORT
Country	2024 25 (P)		2023 24		2022 23		2021 22		2020 21		2019 20		2018 19		2017 18		2016 17
Algeria	2531		1955		2491		2116		2530		2402		2246		2347		2129
Canada	1220		1397		1325		1343		1366		1231		1359		1336		1113
China	6400		6350		6270		5895		7010		5108		4367		4936		3677
Egypt, Arab Republic	1125		1010		1115		1350		1037		956		1024		1465		1820
Iraq	1215		1215		1350		1190		1047		1189		1155		1212		1232
Japan	1300		1300		1338		1355		1357		1289		1489		1150		1258
Malaysia	2180		2160		2100		2100		2184		2016		1946		2051		1963
Banglades h	2530		2480		2400		2470		2362		2527		2231		2023		2695
Nigeria	1830		1780		1700		1988		1515		1601		1306		1168		1342
Korea Republic of	1958		1951		1940		1900		1924		1991		1914		1912		1751
Indonesia	5750		5200		5567		5158		5249		6146		4662		5004		4512
USA	2453		3020		3133		2876		2887		3577		2663		2979		2840
Saudi Arabia	1825		1616		1888		1592		1566		1830		1711		1533		1230
Sudan	1100		1200		1100		1721		1752		1514		1020		1089		1204
India	1300		3314		928		338		1256		1567		1185		2058		2768
U. Arab Emirat	1389		2189		1380		1594		1582		998		1157		2031		2730
Iran	980		966		1080		1300		901		1618		1000		331		775
EXPORT
Country	2024 25 (P)		2023 24		2022 23		2021 22		2020 21		2019 20		2018 19		2017 18		2016 17
Australia	2875		2908		3254		2567		3618		3222		2706		3392		3920
Brazil	3400		3691		2920		2554		3007		2618		1797		2289		2907
	0		0		0		0		5		3		2		0		4
Cuba	25		25		22		2		377		750		573		501		1221
Mauritius	297		297		290		288		346		364		385		278		459
El Salvador	521		231		513		532		621		583		453		441		466
Guatemal a	1600		515		1569		1742		1456		1980		1774		1652		1895
India	2300		4100		7500		1105 8		7088		7154		4884		3346		2127
Thailand		8150		5917		8225		7730		3639		8243		1016 8		9651		6778
Colombia		450		550		500		620		629		732		753		665		682
Mexico		708		620		1232		1794		1615		1543		2834		1128		1251
Eswatini		617		544		565		601		552		700		776		511		563
UAE		1389		1810		1110		1330		58		610		660		1680		2126
Nicaragua		485		495		536		508		368		498		507		335		420
Pakistan		862		714		1000		441		38		193		624		1513		293
Russia		600		1000		500		50		421		1467		340		575		399
Ukrain		175		500		380		145		55		115		405		555		746
South Africa		718		737		702		400		581		1203		1231		741
Source: ISO quarterly Aug 24 Report

Major Sugar Producing Countries

Unit: 000 Metric tonnes, Raw value

S. No. Name of Country	2018 19	2019 20	2020 21	2021 22	2022 23	2023 24	2024 25 (P)
1 Brazil	29030	39654	38509	31983	43256	46359	42372
2 India	32903	27411	31231	35526	32800	32200	26400
3 China	10503	10415	10663	9814	8970	9950	10300
4 Thailand	14441	8228	6976	10134	10803	8775	11000
5 U.S.A.	7551	6908	7827	7767	7709	7695	7783
6 Mexico	6426	5278	5715	6185	5224	4704	5094
7 Pakistan	5552	4988	5502	7922	6709	6752	7000
8 Australia	4102	3862	4303	3322	4391	3794	4052
9 Germany	3825	3980	3737	4104	3777	4002	4053
10 France	5060	4758	3354	3951	3612	3900	3943
11 Russia	6292	7063	5391	5898	6335	6930	6400
12 Indonesia	2267	2095	2294	2303	2271	2398	2500
13 Philippines	2037	2146	2180	1868	1790	1923	2000
14 Argentina	1617	1861	1627	1820	1550	1700	1750
15 Colombia	2207	2179	2097	2156	2034	1800	2000
16 South Africa	2307	2116	1861	1901	2054	2012	2063
17 Guatemala	2930	2764	2565	2762	2609	2618	2650
18 Poland	2190	2066	1984	2271	2011	2335	2410
19 Turkey	2283	2587	2952	2514	2760	3400	3220
20 Ukraine	1669	1312	1277	1432	1330	1850	1600
21 Egypt	2519	2280	2720	2460	2360	2300	2700
22 Cuba	1193	1200	824	540	355	320	320
23 Peru	1146	1172	1103	1107	1200	1280	1300
24 Vietnam	1174	769	709	742	871	1050	1100
25 Iran	1520	1377	1463	1329	1300	1440	1440

