Kesar Enterprises Ltd Management Discussions.

GLOBAL TREND - SUGAR INDUSTRY:

In 2020/2021, the global sugar production amounted to roughly 179 million metric tons, while in 2019/2020, global sugar production was approximately 166.18 million metric tons. India is the second largest producer of sugar in the world, Brazil being largest producer of sugar. Sugar production worldwide in 2020/2021 by leading countries was as follows:

INDIAN SUGAR INDUSTRY:

Sugar mills across the country have produced 305.68 lac tons of sugar between October 01,2020 and May 31,2021. This is 35.63 lac tons higher than 270.05 lac tons produced at the same time last year. As compared to 18 sugar mills which were crushing sugarcane on May 31, 2020, only 7 sugar mills were crushing sugarcane on May 31, 2021 this year primarily in two States i.e. U.P. and Tamil Nadu.

U.P. sugar mills have produced 110.16 lac tons of sugar as on May 31, 2021, which is 15.30 lac tons lower than the production of 125.46 lac tons produced by them last year on the corresponding date. Out of 120 mills which operated this year, 116 mills have ended their crushing and only 4 mills continued their operations as compared to 14 mills which operated last year on the corresponding date. Current crushing season in the Western region of the State of U.P. got prolonged by a few days as most of the Gur / Khandsari units closed their operations due to lockdown restrictions, due to which some of the cane that would have gone to them, got diverted to the sugar mills.

In Maharashtra, crushing season has concluded and the mills of the State have produced 106.28 lac tons of sugar, which is about 44.59 lac tons higher as compared to 61.69 lac tons produced in 2019-20 Sugar Season. In Karnataka, all the operating mills had closed their crushing operations by April 15, 2021 and have produced 41.67 lac tons of sugar as compared to 33.80 lac tons produced last year same period. Till May 31,2021, sugar production in Tamil Nadu was 6.52 lac tons, compared with 5.90 lac tons produced on the corresponding date last year.

The remaining States of Gujarat, Andhra Pradesh, Telangana, Bihar, Uttarakhand, Punjab, Haryana, Madhya Pradesh, Chhattisgarh, Rajasthan and Odisha concluded their crushing operations for the current season and have collectively produced 41.05 lac tons till May 31,2021.

(Source: https://www.indiansugar.com/EventDetails.aspxRsNid=8287)

Indias sugar production is forecast to rise 13% year on year to 31 million mt in the October 01 2020 - September 30, 2021 marketing year, mainly due to increased cane acreage in key producing western and southern regions.

(Source:https://www.spglobal.com/platts/en/market-insights/latest-news/agriculture/102020-indias-isma-forecasts-

2020-21-sugar-output-rising-13-on-year-to-31-mil-mt)

Sugar demand may cross 260 lakh tonnes in the 2020-21 marketing year as against 253 lakh tonnes in the previous year. In addition to higher domestic sales of 8-10 lakh tonnes in the current year till the end of September, 2021, over last season, sugar exports in the current year is expected to be around 70 lakh tonnes, which gives the industry the confidence that the closing balance of September, 2021 will be about 20 - 25 lakh tonnes less than the closing balance of last season.

(Source: https://www.livemint.com/news/india/sugar-production-up-13-so-far-this-market-year-at-307-lakh-ton- isma-11623938117785.html)

The Indian governments plan to gradually increase ethanol blending in gasoline, as a way to cut pollution and reduce its oil import bill, could be the largest change in the global sugar market since Europes sugar reform.

Indias ethanol program will lead the government to end sugar export subsidies and erase exportable sugar volumes from the country, currently the second-largest producer after Brazil. Indias plan to push for a 20% ethanol blend to gasoline as soon as 2023, compared to only around 5% currently, will lead to the production of 6 billion liters of ethanol from sugar cane juice and molasses, reducing local sugar production by more than 6 million tonnes.

By 2025, India will swing from making at most 33 million tonnes of sugar a year to 27 million tonnes. With consumption today at around 25 million tonnes and likely to grow in the future, India will no longer be a major surplus sugar producer and exporter.

(Source: https://www.indiansugar.com/NewsDetails.aspxRsnid=49926)

Sugar mills across the country have contracted orders to supply 302.3 crore litres of ethanol to oil marketing companies (OMCs). This is 70 per cent more than the 178 crore litres supplied in the previous season. According to the Indian Sugar Mills Association (ISMA), 117.72 crore litres of ethanol have already been delivered for the countrys ethanol blending programme. Nearly 77 per cent of this quantity was produced from sugarcane juice and B-heavy molasses. Indias ethanol marketing season extends from December to November next year.

