Dharani Sugars & Chemicals Ltd Management Discussions

Cautionary Statement:

Statements made in this report describing industry outlook as well as Companys plans, projections and expectations may constitute forward looking statements. Actual results may differ materially from those either expressed or implied. The Company assumes no responsibility to publicly amend, modify or revise any forward-looking statements, on the basis of any subsequent developments, information or events.

World Sugar Scenario:

In 2022-23 the world produced 177 million tonnes, which was the 3rd largest amount on record. Asia was largest Sugar producing region in the World, yield by almost 60 million tonnes of sugar and India, China and Thailand for the main contributors.

Indian Sugar Scenario:

India, the largest consumer of the sugar in the world and is the second largest producer of sugar. Any increase or decrease in the production of sugar in India has direct impact on the International price. During the season 2022-23 Indian sugar production has decreased to 328 lakh tonnes from 358 lakhs tonnes in the previous season 2021-22. During this season 2022-23 exports have also come down to 63.50 lakhs tonnes as compared to the export of 111 lakh tonnes in the previous Sugar Season 2021-22. This has also helped the closing stock to come down to one of the lowest level in the last few years helping the Industry to save carrying cost.

Government Policies:

The Government of India and the State Government continue to support the Sugar Industry. The Government of India had allowed substantial quantity of exports which has brought down the level of Sugar Inventory in the Country resulting in substantial saving in inventory carrying cost. However, the long awaited revision in the minimum selling price is yet to be announced. Hope the Government of India will announce this minimum price shortly which will help the Industry to sustain its performance which will help them to clear the cane price on time.

Segment Wise Performance:

Financial Performance: During the year under review the total income was Rs. 0.95 Crores as against the total income of Rs.40.68 Crores in the previous year.

The company was not able start the cane crushing operation in Unit II (Polur) and Unit III (Kalayanallur) as the company has not cleared the cane arrears relating to sugar season 2018-19. The gross operating loss works out to Rs. 9.10 Crores as against the loss of Rs.17.58 Crores in the previous year. During the year, the company has not charged interest towards banks and financial institutions as our accounts are classified as NPA. The cash loss works out to Rs.9.11 Crores as against the cash loss of Rs.17.59 Crores in the previous year. The net loss after depreciation and deferred tax works out to Rs.30.78 Crores as against the loss of Rs.40.38 crores in the previous year.

Summary of the financial Performance for year ended is given below:

(Rs. Crores)

Sugar, Alcohol and Power: During this period under review, The Company was not able to start the cane crushing operations and Alcohol products as the company has not cleared the cane arrears relating to sugar season 2018-19.

Ethanol:

The Government of India has set a very high level of growth target in the ethanol blending program and the blending target has been fixed at a target of 20% to be achieved by 2025. The present blending level has increased to around 14% and this will be increased progressively to 20% during the next 2 years. This blending program has not only saved substantial Foreign Exchange in import of fuel, it has also helped the Sugar Industry to balance the Sugar and Ethanol Production and maximise the return.

Opportunities and Threats:

India is the largest consumer of sugar in the world. Still the average per capital consumption of sugar in India is less as compared to the developed countries. While the land availability is likely to shrink for cane cultivation, the cane production needs to be increased to meet the ever increasing demand for sugar, power and ethanol. However the agro climatic conditions and competition from other crops playa great role in the availability of cane. The ethanol blending programme may also help the Sugar Industry.

Risks and Concerns:

Risks and Concerns given by the management below are not exhaustive and only highlight some of the salient among them. The investors are advised to exercise their due diligence in assessing the various risk factors associated with industry and your Company. The sugar industry is still highly regulated with the Government exercising control over pricing of sugar cane, allocation of area for sugar units, movement of molasses, Alcohol and pricing of Power. Some of the inherent business risks and the mitigation measures initiated by your Company are given as under.

a) Raw Material Risk: Cane is the basic raw material for sugar industry and the efficient operation of the Sugar Plant as well as Distillery depends upon the availability of adequate mosasses. Sugar industry being cyclical in nature is affected by the vagaries of the monsoon. Substantial increase in the price of alternate crops as compared to sugarcane and increase in the harvesting charges for the cane has resulted in the farmers switching to other crops which are more profitable. However, as our company is under CIRP, no crushing activity was taken during the year.

b) Product Risks: Sugar being the main product, its price is fixed by Government of India. Increasing health consciousness among the general public, the average increase in the consumption of sugar is likely to be low in the coming years. Alcohol is highly regulated and the price of the same is directly/ indirectly controlled by the State Government through import from neighbouring states. Further there is undue delay in the realisation of power dues. To mitigate the product related risks, the Company has been taking efforts to make its operation as integrated one comprising of Sugar, Power and alcohol including fuel Ethanol.

c) Forex Risk: Import and Export of Raw Sugar/White sugar and funding of project for manufacture of sugar involves foreign exchange component. Any wide fluctuation in the value of Rupee against US Dollar may impact the profitability of the Company. The Company is closely monitoring the movement and taking appropriate action.

d) Financing Risk: The Sugar industry being capital intensive in nature requires huge capital investment, having high debt component. The Sugar Industry being seasonal in nature, the Company needs to hold substantial inventory over longer period incurring very high interest cost on working capital borrowing, besides other carrying costs. Further, the droughts during the last 4 years have drastically reduced the cane availability, affecting our performance and the ability to service the loans.

e) Regulatory Risks: The Sugar Sector continuous to be controlled by Governments. Sugar cane prices and sugar selling price are fixed by Government of India. Alcohol and molasses are subject to interstate movement control. The Company through its Industry Association has been representing to the Central and State Governments for new policy changes to support the Sugar Industry.

Outlook for 2023-24

Tamilnadu has received excess monsoon during the last 2 years and this has helped to improve the cane cultivation. However, there was no Operation as the Company was in CIRP Process.

Further as per the e-voting results dated 22nd September 2022, CoC has approved the appointment of Mr. Mahalingam Suresh Kumar, Insolvency Professional as Resolution Professional. The appointment was confirmed by Honble NCLT, Chennai vide order IA/1248(CHE)/2022 in IA/976/2019 dated 18th November 2022. The Honble NCLT had passed a liquidation order dated 28th June 2023.

Meanwhile, the following lenders (Consortium Banks) viz., Indian Bank, State Bank of India, Central Bank of India, IDBI Limited, The South Indian Bank Ltd, The Federal Bank Ltd, ICICI Bank, Bank of India, Union Bank of India and Indian Overseas Bank had assigned there loan to National Asset Reconstruction Company Limited ("NARCL") vide Joint Assignment Agreement dated 30th September 2023.

Considering the settlement arrived between the Promoter and the majority lenders of the Company, the Honble Supreme set aside the Liquidation Process vide its order dated 28117/2023 dated 7thAugust 2023. Further the Honble Supreme Court vide its order 150612/2023 dated 18th March 2024, remanded back to The Honble National Company Law Tribunal (NCLT), Chennai Bench for consideration of withdrawal of IBC process initiated against the Company in terms of Section 12A of IBC, 2016 read with Regulation 30A of the IBBI(CIRP) Regulations., 2016.

Based on the settlement proposal submitted by the Promoter U/s 12 A of IBC 2016, the CoC and NCLT has approved the proposal and ordered the withdrawal of the CIRP process and restored the powers of the Board vide its order No. IA (IBC)/825/ CHE/2024 in IBA/976/2019 dated 9th May 2024.

Financial Performance:

Please refer disclosures in the Directors Report and the financial statements.

Human Resources: The Industrial relations at your Company continue to be cordial. However, as the Company was in CIRP Process, only minimum employ.