Source: ISMA. Year (Oct Sept) State wise Sugar Production

(MILLION TONNES

S. No. States	2018 19	2019 20	2020 21	2021 22	2022 23	2023 24	2024 25 (Estimate)
1 Uttar Pradesh	11.82	12.64	11.06	10.2	10.48	10.41	9.3
2 Maharashtra	10.72	6.17	10.65	13.72	10.59	11.1	8.1
3 Karnataka	4.43	3.49	4.47	6.04	5.66	5.19	4.36
4 Gujarat	1.12	0.93	1.05	1.21	1	0.93	0.89
5 Tamil Nadu & Pondicherry	0.96	0.79	0.88	1.25	1.48	1.07	0.8
6 Punjab	0.79	0.54	0.55	0.6	0.66	0.59	0.57
7 Bihar	0.84	0.73	0.48	0.46	0.63	0.69	0.62
8 Haryana	0.7	0.74	0.71	0.72	0.75	0.61	0.51
9 M.P. & C.G.	0.56	0.46	0.54	0.65	0.6	0.68	0.51
10 Uttarakhand	0.4	0.46	0.42	0.41	0.39	0.41	0.37
11 Andhra Pradesh	0.51	0.4	0.2	0.21	0.23	0.16	0.09
12 Telangana	0.26	0.14	0.12	0.23	0.2	0.18	0.17
13 Others	0.04	0.03	0.03	0.03	0.03	0.03	0.11
All India	33.15	27.40	31.18	35.75	32.81	31.95	26.40

Year: Oct to Sept

Source: ISMA

Opportunities and Threats.

SWOT Analysis Indian Sugar Industry Strengths

1. Robust Cane Availability in Key Regions

o Despite weather disruptions, India remains among the worlds largest sugarcane producers.

o Strong output from Uttar Pradesh and other major states sustains a steady raw material base.

2. Integrated Value Chain Operations

o Increasing number of mills have diversified into ethanol distillation, bagasse based cogeneration, and by products, strengthening revenue streams and resilience.

3. Policy Backing for Ethanol Blending

o Governments focus on achieving 20% ethanol blending by 2025 has driven investments and boosted sector confidence.

4. Large Domestic Consumption Base

o With ~29 MMT annual consumption, Indias vast and growing population ensures a stable domestic demand.

5. Strategic Government Intervention

o Policies such as Minimum Support Price (MSP), Fair Remunerative Price (FRP), and regulated exports have reduced supply demand imbalances.

6. Improved Crop Pricing Mechanism

o FRP hike to ^355/quintal (SY 2024) enhances farmer compensation and incentivizes higher cane output.

Weaknesses

1. Dependence on Climate

o Sugarcane is water intensive, making the industry vulnerable to erratic monsoons and adverse weather.

o 2024 25 production is expected to decline by ~18% to 26.4 MMT (ISMA estimate).

2. Excessive Policy Dependence

o Export quotas, ethanol pricing, and diversion limits create regulatory uncertainty for mills.

3. Ageing Infrastructure in Select Clusters

o Several mills continue with old machinery, impacting efficiency and cost competitiveness.