(Source: https://www.thehindubusinessline.com/economy/agri-business/sugar-mills-get-orders-to-supply-302-cr-litres- of-ethanol/article34473783.ece)

OPERATIONAL HIGHLIGHTS (2020-21):

Sugar Division

• During the season 2020-21, the plant crushed 115.90 lakh quintals of sugarcane as against 124.41 lakh quintals in the previous season. The crushing was lower by 8.51 lakh quintals during the season due to lesser cane yield per hectare, as compared to previous year. Another reason for lower crushing was that Khandsari units ran through their full season unlike last season.

• The overall sugar recovery was 11.01% as against 11.55% in the previous season. The fall in recovery was a common phenomenon experienced by all the sugar factories in the State of UP, during this season. Recovery fell also due to mechanical problem in the plant for 60 days where plant was running at high losses.

• During the Season 2020-21, Molasses produced was 5.09 lakh quintals as against 5.21 lakh quintals in the previous season.

• There was no significant increase in sugar price and it has ranged almost in the same pattern of previous year,

which is not remunerative. Although the Government had approved increase in Minimum Selling Price (MSP) for

sugar, it did not introduce it, resulting into lower realisation.

Power Division

• The Plant consumed 3.20 lakh MT of bagasse and 0.40 lakh MT of alternate fuel to generate 1.61 lakh MW power as against 3.40 lakh MT of bagasse and 0.37 lakh MT of alternate fuel to generate 1.65 lakh MW power in the previous Season.

• The total power exported to the grid of Uttar Pradesh Power Corporation Limited (UPPCL) upto 06.06.2021 was

1.09 lakh MW amounting to Rs 40.97 crore as against 1.08 lakh MW amounting to Rs 40.50 Crores in the previous

Season.

Spirits Division

• During this year, Distillery plant was operated under lesser capacity of 30 KLPD, as per the guidelines of Pollution Control Board for the whole operational period, under bio-compost mode.

• The Company completed supply to OIL Marketing Companies (OMCs), totalling to 41.49 L BL of ethanol till end of May 2021 as against our committed supply of 60.00 L BL for the Ethanol Year (E/Y) 2020-21 (For the period from December, 2020 to November, 2021). This was against total supply of 47.74 L BL of ethanol during the previous E/Y 2019-20.

OUTLOOK FOR 2021-22:

• During the Financial Year 2021-22, the sugar price is expected to be steady due to government intervention. This may result into the Company generating better operational margin gradually. The Government may increase MSP for sugar, which is long pending, as there could be an increase in sugarcane price in the coming season.

• The Company is planning to enhance the capacity of Distillery from 45 KLPD to 125 KLPD. This has been planned to tap the opportunity of producing Ethanol from B Heavy Molasses which is one of the best advantageous propositions.

• Ethanol production will be increased by the Company in two phases. In first phase, it is expected to be increased to 80 klpd soon.

FINANCIAL REVIEW:

• After taking into account the effect of other Comprehensive Income based on Ind-AS norms, there is a profit of Rs 9,103.03 lakhs for the Financial Year 2020-21 as against a loss of Rs 290.53 lakhs in the previous year. Increase in profit is mainly attributable to substantial increase in other income arising out of write back of Rs 5,474.12 lakhs towards Loan amount and 4,818.51 lakhs towards Interest, consequent upon One Time Settlement (OTS) entered with erstwhile Allahabad Bank (Now, Indian Bank).

• The Company generated EBIDTA of Rs 13,607.75 lakhs as against Rs 4,546.31 lakhs last year. Increase in EBIDTA was also mainly attributable to substantial increase in other income arising out of write back of Rs 5,474.12 lakhs towards Loan amount and 4,818.51 lakhs towards Interest as explained above.

• During the Financial year 2020-21, the Company did not raise any funds by issue of equity shares or any debt securities. There was no change in Paid-up Share Capital of the Company during the year.

• During the Financial Year 2020-21, the Company did not borrow any funds from Banks / Financial Institutions. SEGMENT-WISE FINANCIAL PERFORMANCE:

Segment-wise reporting of performance of the Companys primary business segments (Sugar, Power and Spirits) is provided in Note No. 41 to Financial Statements.

OPPORTUNITIES & THREATS:

Sugar

Untimely change in government policy and upward pricing in terms of Fair Remunerative Price (FRP) and State Advised Price (SAP) can prove a threat to the Company. Excess production also can affect the sugar prices to a great extent.

Power

The Company has set up a state-of-the-art cogeneration plant operating at high pressure of 115 kg/cm2. Therefore, it is very efficient when compared to majority of the cogeneration plants having power cycle at pressures of 45, 67 and 87 kg/cm 2. This will, therefore, translate into producing more power from same bagasse.

UPPCL is likely to reduce the power rate further to Rs 3.36 per unit w.e.f. April, 2022, which will have adverse effect on revenues.

Spirits

Present State and Central Government policies are quite favourable for the Spirits Division. The Government is promoting Ethanol by giving better rates, allowing to produce from B" heavy molasses and cane juice directly. The Company also plans to restart Country Liquor and IMFL contract bottling.

