DCM Shriram Industries Ltd Management Discussions

The Company?s business comprises of sugar, alcohol, co-generation of power, fine chemicals, industrial fibre and defence-related products. Its manufacturing facilities are located at Daurala (U.P.) and Kota (Rajasthan). Directors? Report gives segment-wise/ product-wise performance and outlook of these operations and also deals with internal financial controls, their adequacy, risks, and concerns.

The industry situation and competitive scenario of different segments of operations of the Company are given below:

Sugar

Sugar production in sugar season 2023-24 is estimated to be around 32 million MT (net of ethanol diversion) with Maharashtra playing a key role due to a surprise jump of around 25% in its production compared to initial estimates.

Overall outlook of sugar sector remains slightly negative, with no indication from government on export front as well as due to government intervention in ethanol sector leading to a possible impact on next financial year?s performance. The current sugar production vis a vis sugar consumption in the absence of sugar exports would lead to higher opening stock in sugar season 2024-25 of around 8 Million MT. However, with increase in domestic demand it is expected that sugar price will remain firm.

Sugar Industry Strengths, Weaknesses, Opportunities & Threats (SWOT): Strengths

• Sugar being an essential commodity will always be in demand.

• Being the largest agro-based industry, it helps rural communities by providing employment opportunities.

• There is availability of abundant arable land in the Country.

• Sugarcane crop is one of the most lucrative cash crops in India.

Weaknesses

• The Country?s production is highly reliant on monsoon.

• Sugar industry is a highly capital-intensive industry.

• Highly government regulated Industry impacting production and sales.

• Increase in raw material cost due to government intervention.

Opportunities

• The scope for producing ethanol is immense in India.

• Sugar demand in India is rising because of the growing population and higher downstream demand.

Threats

• Increased production without exports of sugar may result in oversupply in the domestic market impacting sugar price and carrying cost.

• Sugarcane prices are affected by the sugar industry?s reliance on rainfall, planted acreage and transportation costs.

Considering the above SWOT analysis of sugar Industry over the time, the Unit has strengthened its manufacturing capabilities through upgradation of technology, providing training, and specialization, thereby improving quality, output, efficiency, and environmental compliance.

DSW?s key areas of focus & strategy are highlighted below:

• Organic growth by increasing cane acreage.

• Cane development for the Company to increase yield and recovery thereby ensuring optimum capacity utilization.

Value addition by exporting refined sugar and tapping institutional markets.

• Manufacturing country liquor instead of selling molasses.

• Continuously optimizing operations and reducing energy consumption. For next crushing season energy conservation project is being implemented to further reduce steam consumption by 7% from the current level.

• Development of a talented diverse team.

• Ensuring backward and forward integration backed by sustainable practices.

• Introducing innovation and new technology.

As part of the above measures DSW has done major expansions in terms of DRP process in sugar production and distillery capacity enhancement. With refined sugar production, DSW has increased the institutional market share to 41% of total sugar sales.

Rayons

Shriram Rayons is engaged in manufacturing and marketing of rayon tyre yarn, greige and treated fabric. The products are mainly used as reinforcement material in high performance tyres. The Unit is exporting the products to major international tyre manufacturers in various countries.

During the year, production and offtake were in line with the quantities finalized with customers at the start of the year. The Unit achieved the best ever performance with good operating margins, better sales realisation and reduction in costs.

The Unit continues its efforts to increase its market share by seeking additional approvals from present and prospective customers.

Based on the requirement finalized with customers, off take in the previous year and market assessment it is expected that the demand for the Unit?s products will go up in the next year. This will help the Unit in higher capacity utilisation. The Unit has capability to supply treated fabric which is a readily usable product and is preferred by the tyre companies. This has been further strengthened with upgradation of the dipping facility. The treated fabric share in its export has been growing and this year it is more than 90% of the exported volume.

Prices of raw materials viz. caustic soda, sulphur and sulphuric acid etc. softened during the year. We anticipate increase in prices of same in coming period. The logistic cost had gone up substantially due to increase in ocean freight arising out of red sea crisis for European ports. Cost for Import may also increase in coming periods due to said crisis.