4. Monsoon Dependency Continues

o Limited irrigation infrastructure leaves drought prone states like Maharashtra and Karnataka highly dependent on rainfall.

5. Ethanol Feedstock Constraints

o Restrictions such as non linkage of ethanol prices with FRP and allocation issues reduce profitability of distilleries.

Opportunities

1. Ethanol Expansion via Dual Feed Model

o Governments target of 1,050 crore litres ethanol by SY 2025 using molasses and grain offers new growth avenues.

2. Technology Adoption

o Smart cane farming, mechanisation, and digital payment systems can enhance productivity and transparency.

3. Green Energy and ESG Alignment

o Rising focus on bioenergy (biogas, bio compost, green power) aligns with ESG goals, attracting sustainable investors.

4. Export Resumption Outlook

o If production recovers post 2025, India could export 2 3 MMT annually, tapping global demand.

5. PLA and SAF Growth

o Biodegradable plastics and Sustainable Aviation Fuel (SAF) provide alternate markets for sugar and ethanol by products.

Threats

1. Climatic Risks Intensifying

o Recurrent droughts and El Nino cycles may continue to disrupt sugarcane yields.

2. Volatility in Ethanol Policy

o Frequent pricing changes in ethanol procurement may discourage investments.

3. Tariff Induced Global Trade Imbalances

o U.S. tariff hikes on sugar imports impact global sentiment and trade opportunities.

4. Cost Inflation from FRP

o The 4.4% FRP increase for 2025 26 could compress mill margins if not supported by higher sugar or ethanol realizations.

5. Competition for Land & Water

o Urbanisation and diversification into horticulture intensify competition for fertile land and irrigation resources.

6. Global Price Volatility

o Surpluses from Brazil and other exporters may depress international prices, reducing Indias competitiveness.

Business Overview

Davangere Sugar Company Limited (DSCL), one of the prominent integrated sugar manufacturing companies in Karnataka, is strategically located in the prime sugarcane growing belt of the state. The Company is engaged in the manufacture of sugar, power, and ETHANOL, with a strong emphasis on integrated operations that ensure efficient utilization of resources and steady revenue streams. Over the years, DSCL has built its presence as a trusted player in the Indian sugar sector by combining modern manufacturing facilities with sustainable practices.

The Company operates a sugar plant with substantial crushing capacity, supported by a cogeneration unit that harnesses bagasse to produce renewable power, and a distillery that converts molasses into ethanol and other industrial alcohol. This integrated business model not only enhances operational efficiency but also mitigates risks associated with cyclical fluctuations in sugar prices. With the Government of Indias thrust on ethanol blending and renewable energy, DSCL is well positioned to benefit from policy support and sectoral reforms.

DSCL continues to work closely with a large base of sugarcane farmers, providing them with support in terms of cane development, technical assistance, and timely payments. This strong relationship with growers has ensured a steady supply of quality sugarcane, even during challenging climatic conditions. The Companys focus on sustainable cane development, improved productivity, and fair farmer engagement reflects its commitment to creating value across the value chain.

The Company has also adopted a forward looking approach by diversifying its revenue streams beyond sugar, through ethanol production and power generation. These segments not only contribute to earnings stability but also align DSCL with the broader national priorities of green energy transition, energy security, and reduced carbon emissions.

With a growing domestic demand for sugar and ethanol, alongside evolving opportunities in the renewable energy and allied sectors, Davangere Sugar Company Limited remains focused on operational excellence, financial prudence, and long term sustainability. Backed by its integrated operations, strong farmer base, and favorable policy environment, the Company is well positioned to strengthen its role in Indias sugar and ethanol economy while enhancing stakeholder value.

Segment wise or product wise performance.