RISKS AND CONCERNS:

Raw Material Risk

Sugarcane is the principal raw material for manufacture of Sugar, Spirits and Power and its shortages could be on account of pest attacks, crop diseases, diversion of land by farmers. Shortage of the basic raw materials would severely impact the working of the divisions of the Company. To mitigate these risks, the Company has adopted sound agronomic practice and improvement in basic infrastructure facilities.

Price Risk

Sugar price is susceptible to fluctuations on account of international demand and supply, government pricing for cane as well as sugar, variance in production capacities of peers. Any change may affect the margins of the Company.

Regulatory Risk

The policies of the Central and State Governments in terms of Fair Remunerative Price (FRP) and State Advised Price (SAP) for sugarcane have an impact on the operations of the Company.

INTERNAL CONTROL SYSTEM:

The Companys internal controls are commensurate with its size and the nature of its operations. These have been designed to provide reasonable assurance with regard to recording and providing reliable financial and operational information, complying with applicable statutes, safeguarding assets from unauthorized use, executing transactions with proper authorization and ensuring compliance with corporate policies. The Company has a well-defined delegation of power with authority limits for approving contracts as well as expenditure.

The Company has appointed independent internal auditors to oversee and carry out internal audit of its activities on half yearly basis. The audit is based on an internal audit plan, which is reviewed and approved by the audit committee. The audit committee reviews audit reports submitted by internal auditors. The audit committee also discusses with the Companys statutory auditors, their views on the adequacy of internal control systems.

Based on its evaluation [as defined in section 177 of Companies Act, 2013 and Regulation 18 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015], the audit committee has concluded that, as of March 31,2021, the companys internal financial controls were adequate and operating effectively.

DETAILS OF SIGNIFICANT CHANGES (I.E. CHANGE OF 25% OR MORE AS COMPARED TO THE IMMEDIATELY PREVIOUS FINANCIAL YEAR) IN KEY FINANCIAL RATIOS* AS REQUIRED TO BE DISCLOSED UNDER SEBI (LISTING OBLIGATIONS & DISCLOSURE REQUIREMENTS) REGULATIONS, 2015:

Particulars March 31, 2021 March 31, 2020 Remarks/Reason for change
Debtors Turnover Ratio (times) 13.24 10.12 There has been significant change due to fall in sugar recovery from sugar cane, marginal reduction in sugar realisation, reduction in sale of Power and reduction in sale of REC certificates.
Inventory Turnover Ratio (times)

There is no significant change and hence, details are not disclosed.

Interest Coverage Ratio (times) 0.51 1.09 There has been significant change due to fall in sugar recovery from sugar cane, marginal reduction in sugar realisation, reduction in sale of Power and reduction in sale of REC certificates.
Debt Equity Ratio

There is no significant change and hence, details are not disclosed.

Current Ratio (times)

There is no significant change and hence, details are not disclosed.

Operating Profit Margin (%) 2.64% 5.29% There has been significant change due to fall in sugar recovery from sugar cane, marginal reduction in sugar realisation, reduction in sale of Power and reduction in sale of REC certificates.
Net Profit Margin (%) (2.39)% 0.44% There has been significant change due to fall in sugar recovery from sugar cane, marginal reduction in sugar realisation, reduction in sale of Power and reduction in sale of REC certificates.

DETAILS OF ANY CHANGE IN RETURN ON NET WORTH* AS COMPARED TO THE IMMEDIATELY PREVIOUS FINANCIAL YEAR:

Particulars March 31,2021 March 31, 2020 Remarks/Reason for change
Return on Net Worth (38%) (5.00%) There has been significant change due to fall in sugar recovery from sugar cane, marginal reduction in sugar realisation, reduction in sale of Power and reduction in sale of REC certificates.

*Ratios as at March 31, 2021 have been calculated excluding the impact of write back of loans and interest from Allahabad Bank, so as to make them comparable to those of last year.

MATERIAL DEVELOPMENTS IN HUMAN RESOURCES / INDUSTRIAL RELATIONS FRONT:

The Company considers human capital as a critical asset and success factor for smooth organizational workflow. Efforts are made to improve skills, knowledge and performance of employees by timely training, job satisfaction and enrichment. The Company has added to its fold, experienced manpower in line with future areas of growth.

CAUTIONARY STATEMENT:

The above Management Discussion and Analysis Report contains "forward looking statements" within the meaning of applicable laws, and regulations and is futuristic in nature. All statements that address expectations or projections about the future, including, but not limited to statements about the Companys strategy for growth, market position, expenditures and financial results are forward looking statements. The Companys actual results, performance or achievement could thus differ materially from those projected in any such forward looking statements. Investors are requested to make their own independent judgments before taking any investment decisions and the Company assumes no responsibility.