Gayatri Sugars Ltd Management Discussions.

GLOBAL ECONOMIC OUTLOOK

Global growth decelerated markedly in 2019, with continued weakness in global trade and investment. This weakness was widespread, affecting both advanced economies - particularly the Euro Area - and Emerging Market and Developing Economies (EMDEs). Various key indicators of economic activity declined in parallel, approaching their lowest levels since the global financial crisis, in particular, global trade in goods was in contraction for a significant part of 2019, and manufacturing activity slowed markedly over the course of the year. Near-term projections for global growth masked different contours in advanced economies and EMDEs. Growth in advanced economies was projected to slow to 1.4% this year, below previous projections, in part reflecting lingering weakness in manufacturing, and was expected to improve slightly over the rest of the forecast horizon. In contrast, after decelerating to an estimated weaker-than- expected 3.5% last year, growth in EMDEs was projected to increase to 4.1% in 2020. Nonetheless, the recovery in aggregate EMDE growth this year, which assumed continued monetary policy support in many economies, no major swings in commodity prices, and generally benign borrowing costs, was not envisioned to be broad-based.

During the end of the last quarter of the financial year 2019-20, COVID-19 outbreak brought considerable human suffering and major economic disruption. Growth prospects remain highly uncertain. Annual global GDP growth is projected to drop to 2.4% in 2020 as a whole, from an already weak 2.9% in 2019, with growth possibly even being negative in the first quarter of 2020. The adverse impact on confidence, financial markets, the travel sector and disruption to supply chains contributes to the downward revisions in all G20 economies in 2020, particularly ones strongly interconnected to China.

The World Trade Organization (WTO) predicts that the world trade is expected to fall by 13% to 32% in 2020 as the COVID-19 pandemic has disrupted normal economic activity and life around the world. The WTO economists believe the decline will likely exceed the trade slump brought by the global financial crisis of 2008-09. Estimates of the expected recovery in 2021 are equally uncertain, with outcomes depending largely on the duration of the outbreak and the effectiveness of the policy responses. The unavoidable declines in trade and output will have painful consequences for households and businesses, on top of the human suffering caused by the disease itself.

INDIAN ECONOMY OUTLOOK

Global headwinds and challenges in the domestic financial sector moderated the growth of Indian economy in 2019-20. The real GDP growth moderated to 5.0% in 2019-20 as compared to 6.8% in 2018-19. Despite a temporary moderation in the Gross Domestic Product (GDP) growth in 2019-20, the fundamentals of Indian economy remained strong and it was expected that GDP growth would rebound from the first quarter of 2020-21. Fiscal situation remained close to the consolidation path and consumer price inflation was within the targeted limits set by the monetary policy committee of Reserve Bank of India (RBI). Despite continuing sluggishness in global demand, the Current Account Deficit (CAD) narrowed to 1.5% of GDP in first half of 2019-20 from 2.1% in 2018-19. Global confidence in the Indian economy improved as reflected in growing inflows of net Foreign Direct Investment (FDI) and an all-time high accumulation of foreign exchange reserves of US$ 457.5 billion as in end December, 2019. India moving up by 14 positions to 63rd rank in 2019 World Banks Ease of Doing Business 2020 Report, has among others, contributed to the increase in global confidence in Indian economy. India has emerged as an important player in the world on the back of high GDP growth and announcement/implementation of critical measures in the current year and last few years.

The measures announced / implemented in 2019-20 include:

• Reduction in corporate tax rate;

• Policy initiatives for development of textiles & handicrafts and electric vehicles;

• Outreach programme for growth, expansion and facilitation of micro, small and medium enterprises;

• Incentives for start-ups in India;

• Recapitalization of public sector banks;

• Relaxation of ECB guidelines for affordable housing; and

• Streamlining of many labour laws at the central government level.

Government has also taken various measures from time to time to stabilize prices of essential food items through, inter-alia, trade and fiscal policy instruments like customs duty, minimum export price, export restrictions, imposition of stock limits besides advising States for effective action against hoarders & black marketers to regulate Domestic availability and moderate prices. Prior to the outbreak of COVID-19, the outlook for growth for 2020-21 was looking up. First, the bumper rabbi harvest and higher food prices during 2019-20 provided conducive conditions for the strengthening of rural demand.