REPORTING ON SEGMENT WISE REVENUES, RESULTS, ASSETS AND LIABILITIES

Rs in Lakhs

Sr.No. PARTICULARS	For the quarter ended			For Twelve months Ending on Year ended
	31 03 2025	31 12 2024	31 03 2024	31 03 2025		31 03 2024
	Audited	Unaudited	Audited	Audited		Audited
1 Segment Revenue
a) Sugar	1282.23	3239.15	3064.32	5086.87		9466.46
b) Co Generation	180.00	442.89	575.57	622.89		1369.78
						391.31
c) Aviation	40.93	185.79	78.78	749.60
d) Distillery	4187.54	3449.92	2638.29	15039.18		10425.50
	56.81	40.62	187.38	177.06		643.68
e) Others
	5,747.51	7,358.37	6,544.33	21,675.60		22,296.73
Income from operations
2 Segement Results
Profit (+)/Loss( ) before tax, Interest and exceptional items from each segment
	283.51	(1748.32)	500.85	(2289.62)
a) Sugar						1630.03
b) Co Generation	(342.70)	18.00	180.48	(608.17)		261.08
c) Aviation	109.31	20.46	(60.52)	384.50		(44.60)
d) Distillery	649.04	3124.85	305.22	6514.44		2134.00
Total	699.16	1,414.99	926.03		4,001.15	3980.51
Add: Exceptional item
Less: Interest	474.45	668.95	466.28		2715.25	2535.27
Other Un allocable expenditure net off
Un allocable corporate
assets
Total Profit Before Tax	224.71	746.04	459.75		1,285.90	1445.24
3 Segment Assets
a) Sugar	42563.05	41542.79	36724.27		42563.05	36724.27
b) Co Generation	9067.35	11237.53	9259.59		9067.35	9259.59
c) Aviation/others	496.85	346.85	163.03		496.85	163.03
d) Distillery	21375.82	23273.10	22,020.35		21375.82	22020.35
Total segment assets	73,503.07	76,400.27	69,167.24		73,503.07	68,167.24
Segment Liabilities	27444.00	30032.15	22801.10		27444.00	22801.10
a) Sugar	129.12	151.12	8.95		129.12	8.95
b) Co Generation	13.60	6.94	1.12		13.60	1.12
c) Aviation/others
d) Distillery	10934.38	11151.59	11357.69		10934.38	11357.69
Total Segment Liabilities	38,521.10	41,341.80	34,168.87		38,521.10	34,168.86

Outlook

The Indian sugar industry is undergoing a phase of transition, with increasing emphasis on ethanol blending, renewable energy generation, and sustainable farming practices. With the Government of Indias continued thrust on achieving 20% ethanol blending by 2025, the sector is expected to witness strong demand for distillery products, thereby reducing dependence on cyclical sugar revenues. This policy framework, combined with supportive measures such as minimum selling price (MSP) for sugar and fair and remunerative price (FRP) for cane, is likely to provide stability to the industry in the coming years.

For Davangere Sugar Company Limited (DSCL), the outlook remains encouraging. The Companys integrated operations across sugar, ethanol, and power segments provide resilience against sectoral

volatility and open new growth avenues. With steady cane availability in its command area and strong farmer relationships, DSCL is well positioned to sustain its production levels. The planned increase in ethanol capacity and efficient utilization of by products such as bagasse and molasses will further enhance revenue visibility and margins.

Looking ahead, DSCL aims to strengthen its contribution to Indias green energy transition by scaling up ethanol production and optimizing its cogeneration operations. Global sugar market dynamics, particularly production trends in Brazil and Thailand, will continue to influence export opportunities; however, domestic consumption and ethanol demand are expected to remain the key growth drivers.

While challenges such as climatic uncertainties, rising input costs, and policy linked risks persist,

DSCLs proactive approach to operational efficiency, prudent financial management, and focus on sustainable practices place it in a strong position to capitalize on emerging opportunities. The Company remains committed to enhancing shareholder value while contributing to the nations goals of energy security and rural prosperity.

