KCP Sugar & Industries Corporation Ltd Management Discussions

1. INDUSTRY STRUCTURE AND DEVELOPMENTS: Sugar Industry is the second largest agro-based industry in India. It contributes significantly to the socio economic development of the nation. It impacts the livelihood of large number of farmers and their dependents. This industry is very incomparably self-reliant. Over the years it has proven to be one of the largest contributors to a nations economy. The sustainability of Sugar Industry in India is largely dependent on supply and demand which often used to mismatch on account of its cyclicality. Sugarcane and sugar production are seasonal with substantial production cycle witnessed in the months of October to April. The cyclic and seasonally driven factors in the industry are highly dependent on a stable Government policy and favourable sugar market dynamics which can aid towards improving sugar profitability. The Government has been in concerting efforts by encouraging diversion of excess sugarcane and sugar to ethanol for blending purposes which not only reduce import dependency on crude oil, but promote ethanol as a fuel that is indigenous and environment-friendly and will also enhance the income of sugarcane farmers. Government of Indias thrust for ethanol production will enable the sugar millers to divert surplus sugar towards ethanol manufacturing, thus reducing the cyclicality in sugar business. The Industry has also invented manufacturing of Green Manure for application in agricultural fields in order to improve soil fertility and soil health management by partially removing the application of inorganic fertilisers. This Green Manure called bio compost is obtained from a waste product while manufacturing sugar namely, press mud. Several micro nutrients and treated bio waste obtained from distillery effluent are applied on the said press mud to convert the same as Green Manure. This is gaining more importance in India as the said Green Manure has proven the improvement of soil fertility and development of eco-friendly atmosphere. The Production of sugars in the Southern region of India has toppled down drastically when compared to other major sugar producing regions in India and successive years of drought and lower level of recovery of sugar, have incapacitated the staying power of several private players leading to close down of sugar mills over the period in various southern regions of the nation.

(i) Opportunities:
The long term outlook for Sugar Industry remains positive and promising on account of:

• Growing robust and sustainable demand of ethanol will boost the revenue and profitability of Sugar Mills;
• The Per Capita sugar consumption in India is lower than world average consumption;
• Environmental friendly method of power generation adopted by Cogeneration Units equipped with high-pressure boilers and turbines intelligently uses the fuel to get optimum energy output; and
• Emphasize on bio-composting process by converting distillery discharge into organic matter combining with press mud for application in agriculture to enhance the fertility of the soil.

(ii) Threats:
The Sugar industry is at present confronted by the following threats;

• Risk of surge in sugarcane prices and harvesting expenses.
• Rising fuel prices and inadequate tariff would limit the prospect for standalone power production during off-season.
• Stressed finances and realization challenge for power dues.
• Rise in transportation costs could affect sugarcane growing and pricing.
• Cyclical nature of Sugar Industry and local climatic conditions will have an effect on the quantity and quality of sugar cane and result in uncertain Production Output & Short crushing season; and

Rs

• Distillery Unit produced 13.84 Lakh Litres of Industrial / Anhydrous Alcohol for the year ended 31/03/2026 as against 11.61 Lakh Litres during the previous financial year. The said Unit sold 9.48 Lakh Litres of Industrial / Anhydrous Alcohol valued at Rs.647.97 Lakhs during the year under review as against 15.38 Lakhs Litres valued at Rs.1020.18 Lakhs during the previous year.
• Cogeneration Unit produced 147.44 MW of Power during the year under review as against 14,352.50 MW of Power in the previous year. Total Export of Electrical Energy is 42.32 MW resulting in Turnover of Rs.201.94 Lakhs during the year under review was against 4,499 MW at a Turnover of Rs.252.78 Lakhs during the previous year.
• Calcium Lactate Plant contributed Rs.489.78 Lakhs towards the Turnover of the Company during the year under review as against the Turnover of Rs.455.19 Lakhs during the previous year.
• Bio-Fertilizer Plant contributed Rs.632.52 Lakhs towards the Turnover of the Company during the year under review as against the Turnover of Rs.543.43 Lakhs during the previous year.
• Engineering Division contributed Rs.1473.19 Lakhs towards the Turnover of the Company during the year under review as against the Turnover of Rs.1,393.71 Lakhs during the previous year.