Second, the transmission of past reductions in the policy rate to bank lending rates had been improving, with favorable implications for both consumption and investment demand.

Third, reductions in the goods and services tax (GST) rates, corporate tax rate cuts in September 2019 and measures to boost rural and infrastructure spending were directed at boosting domestic demand more generally. However, the COVID-19 pandemic has drastically altered this outlook.

As per the Reserve Bank of India, COVID-19, the accompanying lockdowns and the expected contraction in global output in 2020 weigh heavily on the growth outlook. The actual outturn would depend upon the speed with which the outbreak is contained, and economic activity returns to normalcy. Significant monetary and liquidity measures taken by the Reserve Bank and fiscal measures by the government would mitigate the adverse impact on domestic demand and help spur economic activity once normalcy is restored. Risks around the inflation projections appear balanced at this juncture and the tentative outlook is benign relative to recent history. But COVID-19 hangs over the future, like a specter.

POLICY INITIATIVES POST COVID-19

The Government of India has initiated a slew of policy initiatives to tackle the sluggish economy post COVID-19. This includes a number of stimulus and reform measures including announcement of a Rs 20 Lakh Crore package. A highlight of the stimulus package was the legal reforms proposed for agriculture. It has been likened to the 1991 reforms which transformed industry and financial markets. Agriculture remains shackled by antiquated laws and moreover, progress in creation of a national market for agricultural produce has been slow. Therefore, proposals to amend Essential Commodities Act (ECA), create a central law to expand marketing options through interstate trade and electronic trading platforms, and introduce a facilitative legal framework to enhance farmer engagement with retailers and aggregators have drawn praise from various quarters. Similarly, the APMC Act created monophony powers and erected entry barriers for new agents.

A functioning market needs many buyers and sellers, making the Centres plans to create a legal architecture to facilitate it are important. But laws alone will not unlock agricultures full potential and the Government needs to play a more proactive role, as it did in the 1991 reforms, to create market infrastructure. The Government launched e-NAM four years ago, an electronic pan-India link of wholesale markets and the aim was to connect the existing mandi system to create a national market for farmers. However, only about 9% of about 6,946 markets are linked to e-NAM since the Market infrastructure for quality assessment, dispute redressal mechanism and logistics infrastructure are inadequate.

Government needs to take a more proactive role and the lead here as markets evolve only when legal changes come with a complementary ecosystem.

GLOBAL SUGAR SCENARIO

Global production for Marketing Year (MY) 2020-21 is forecast up 22 million tons to 188 million (raw value) due to higher production in Brazil, India, and Thailand. Consumption is expected to rise to a new record due to growth in markets such as India and is projected to continue to draw stocks lower despite a rebound in output. Exports are forecast up sharply with rising supplies.

Impacts of COVID-19 have been taken into consideration in the global sugar forecast for trade and consumption. However, the impact of the pandemic on the global economy remains highly uncertain.

GLOBAL TRENDS IN SUGAR

The global sugar market reached a volume of 187.9 Million Tons in 2018. The market is further projected to reach 199.6 Million Tons by 2024, expanding at a CAGR of nearly 1% during 2019-2024. Sugar refers to a sweet crystalline substance which is prepared from sugar cane and sugar beet. It is used across the globe for innumerable food and non-food applications. In addition to offering a sweet taste, sugar performs a variety of other functions in the food industry. It is used as a preservative and prevents the development of microorganisms. It is also used for preventing formation of large ice crystals in frozen products like ice cream. Apart from this, sugar encourages fermentation in products which contain yeast. Moreover, it is used in baked goods for retaining moisture and preventing staleness.