Risks and Concerns

The Indian sugar industry, by its nature, faces several structural and operational risks that influence long term performance:

1. Climatic Risks

Sugarcane cultivation is highly dependent on monsoon rainfall and favorable weather conditions. Any irregularity in rainfall, drought, or excessive flooding can directly impact cane availability, quality, and recovery levels. Changing climate patterns remain a key area of concern for long term sustainability.

2. Regulatory and Policy Risks

The sugar sector is significantly influenced by government regulations relating to cane pricing (FRP/SAP), minimum selling price (MSP) of sugar, ethanol blending targets, and export/import duties.

Any adverse change in policies may affect profitability and cash flows.

3. Cyclical Nature of Sugar Prices

Domestic and global sugar prices are subject to volatility driven by production cycles in India, Brazil, and Thailand. Surplus production often leads to downward pressure on sugar prices, while deficit years cause sharp increases, thereby impacting business stability.

4. Raw Material Supply Risks

The availability of sugarcane depends on timely farmer payments, crop economics compared with alternative crops, and overall farmer sentiment. Any disruption in farmer relations, increase in cane arrears, or decline in cane acreage could affect operations.

5. Financial Risks

The industry is working capital intensive and requires timely access to credit facilities. Rising interest rates, delays in subsidy disbursement, or liquidity constraints could pose financial challenges.

6. Operational Risks

DSCLs integrated operations in sugar, ethanol, and power require continuous technological upgradation and efficient plant utilization. Breakdowns, high maintenance costs, or inefficiencies in operations may adversely impact performance.

7. Environmental and Compliance Risks

Increasing environmental regulations relating to effluent treatment, waste management, and air quality standards impose compliance obligations. Non compliance could result in penalties or operational restrictions.

8. Global Market Risks

Movements in global crude oil prices, foreign exchange volatility, and international trade policies affect the ethanol blending program and sugar exports. External shocks in global commodity markets may indirectly impact DSCLs revenues.

Despite these risks, the Company mitigates them through diversified revenue streams, integrated operations, strong farmer engagement, prudent financial practices, and a focus on sustainability and compliance.

Internal Control Systems and Their Adequacy

Davangere Sugar Company Limited (DSCL) has established a robust and evolving internal control framework that supports its integrated operations across sugar, distillery, and cogeneration businesses. The system ensures accuracy in financial reporting, operational efficiency, regulatory compliance, and asset safeguarding across geographically dispersed facilities.

The Companys internal control structure is aligned with the principles of accountability, risk based control design, and continuous monitoring. It encompasses well documented policies, standard operating procedures (SOPs), authorisation protocols, and periodic reviews conducted at functional, plant, and corporate levels.

Financial Controls

DSCL has instituted strong financial controls over critical processes, including procurement, inventory management, revenue recognition, and capital expenditure. The Company follows a maker checker approver system across transactions, supported by enterprise level SAP automation, ensuring compliance with internal policies and statutory requirements. Quarterly and annual financial statements are prepared in compliance with Indian Accounting Standards (Ind AS) and are subject to limited review or audit by statutory auditors.

Operational Controls

DSCL has a well structured internal control framework to ensure efficient operations, protection of assets, accuracy of financial reporting, and compliance with statutory requirements. The Company

follows defined policies and procedures supported by ERP systems for monitoring cane procurement, crushing, production, and inventory.

An independent internal audit function periodically reviews key processes, and its findings are placed before the Audit Committee for corrective action. Financial controls, including budgetary discipline, variance analysis, and approval mechanisms, strengthen transparency and accountability. Compliance with regulatory requirements and risk management practices are integrated into day to day operations.

The Board and Audit Committee regularly evaluate the adequacy of these controls and are of the view that the internal control systems are robust, effective, and commensurate with the size and nature of the business.

Compliance and Risk Management Controls

DSCL has instituted a comprehensive compliance and risk management framework to safeguard business sustainability. The system ensures adherence to applicable laws, regulatory guidelines, environmental norms, and corporate governance standards.

The Company has a structured risk management process to identify, assess, and mitigate key risks relating to sugarcane availability, price fluctuations, regulatory changes, working capital requirements, and environmental sustainability. Periodic monitoring, internal audits, and reporting to the Audit Committee strengthen oversight and corrective action.