The price of agro-fuel is also going up. Energy cost will continue to be a challenge and the Unit is adopting more energy conservation measures to control the cost. Foreseeing the above situation, the Unit had installed a 2.11 MW Solar Power Plant, which is working satisfactorily, supplementing the grid/ captive power. Shriram Rayons continued its efforts to reduce, recycle and reuse water and achieved reduction in water consumption.

The Unit is continuously upgrading the monitoring and control systems for effluent and gas emissions. The effluent monitoring data is being transmitted online to pollution control agencies of the State and Central

Government on real time basis.

Effluent treatment and pollution control are key areas of attention for the Unit.

Chemicals

The lower demand for some products related to the Agro-chem industry was compensated by better capacity utilization of the products in demand as well as an aggressive push to sustain market shares and seek out new clients in alternative usage markets like Fragrances.

In addition, focus was given to cost optimization and proactive inventory management to ensure a consistent performance. Efforts were continued to increase some capacities to capture additional markets as many buyers changed purchase patterns and moved to more campaign-based production due to geopolitical problems, logistical challenges and fluctuating market conditions.

Financial Ratios

Following are ratios for the current financial year and their comparison with preceding financial year.

Sl. No.	Ratio description	Unit	2022-23	2023-24	Change %	Remarks
1	Debtors turnover	No. of times	9.46	8.04	-15	-
2	Inventory turnover	No. of times	2.49	1.79	-28.3	Refer Note 1
3	Interest coverage ratio	No. of times	4.78	6.93	45.0	Refer Note 2
4	Current ratio	No. of times	1.18	1.21	3.1	-
5	Debt equity ratio	No. of times	0.70	0.64	-8.7	-
6	Operating profit margin	%	6.74	11.70	73.6	Refer Note 2
7	Net profit margin	%	2.54	5.46	114.6	Refer Note 2
8	Return on Net worth	%	8.28	14.50	75.2	Refer Note 2

Notes

1. Decrease mainly due to higher inventory and lower sales.

2. Increase mainly on account of higher profitability.

Material Development in human resources/industrial relations front

The Company?s HR philosophy assumes that a dedicated, enlightened, and contented work force is the lifeline for any business to achieve its goals. Strength of an organization is its employees. The Company?s focus on HR always is on development of a work force to meet the present and future challenges with adequate skills. The effort always has been to induct fresh and youthful talents at various disciplines with a long term perceptive. The Company believes in and take care of needs of the work force, being one of the pillars of the organization.

With the introduction of SAP, flow and accuracy of data have improved substantially resulting in better efficiency particularly in the accounts and finance functions.

Industrial relations remained cordial in all operations during the year. As on 31.03.2024, the total number of employees on the Company?s pay roll was 2341. Corporate Social Responsibility has always been integral to the business policy of the Company. The Company undertakes/ supports several activities in and around the areas where its operations are located to ensure that the benefit from the expenditure on CSR activities reach the maximum people in those areas.

The programmes cover activities laid down under Schedule VII of the Companies Act, 2013. In the year 2023-24 the Company has spent Rs.183.41 lakh.

Environment protection

The Company?s moto is green, breath clean, stop polluting the environment and save our planet. These are also the universal voice at a time climate change is staring at the face of the planet. The Company gives utmost importance to environment protection in and around the areas, where it operates. Apart from installing state of the art effluent treatment and waste disposal plants the Company gives special attention to tree plantation at Daurala and Kota, aiming at improving quality of air in the area and also addressing greenhouse emissions. The emphasis continues to be on using environment friendly agrofuels for power generation in place of fossil fuels. The shift from fossil fuel to agro-fuels for power generation has been achieved progressively. DSW has fully discontinued use of coal and Shriram Rayons continue to use agrowaste fuels in place of fossil fuels to a large extent. Research and innovation are ongoing activities in the Company to find solutions to minimize emissions from its operations and to remain environment friendly.