DOMESTIC SCENARIO

Sugar Production and Consumption :

India has of late become the worlds largest sugar producer beating Brazil and is also the largest sugar consumer. Excess sugar production in the last couple of years has resulted in surplus sugar. The primary reason for this exponential rise in sugar production is the introduction of an early maturing cane variety, the Co 0238 (Karan 4). This cane variety gives very high cane yield and sugar recovery. This variety was released in 2009-10 and currently, in Uttar Pradesh, the plantation of this variety is above 90%, which has increased the sugar production upto 12 to 13 MMT per year. This coupled with increase in Fair & Remunerative Price (FRP) over the years has contributed to the highest ever sugar production in India during the past few seasons. In fact Sugarcane is the most profitable crop for farmers in India as the return is assured and 50-60% higher than the return from any other crop. The increase in the FRP of sugarcane in the last 10 years has outpaced the increase in the MSP of other crops like wheat, paddy, coarse grains, cotton etc., causing a distortion in the farm economics. This, along with the fact that sugarcane has an assured buyer, is a sturdy crop and gets the promised assured price, is the main reason why sugarcane is one of the most preferred crop in the country. Indian Sugar Production has historically been cyclical in nature with 3-4 years of bumper crop usually followed by 2 years of shortfall. The shortage years helped restore Mills health by liquidating excess stocks and lifting market prices for Sugar thereby benefiting farmers. However, this cyclical pattern has been broken lately, with Sugar production outpacing consumption since the Year 2010-11 except the Year 2016-17 when Sugar production dipped to the level of just 20.3 MMT mainly due to drought conditions.

Price - Sugarcane & Sugar :

For the Sugar Season 2019-20, the Department of Food and Public Distribution, Ministry of Consumer Affairs, Food and Public Distribution, fixed the FRP for sugarcane at Rs. 275 per quintal for a basic recovery of 10.00% and a premium of Rs. 2.75 for every 0.1% increase in the recovery rate, as recommended by the Commission of Agricultural Costs and Prices (CACP). Also for 10 % and less recovery, the FRP shall be decreased by 2.75 per Quintal for every 0.1% decrease. For mills having recovery of 9.5% or less, FRP fixed at Rs. 261.25 per quintal.

Indian Bio Fuel Section Overview:

Sugar Mills produce ethanol from molasses which is a by-product of Sugar manufacture. The Government of India is keen on encouraging environmental friendly vehicles and imposed compulsory blending of Ethanol. Ethanol supply contracts for 170 Crore litres have been entered into between ethanol

manufacturers/sugar mills and oil marketing companies (OMCs) for the current ethanol supply year (Dec- Nov) 2019-20.

Against this, 92.5 Crore litres of ethanol have already been supplied to the OMCs between Dec 2019 to June 2020, achieving an average all India blending of 5.09% with petrol till then. This is almost as per contracts signed for the supplies.

Central Government Measures During July 2019 to July 2020:

DATE MEASURE SIZE (INR BILLION) IMPACT
July 2019 Cane FRP kept unchanged at INR275/quintal - Profitability
July 2019 Increase in buffer stock to 4mnt for 1 year (from 3mnt earlier) with additional subsidy of INR5 billion towards inventory carrying cost, directly credited to farmers account) 5 Liquidity/PBT improvement
August 2019 Export quota increased to 6mnt for SS20 (SS2018-19: 5mnt) while export subsidy reduced marginally to INR10.4/kg of sugar exported (INR11.1/kg) 62.68 Exports
September 2019 Increased ethanol prices for season 2019-20: C-heavy molasses to INR43.75/litre (INR43.46/litre), B-heavy molasses to INR54.27/litre (INR52.43/litres, Sugarcane juice /sugar/sugar syrup route be fixed at INR59.48/ litre (cane juice: INR59.13/litre) - Higher ethanol production

OPPORTUNITIES AND THREATS Opportunities:

The long term outlook for sugar remains positive and promising on account of:

• The above mentioned Government policies will enable the sugar industry to get out of financial crisis to get more Revenue year on Year.

• Mandatory blending of Ethanol with petrol will boost the revenue of sugar mills and profitability.

• Growing energy consumption in India allowing the sugar industry to play a vital role.

• Environmental friendly power generated by Cogeneration Units equipped with high-pressure boilers and turbines that intelligently use the fuel to get optimum energy output.

