Dhampure Speciality Sugars Ltd Management Discussions

Global Economic Review

Overview

Global growth is forecast to slow from 3.5% in 2022 to estimated 3% in 2023. Asia is projected to rise from 4.5% in 2022 to 5.2% in 2023. Asia is expected to contribute significantly to the global growth in 2023, despite the weaker recovery in China, Ukraine-Russia war, weakness in USA, rising energy cost in Europe and increased logistic cost due to Red Sea crisis. Despite the disruptions in energy and food markets caused by the war, and the unprecedented tightening of global monetary conditions to combat decades-high inflation, the global economy has slowed, but not stalled.

Growth in advanced economies is estimated to decline from 2.6% in 2022 to 1.5% in 2023 and further,

1.4% in 2024 as policy tightening takes effect. Emerging market and developing countries are projected to report a modest decline in economic growth from 4.1% in 2022 to 4.0% in 2023 and 2024. Global inflation is projected to decline steadily from 8.7% in 2022 to 6.9% in 2023 and 5.8% in 2024 on account of a tighter monetary policy coupled with relatively lower international commodity prices. Core inflation, excluding food and energy prices, is also projected to decline albeit more gradually than inflation. The US Federal Reserve approved a much-anticipated interest rate hike that raising the benchmark borrowing costs to their highest in over 22 years.

Global trade in goods was expected to have decreased by an approximate US$2 trillion in 2023; trade in services increased by an estimated US$500 billion. The average cost of Brent crude oil in 2023 stood at $83 per barrel, a downturn as compared to $101per barrel in 2022. This decrease comes on account of from Russia finding crude oil destinations outside the European Union and global crude oil demand falling short of expectations.

Global equity markets ended 2023 on a strong note, with major global equity benchmarks achieving double-digit returns. This outperformance was driven by a downturn in global inflation, slide in the dollar index, declining crude prices and higher expectations of rate cuts by the US Fed and other Central banks.

REGIONAL GROWTH (%)	2023	2022
WORLD OUTPUT	3.0	3.5
ADVANCE ECONOMIES	1.5	2.6
EMERGING AND DEVELOPING ECONOMICS	4.0	4.1

Indian Economic Review

In FY 2023-24, Indias economy demonstrated remarkable resilience and adaptability in the face of global uncertainties. The period was marked by several notable developments in inflation management, trade dynamics, capital inflows, and currency stability, all of which contributed to the countrys robust economic performance.

In India, retail inflation in FY2023-24 experienced a noteworthy decline, reaching its lowest level since the COVID-19 pandemic. The RBI has projected CPI inflation for FY2024-25 at 4.5%, considering various factors such as geopolitical conflicts, potential adverse domestic weather conditions, and the India Meteorological Departments (IMD) forecast of an above-normal monsoon this year.

Global trade experienced a contraction in 2023. This slowdown led to a moderation in Indias merchandise exports and imports. As a result, the merchandise trade deficit narrowed in FY 23-24, with exports showing a smaller contraction than imports.

Global Sugar Sector

Global production is estimated to be up ~1 million tones year-on-year to 179.5 million tons in 2023-24 as higher production in Brazil is expected to more than cover up a decline in Thailand and India. Global sugar consumption is expected to reach a new record due to growth in markets including India and Pakistan. Global sugar consumption is pegged to surpass 180 million tons in 2023-24. Global sugar consumption grew even during high prices and this trend is expected to continue alongside population growth, leading to an additional 2 million tons consumption growth in 2024-25.

The global sugar market is expected to grow at a CAGR growth rate of 1.4% during 2024-2032. Based on the product type, the global sugar market has been divided into white sugar, brown sugar and liquid sugar where white sugar holds the largest market share. The global sugar market is experiencing a significant rise as key players operating in the industry are including organic sugar varieties in their existing portfolios to attract health-conscious consumers. Moreover, these companies are focusing on developing advanced production facilities to increase overall production less expenditure on raw materials and labor. Besides, the introduction of innovative products and technological advancements to reduce costs and increase sugar sales is offering lucrative growth opportunities to key players

Indian Sugar Sector

Indias sugar production in marketing year (MY) 2023-2024 (October September) is expected to reach 32 million metric tons. Sugar production in MY 2022-23 was 32.8 million tons as adverse weather conditions in Maharashtra during the vegetative growth stage led to a significant drop in cane yields following consecutive seasons of record yields. Indias sugar exports in MY 2023-2024 are estimated to be negligible as the Indian government could maintain tight export controls to prevent any domestic shortages or price fluctuations during the national election year. Sugar consumption in the year is expected to continue its upward trajectory and reach ~28.7 million tones as Indias ethanol and potable alcohol industries support growing demand of sugarcane and derivatives.

According to FAS New Delhi, Indias sugarcane planted area for MY 2023/2024 is expected to slightly increase to 5.6 million hectares and production to reach to 32 million tones following the significantly strong crushing tail in Maharashtra and Karnataka. Despite the increased potential on account of adverse weather conditions from the El Nino weather phenomenon, the Indian governments market price supports and augmented diversion of sugar to both ethanol and potable alcohol production will ensure sugarcane remains as the most remunerative crop for farmers.

Sugar exports and imports

During the marketing year 2023-2024, Indias sugar exports was restricted on account of higher domestic demand and the likelihood that the Indian government maintains export caps to control inflation. India extended curbs on sugar export for the 2023-24 sugar season according to a federal notification, a measure that may result in a complete halt of overseas sales for the first time in seven years amid an estimated fall in domestic output and the worst global shortage in decades. According to the Director General of Foreign Trade, India had earlier restricted exports of the sweetener until October 31, 2023, and those curbs have been extended until further orders. The restrictions on shipments abroad are aimed at boosting domestic availability during 2023-24 and keeping prices stable during the ongoing festive season, when demand typically soars.

