Kesar Enterprises Ltd Management Discussions

Annexure IV

GLOBAL SUGAR OVERVIEW:

Bifurcation of global sugar production is as follows:

(Source: https://fas.usda.gov/data/production/commodity/0612000 )

In case of Brazil, a record cane crop, which began in April last year, is being realised, despite the area under cane being at its lowest for 12 years. The harvest ended in March, with total cane sugar production estimated at 45 million tonnes for 23/24, compared to the 38.7 million tonnes produced in 22/23. Recent high global sugar pricing alongside reduced diesel and fertiliser prices have increased sugar mill profits. This has led to more investment in Brazils sugar industry, resulting in greater efficiencies in the production process and a record volume of sugar produced since November. Ethanol production from sugarcane has more than doubled compared to this time last year, but global prices for crude oil have seen imported oil as a cheaper energy source. With domestic ethanol prices falling, sugar mills have increased the production of sugar as a sweetener to 51.4%.

In case of India, the area under cane in India increased for the 23/24 cane crop. Dry weather reduced the development of the cane, but unseasonal rain improved the cane yield and sugar content just before the harvest began in October. However, a general lack of available labour saw the harvest extend until the end of March with a slight recovery in cane yields in Maharashtra and Karnataka.

With a cap of 2 million tonnes of sugar going towards ethanol production and an extended harvest period, India should be able to produce around 35 million tonnes of cane sugar for 23/24, which is above domestic consumption at 28.5 million tonnes. Since the 22/23 marketing year, India has reduced sugar exports by 45% to help domestic sugar stocks and the country will import sugar during 2024. India produced 32.8 million tonnes of cane sugar in 22/23, a reduction on the 39 million tonnes produced in 21/22.

INDIAN SUGAR INDUSTRY (SUGAR SEASON 2023-24):

The sugarcane crushing season in India is in its final phase, with production slightly lower than the previous season during the same period. According to the data from the National Federation of Cooperative Sugar Factories Limited (NFCSF), as of April 30, 2024, the crushing for the season 2023-24 was ongoing in 23 sugar mills across the country. As of now, 3129.75 lakh metric tonnes (LMT) of sugarcane have been crushed to produce 315.90 LMT of sugar. A total of 534 sugar mills participated in the crushing season, of which 511 have now closed. In the previous season, 534 sugar mills participated, and 468 had closed operations during the same period.

Sugarcane crushing in the current season is slightly lower than the previous season, but sugar recovery is higher. The average sugar recovery in the current season is 10.09 percent, compared to 9.84 percent in the previous season during the same period.

Maharashtra is the leading producer of sugar in the current season, followed by Uttar Pradesh and Karnataka. Except for Maharashtra and Uttar Pradesh, sugar mills in other states have ended operations. Sugar production in Maharashtra reached 109.95 LMT, whereas in Uttar Pradesh, sugar output is 103.35 LMT. According to NFCSF, Indian sugar production is estimated to reach 321.35 lakh tonnes, compared to 333.90 lakh tonnes last year.

(Source: https://www.indiansugar.com/NewsDetails.aspx?nid=57684)

While Indian Sugar Mills Association (ISMA) has requested the government to allow export of 10 lakh tonne of sugar in the 2023-24 season, anticipating healthy closing stock by the season-end, the Government has ruled out possibility of allowing sugar exports in the current 2023-24 season ending October. Currently, there are curbs on export of sugar for an indefinite period.

(Source : https://www.business-standard.com/industry/news/govt-rules-out-possibility-of-permitting-sugar-exports-in-2023-24-season-124041500389_1.html)

The Government has agreed to allow oil marketing companies to procure ethanol by diverting an extra 800,000 metric tons of sugar for biofuel production. Concerns over sugar production due to below normal monsoon rains between June and September had led India to cap the amount that could be diverted for ethanol in the current season to end-September at 1.7 million metric tons.

Many sugar mills produced B-heavy molasses in anticipation of ethanol production. However, these stocks remain unused after the government capped the diversion of sugar for ethanol. Mills may now use stored B-heavy molasses for ethanol production.

During the season 2023-24, the plant has crushed 94.24 lakh quintals of sugarcane as against 115.99 lakh quintals in the previous season.

The overall sugar recovery was 10.81%, as against 10.49% in the previous season. During the Season 2022-23, Molasses produced was 4.20 lakh quintals as against 5.28 lakh quintals in the previous season.

The Plant consumed 2.44 Lakh MT of bagasse and 0.16 Lakh MT of alternate fuel to generate 1.17 Lakh MW power as against 2.82 lakh MT of bagasse and 0.39 lakh MT of alternate fuel to generate 1.39 Lakh MW power in the previous Season.

The total power exported to Uttar Pradesh Power Corporation Limited (UPPCL) was 0.76 lakh MW amounting to 26.50 Crores as against 0.94 lakh MW amounting to Rs. 30.70 Crores in the previous Season.

Spirits Division

Distillery plant was operated at its full capacity of 45 KLPD till it was shut down on 22nd February 2024, due to unviable prices.

For the Financial Year 2023-24, Revenue from operations is Rs. 53,105.61 lakhs against revenue from operations of 55,276.04 in the previous year. Reduction in revenue from operations is on account of lesser availability of sugarcane, lesser sugar sale and reduction in sale of the other by-products.

For the Financial Year 2023-24, there is a profit of Rs. 8358.81 lakhs as against a loss of Rs. 4,405.58 lakhs in the previous year. After taking into account the effect of other Comprehensive Income based on Ind-AS norms, there is a profit of Rs. 8768.05 lakhs for the Financial Year 2023-24 as against a loss of Rs. 4,484.18 lakhs in the previous year. Increase in profit is majorly on account of increase in other income due to write back of the earlier years provision of liability of Rs. 9113.77 Lakhs on account of One Time Settlement.

The Company generated EBIDTA of Rs. 11570.70 lakhs as against Rs. 225.01 lakhs last year.

During the Financial year 2023-24, 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 2023-24, 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. 37 to Financial Statements forming part of this annual report.

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.

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 18 of SEBI (LODR) Regulations 2015), the audit committee has concluded that, as of 31st March 2024, 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:

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

Details of change in return on net worth is already provided in table given above and hence, the same is not repeated here.

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. As on 31st March 2024, the Company had 243 permanent employees.

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.