Through proactive compliance practices, technology driven monitoring, and a culture of accountability, the Company aims to minimize business disruptions and ensure long term value creation for stakeholders.

Internal Audit

The Company has appointed a reputed independent internal audit firm that conducts risk based audits per an annual plan approved by the Audit Committee.

These audits evaluate controls design effectiveness and operating efficiency, covering all business units and key functional areas. Findings and actionable recommendations are presented to management and the Audit Committee.

Discussion on financial performance with respect to operational performance.

During the financial year 2024 25, Davangere Sugar Company Limited delivered a stable performance despite industry wide challenges arising from lower sugar realizations and climatic pressures. The Companys integrated business model encompassing sugar, ethanol, and cogeneration — helped mitigate the impact of cyclicality in the sugar segment and reinforced its position as a diversified energy and agro based enterprise.

Revenue Performance

Total income for FY 2024 25 stood at ^21,675.60 lakhs, maintaining a steady trend compared to ^22,296.72 lakhs in the previous year. While revenue from sugar moderated, this was more than compensated by a significant surge in ethanol sales, which continue to be the Companys growth driver.

Segmental Analysis

Sugar Segment: Revenue stood at ^5,086.87 lakhs, impacted due to lesser sugarcane availability during the seaons due to scanty rainfall and yield per acre of sugarcane also came down. While segment profitability was under pressure, the strategic decision to channel more cane towards ethanol ensured higher value realization, demonstrating DSCLs agility in adapting to policy driven opportunities.

Distillery Segment: The distillery operations delivered an outstanding performance, with revenue growing by 44% to ^15,039.18 lakhs from ^10,425.50 lakhs in FY 2023 24. Segment profit surged to ^6,514.44 lakhs (previous year: ^2,134.00 lakhs), reflecting enhanced utilization of capacity and increased offtake under the Ethanol Blending Programme. This segment has now become the core earnings engine for the Company.

Cogeneration Segment: Revenue from the cogeneration unit stood at ^622.89 lakhs compared to ^1,369.78 lakhs in the previous year. Although segment results reflected a loss due to lower exportable surplus, the cogeneration unit continues to provide significant benefits through captive consumption, reducing reliance on external power and ensuring sustainability.

Others (including Aviation and Miscellaneous Income): Revenue grew sharply to ^927 lakhs compared to ^391 lakhs in FY 2023 24, demonstrating the benefits of the Companys diversification initiatives.

Profitability

The Company recorded a Profit Before Tax of ^1,285.90 lakhs, compared to ^1,445.24 lakhs in the previous year. Despite subdued sugar margins and higher finance costs, profitability was largely supported by the strong turnaround in the distillery business. Net Profit stood at ^1,093.71 lakhs, with an Earnings Per Share (EPS) of ^1.16.

Operational Highlights

DSCL effectively managed sugarcane availability through strong farmer relationships and sustainable cane development initiatives.

The distillery unit operated at high utilization levels, supported by Government policy on ethanol blending, which remains a cornerstone of future growth.

Continuous modernization of plants and adoption of efficient technologies have improved recovery and optimized resource usage.

The cogeneration unit, despite lower export revenues, enhanced self sufficiency in energy, aligning with the Companys sustainability objectives.

Balance Sheet and Cash Flow

The Company strengthened its balance sheet by reducing long term borrowings from ^6,849.09 lakhs to ^4,738.10 lakhs, thereby lowering financial leverage.

Net worth improved to ^34,981.97 lakhs, reflecting financial stability and prudent management of reserves.

Inventories and trade receivables increased in line with operational scale, while cash and cash equivalents remained stable at ^338.20 lakhs.

Net cash from financing activities remained positive, supported by timely access to credit and efficient debt management.

Key Positives and Strategic Achievements

Distillery capacity expansion translated directly into superior financial performance and higher margins.