4. FUTURE OUTLOOK:
The future outlook of Sugar Industry would depend on the following:

• Foresee opportunities in Ethanol production as Escalating ethanol price could more likely prompt relatively lower cane mix for sugar;
• To develop high breed varieties of sugarcane suitable for Indian climatic conditions and focus on vertical growth in sugarcane productivity;
• Invention of suitable sugarcane harvesting machine for Indian soil conditions and operable in-fragmented land holdings;
• Sugar recovery should stay firm while product prices are expected to stay supportive;

• Swift adaptation of new cultivation method suitable for mechanised harvesting;
• Agro-climatic conditions in major sugar-producing States; and

RISK MANAGEMENT:
The Company has an effective Risk Management System under which all probable risks are periodically identified, assessed and acted upon to minimize and mitigate their impact. These processes are subject to periodical review by the Management. Some of the risks identified are enumerated below:

(i) Raw Material Risk:
Sugarcane being the main raw material for sugar, any disturbance in its timely availability will have a substantial impact on the operational cost. This in turn will have a significant adverse effect since the market value does not factor the variable cost determined by the climatic conditions and the cane economics.

Mitigation Measure:
The Company always maintains a healthy relationship with its farmers. It is one among very few companies in Sugar Industry, paying its farmers within the stipulated time. The risk of short supply of raw material is mitigated to a larger extent by the goodwill and reputation for ethical dealings earned by the Company since inception. The experiments in farm mechanisation, drip irrigation, improved cane varieties, carefully monitored scheduling of cane planting and harvesting boost the confidence of the Company in mitigation of the risk.

(ii) Policy Risk:
The Sugar Industry is highly regulated by the Government of India by retaining the respective State Governments as monitoring agencies. Therefore, the performance of the Sugar Mills will depend on the policy decisions taken by such authorities from time to time.

Mitigation Measure:
The Company is a member of South India Sugar Mills Association (SISMA). The Company works closely with SISMA in the matter of developing appropriate policy recommendations to the Government in line with the Industry needs. Formulation of policy on ethanol doping, review of cogeneration policy and review of sugar weightage in WPI are some of the issues addressed in close liaison with SISMA.

(iii) Cyclicality / Commodity Risk:
The sugar price mainly depends on the cyclicality of the sugar business which in turn affects the profitability. Sugar being a commodity traded across the world, its price is influenced by the various factors including the normal supply and demand.

Mitigation Measure:
The Company focuses on value-added downstream products and integrates sugar with electricity and alcohol thereby insulating itself against price risk.

6. INTERNAL FINANCIAL CONTROL SYSTEMS: Internal financial controls laid down by the Board of Directors of the Company are adequate and operating effectively. The Company has a well-established internal control system in place to ensure smooth functioning of operations. The control mechanism involves well-documented policies, authorisation guidelines commensurate with the level of responsibility and standard operating procedures. The Internal Auditor periodically reviews and makes continuous assessments of the adequacy and effectiveness of the internal control systems. The Board of the Company, Audit Committee and the Management review the findings and recommendations of the Internal Auditor and take corrective action wherever necessary. The Company is committed in its endeavour to ensure an effective internal control environment that provides assurance on the effectiveness of operations, statutory compliances and reliability of financial reporting and security of assets.

7. HUMAN RESOURCES AND INDUSTRIAL RELATIONS: As on 31/03/2026, the number of Employees on roll including Seasonal Employees is 468.

The human resource is an important asset which has played pivotal role in the performance and growth of the Company over the years. We aim to nurture careers and give recognition to each employees efforts and performance. The relationship with employees of the Company continued to be harmonious and congenial during the Financial Year under review. The Company ensures high standards of safety for its employees and periodically conducts meetings to minimize operational hazards. The Company believes that Employees are the key to success and hence the Company proactively develops innovative and business focussed methods to attract, motivate, develop and retain talented and competitive manpower.

8. FINANCIAL PERFORMANCE vis-a-vis OPERATIONAL PERFORMANCE: All relevant information with regard to financial and operational performance of the Company is as provided in Page No. 3 of this Annual Report.

// BY ORDER OF THE BOARD//