• Expected flow of funds from Trading of Renewable Energy Certificate (REC).

• More emphasize on Bio-composting process and consequent efforts to convert organic and inorganic matter into bio-manure to ensure zero discharge from the distillery combining with press mud.

• Growing demand for bio manure, which works as the perfect soil conditioner, Bio manure made from distillery and organic matter does not allow leaching of chemicals and hence can offer a solution to the problem of depletion of soil productivity.

Threats:

Sugar industry is at present confronted by the following threats:

• Dearth in availability of farm labour for harvesting, transportation, loading and unloading of sugar cane and sugar.

• Cyclical nature of industry and local climatic conditions over the crop affecting both the quantity and quality of cane available.

• Short crushing season.

• Shrinkage of sugarcane area under cultivation due to growing urbanisation and availability of many alternate cash crops.

FUTURE OUT LOOK

The Sustainability of Sugar Industry depends upon availability of quality cane, which is a major concern. To overcome this, your Company constantly encourages the farmers by supplying quality seed, technical assistance, expert opinion and scientific methods of cultivation, drip irrigation, ratoon management and other resources like facilitating crop loans, harvesting labour, mechanised harvesting and transport facility of harvested cane to mill. Due to drought conditions prevailed in the zone area of both mills of the Company, the crushing of cane is expected to be lower compared to previous season and the production of Ethanol is expected to be 88.00 to 90.00 Lakh litres during the financial year 2020-21. SEGMENT-WISE OR PRODUCT-WISE PERFORMANCE Sugar:

During the Financial Year 2019-20 under review, the crushing operations for the crushing season 201920 were started at Kamareddy Unit on December 3, 2019 and closed the operations on March 4, 2020. The operations at Nizamsagar Unit started on December 1, 2019 and closed on March 12, 2020.

During the Crushing Season 2019-20, at both the units, 5.10 Lakh Tonnes of Sugar Cane was crushed and 5.58 Lakh Quintals of sugar produced with an average recovery of 10.95% comparing to the previous season figures of 7.90 Lakh Tonnes of Sugar Cane and Sugar of 8.99 Lakhs Quintals with an average recovery of 11.38% respectively. In detail, at Kamareddy Unit, 2.99 Lakh Tonnes of Sugar Cane was crushed (Previous Season 4.29 Lakh Tonnes) and produced sugar of 3.37 Lakhs Quintals (Previous Season 4.94 Lakh Quintals) with an Average Recovery of 11.30% (Previous Season 11.51%) and at Nizamsagar Unit 2.21 Lakh Tonnes (Previous Season 3.60 Lakh Tonnes) of Sugar Cane and produced sugar of 2.21 Lakhs Quintals (Previous Season 3.60 Lakh Quintals) with an Average Recovery of 10.45% (Previous Season 11.26%).

Distillery:

During the Financial Year 2019-20, the Distillery unit produced Ethanol of 82.45 Lakh Liters, Rectified Spirit (RS) Nil Liters and Impure Spirit (IS) - 1.10 Lakh Liters totalling to 83.55 lakh Liters (compared to the previous year of Ethanol of 80.19 lakh Literes, Rectified Spirit (RS) - 3.59 Lakh Litres and Impure Spirit (IS) 1.24 Lakhs, totalling to 85.02 lakh Liters).

Power:

The Export of Power during the crushing season 2019-20 was to the extent of 158.08 Lakh kwh (Kamareddy Unit 38.87 Lakh kwh & Nizamsagar Unit 119.21 lakh kwh) as compared to the previous year season of 274.59 Lakh kwh (Kamareddy Unit 58.43 Lakh kwh & Nizamsagar Unit 216.16 lakh kwh). Manufacturing:

The Company is continuously implementing better manufacturing methods to increase operational efficiencies and to eliminate process losses.