Strategic alignment with the Ethanol Blending Programme ensured sustainable earnings visibility.

Reduction in long term borrowings strengthened the Companys capital structure.

Diversification into value added segments such as aviation and by products contributed incremental revenue.

Strong farmer engagement and cane development programs secured a reliable raw material base, even during weather uncertainties.

Adoption of modern technology and Zero Liquid Discharge (ZLD) systems reinforced DSCLs ESG commitments.

Overall Assessment

The year reaffirmed the strength of DSCLs integrated business model. While the sugar segment experienced cyclical pressures, the distillery business emerged as a robust pillar of growth, substantially enhancing profitability. Cogeneration and other diversified streams contributed to operational stability. With a healthy balance sheet, sustainable practices, and a clear focus on ethanol led growth, the Company is well placed to deliver consistent financial performance and create longterm value for stakeholders.

Human Resource

The human resource function at Davangere Sugar Company Limited (DSCL) continues to play a pivotal role in driving organizational growth, operational efficiency, and stakeholder value. The Company recognizes that its people are its most valuable asset and therefore focuses on fostering a culture of empowerment, skill development, and employee engagement.

During the year under review, the Company undertook several initiatives aimed at strengthening its HR framework:

Workforce Strength: As on [date], the Company employed 392 employees across its sugar, distillery, cogeneration, and corporate functions. In addition, a large number of seasonal and contractual workers are engaged during the crushing season, reflecting the labor intensive nature of the sugar industry.

Skill Development and Training: Structured training programs were conducted for employees across levels, covering areas such as operational excellence, safety, environmental compliance, leadership, and technology upgradation.

Industrial Relations: Industrial relations remained cordial throughout the year. The Company maintained an open and transparent dialogue with workers and trade unions, which helped ensure uninterrupted operations during the crushing season.

Health, Safety and Welfare: DSCL has continued its commitment to employee welfare through initiatives such as regular health camps, safety audits, accident prevention programs, and COVID/post pandemic health monitoring.

Digital HR Practices: The Company has progressively adopted digital HR solutions to streamline payroll, attendance management, and performance appraisal systems, enabling better transparency and efficiency.

Employee Engagement: Various engagement activities, cultural events, and welfare schemes were undertaken to strengthen the bond between employees and the organization, thereby creating a positive work environment.

The Board places on record its appreciation for the dedication, commitment, and contribution of all employees. The Company believes that with its strong workforce, harmonious industrial relations, and continued focus on capability building, DSCL is well positioned to achieve its long term business objectives.

Details of significant changes

In accordance with SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the details of significant changes (i.e., 25% or more as compared to the immediately previous financial year) in key financial ratios of Davangere Sugar Company Limited are provided below:

Particulars	FY 2024 25	FY 2023 24	% Change	Remarks / Explanation
Debtors Turnover Ratio	7.46x	11.75x	4.29	Increase in trade receivables in FY 2025
Inventory Turnover Ratio	1.49x	2.03x	0.54	Increase in inventory and decrease in turnover during the FY 2025
Interest Coverage Ratio	1.48	2.04	27.45%	Decrease in profit during the FY 2025
Current Ratio	1.43	1.33	+0.10	Increase in inventory level during the FY 2025
Particulars	FY 2024 25	FY 2023 24	% Change	Remarks / Explanation
Debt Equity Ratio	1.42x	1.01x	+0.41	Increase in unsecured loans from directors during the FY 2025
Operating Profit Margin (%)	24.32	23.90	+0.42	Decrease in expenses during the FY 2025
Net Profit Margin (%)	5.04	5.65	0.61	Decrease in turnover and Profit during the FY 2025
Return on Net Worth (RoNW)	13.24%	8.42%	+4.82	Increase in EBITA and long term loans during FY 2025

FOR DAVANGERE SUGAR COMPANY LIMITED

GANESH SHIVASHANKARAPPA SHAMANUR Managing Director DIN:00451383

Date: 08 th September, 2025 Place: Davangere