The decision is expected to worsen a global supply crunch due to a smaller crop since India is a major international supplier. The sweetener is one among 22 notified food items deemed ‘essential because consumers are sensitive to a rise in its prices. A deficient and uneven monsoon this year coupled with lower plantation across the Deccan plateau, a global weather anomaly is expected to reduce the output of

sugarcane. India is unlikely to allow any export this season to stem inflation. The country had limited overseas shipments to 6.1 million tons in 2022-23, compared to 11.1 million tons in 2021-22. Indias decision to curb export also comes of the back of higher demand for ethanol under a high priority national programme.

SUGAR SEASON	EXPORT
2018-19	3.8
2019-20	6.0
2020-21	7.2
2021-22	11.1
2022-23	6.1
2023-24 (ESTIMATED)	-

Market dynamics

The government approved the fair and remunerative price (FRP) of sugarcane for the sugar season 202324 at H315 per quintal for a basic recovery rate of 10.25%. The government has approved to provide a premium of H3.07 per quintal for each 0.1% increase in recovery over and above 10.25% and reduction in fair remunerative price by H3.07 per quintal for every 0.1% decrease in recovery.

Moreover, with a view to protect the interest of sugarcane farmers, the government has decided that there shall not be any deduction in case of sugar mills where recovery is below 9.5%. Such farmers are expected to get H291.975 per quintal for sugarcane in ensuing sugar season 2023-24 in place of H282.125 per quintal in sugar season 2022-23.

The cost of production of sugarcane for the sugar season 2023-24 is H157 per quintal. This fair and remunerative price of H315 per quintal at a recovery rate of 10.25% is higher by 100.6% over production cost. The fair and remunerative price for sugar season 2023-24 is 3.28% higher than sugar season 2022

23. The fair and remunerative price of sugarcane for sugar season 2024-25 has been increased to H340 per quintal.

The fair and remunerative price approved shall be applicable for the purchase of sugarcane from the farmers in the sugar season 2023-24 (with effect from 1st October 2023) by sugar mills. The fair and remunerative price has been determined on the basis of recommendations of the Commission for Agricultural Costs and Prices (CACP) and after consultation with state governments and other stakeholders.

Fair and remunerative price YEAR	PER QUINTAL
2018-19	275
2019-20	275
2020-21	285
2021-22	290
2022-23	305
2023-24	315
2024-25	340

Indian ethanol sector review

Indias grain-based distilleries witnessed a significant capacity growth from ~200 crore liter in 2023 to 433 crore liters. The government has allowed sugar mills to use both cane juice and B-heavy molasses to produce ethanol but capped the diversion of sugar to 17 lakh tones (expected to reach ~18.2 lakh tones)

for the ongoing 2023-24 supply year. The government permitted to convert 6.75 lakh tones of B heavy Molasses above the announced 17 lakh tones stipulated diversion.

The governments target for attaining 20% ethanol-blended petrol by 2025- 26 and 30% by 2029-30 is expected to face setbacks due to the restriction in ethanol production from sugarcane juice in 2023-24. Domestic ethanol production is expected to decline by 20%, which could bring the ethanol blending rate to less than 10% in the ethanol supply year 2023-24 However, the supply of ethanol from existing offers received by oil marketing companies from C heavy molasses and grains will somewhat compensate this decline from Juice based and B-heavy based Ethanol. Out of the total ethanol produced in the country, ethanol from cane juice accounted for ~25% while that from B heavy molasses accounted for around ~46%. Ethanol from C heavy molasses and grains accounted for the rest of the ethanol year 2022-23.

SWOT analysis of the Indian sugar industry

Strength	Weakness	Opportunities	Threats
• Sugar cane is among the most profitable cash crops in India	• Cane prices in India are high compared to international standards.	• Indias per capita sugar consumption is approximately 20 kg per person, compared to the global average of 23 kg.	• Climate change has affected crop patterns and yields.
• India stands as the second largest producer and largest consumer of sugar worldwide	• Many companies in the sector use outdated technology.	• Implementing advanced farming techniques could significantly increase cane yield and recovery	• Political agendas have consistently influenced the sector.
• The sugar industry supports downstream sectors and enhances the countrys extensive rural economy	• Many mills face economic instability		• The sector relies on monsoon rains.
• The government views the Indian sugar industry as a key contributor to the local economy.		• The governments mandatory ethanol blending program is boosting ethanol production.	• A lack of necessary infrastructure makes cane farming susceptible to climatic variations.
• The Indian sugar sector provides livelihood to approximately 50 million sugarcane farmers and directly employs 5 lakh workers.		• Technological upgrades could enhance the utilization of byproducts.

Financial Ratios and elements

Particulars	Units	31.03.2024	31.03.2023	Variance (%)	Reason for Variance were change is more than 25%
Current Ratio	Times	2.38	5.96	(60.07%)	Due to Increase in other current Liabilities
Debt-Equity Ratio	Times	Not applicable since company has no Debt
Interest Coverage Ratio	Times	Not applicable since company has no Debt
Inventory Turnover	Days	69	85	18.82%	NA
Trade Receivable Turnover Ratio	Days	32	28	(14.28%)	NA
Net Profit Margin	Percentage	0.28%	0.75 %	(63.01 %)	Due to increase in expenses
Return on Capital Employed	Percentage	1.39	0.33%	322.71 %	Due to increase in profit before tax