RISK AND CONCERNS

As explained above, the major risk is availability of cane, Company is focusing on implementation of various measures as discussed in future outlook section. Company has improved on operational efficiency and is best in terms of efficiency in the southern region of India.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has well-established processes and clearly-defined roles and responsibilities for people at various levels. The control mechanism also involves well documented policies, authorisation guidelines commensurate with the level of responsibility and standard operating procedures specific to the respective businesses. Adherence to these processes is ensured through frequent internal audits and adequate and effective internal audit system that employs periodic checks on on-going process. The internal audits conducted are reviewed by the Audit Committee and requisite guidelines and procedures augment the internal controls. The internal control system is designed to ensure that financial and other records are reliable for preparing financial statements and other information which ensures that all transactions are properly reported and classified in the financial records.

DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE:

The Financial Statements of the Company for the year 2019-20 has been prepared in accordance with the Accounting Principles Generally Accepted in India, including the Indian Accounting Standards prescribed under section 133 of the Companies Act, 2013 read with Companies (Accounting Standards) Rules 2015 (as amended).

During the Financial Year 2019-20, the Overall performance of the Company is as under:

Production:

Details Financial Year 2019-20 Financial Year 2018-19
Total Cane Crushed 5,10,094 Tones 7,89,770 Tones
Sugar Production 5,58,481 Quintals 8,98,986 Quintals
Recovery 10.95 % 11.38 %
Molasses production ( Tonnes) 23,311 Tones 36,158 Tones
Power Exported (lakh units) 158.08 lakh Units 274.59 lakh Units
Distillery Unit: Ethanol/Rectified Spirit (RS) & Impure Spirit (IS) Production 82.45 lakh Liters 1.10 lakh Liters 80.19 lakh Liters 4.83 lakh Liters

Financial Review:

Capital:

There was no change in the capital structure of the Company. However, the Preference Share Capital has been reclassified as Borrowings (Financial Liability) as per the Indian Accounting Standards applicable to the Company from the Financial Year 2017-18.

Net Worth:

The net worth of the Company eroded due to losses incurred by the Company during the previous financial years and for the current financial year.

Long Term Debt:

The Borrowings including current maturities of the Company decreased from Rs. 123,28.70 lakhs to Rs. 112,39.67 lakhs with a net effect of Rs. 10,89.03 lakhs. The Company has repaid the Term Loan to an extent of Rs. 14,50.53 lakhs.

Working Capital:

There were no additional working capital borrowings other than sanctioned limits during the year. Gross Block of Assets:

The gross block of the Company was increased from Rs. 26,822.72 lakhs to Rs. 26,823.81 lakhs because of capital expenditure incurred on sugar plant. During the year, the Company provided depreciation and amortization of Rs. 1035.07 lakhs as per the provisions of Schedule II of the Companies Act, 2013.

Inventories:

Value of inventories stood at Rs. 7,574.56 lakhs as at 31st March, 2020 against Rs. 12,032.60 lakhs as at 31st March, 2019.

MATERIAL DEVELOPMENTS IN HUMAN RESOURCES / INDUSTRIAL RELATIONS FRONT, INCLUDING NUMBER OF PEOPLE EMPLOYED

In a challenging and competitive environment, the Company believes that people are the key to success and continues to focus on people capabilities by leveraging technology and creating a learning environment. The Human Resources function proactively develops innovative and business focused methods to attract, develop, motivate and retain talent. Human resources strategy is closely aligned to key business and stems from the organisation purpose which is - "To build Credible, Reliable & Capable Human Capital to deliver superior Individual and Business performance". This vision is delivered by a high level of policy deployment initiatives and contemporary HR practices focusing key imperatives such as Capability Development, Talent Management, Employee Engagement, Productivity & Cost and HR excellence.

During the year under review, there was no complaint filed pursuant to the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013.

CAUTIONARY STATEMENT

The management discussion and analysis report containing your Companys objectives, projections, estimates and expectation may constitute certain statements, which are forward looking within the meaning of applicable laws and regulations. Actual results may differ materially from those expressed or implied in the statement. Your Companys operation may inter-alia be affected by the supply and demand situations, input price and the availability, changes in the government regulations, tax laws and other factors. The Company cannot guarantee the accuracy of the assumptions and perceived performance of the Company in future.