M.V.K. Agro Food Product Ltd Management Discussions

FY2024 represents the fiscal year 2023-24, from 1 April 2023 to 31 March 2024, and analogously for FY2023 and previously such labelled years.

GLOBAL ECONOMY

More than three years after the global economy suffered the largest shock of the past 75 years, the wounds are still healing, amid widening growth divergences across regions. After a strong initial rebound from the depths of the COVID-19pandemic, the pace of recovery has moderated. Several forces are holding back the recovery. Some reflect the long-term consequences of the pandemic, Russias war in Ukraine, and increasing geo-economics fragmentation. Others are more cyclical, including the effects of monetary policy tightening necessary to reduce inflation, withdrawal of fiscal support amid high debt, and extreme weather events. Despite signs of economic resilience earlier this year and progress in reducing headline inflation, economic activity is still generally falling short of pre-pandemic (January 2020) projections, especially in emerging market and developing economies.

The strongest recovery among major economies has been in the United States, where GDP in 2023 is estimated to exceed its pre pandemic path. The euro area has recovered, though less strongly—with output still 2.2 percent below pre pandemic projections, reflecting greater exposure to the war in Ukraine and the associated adverse terms-of-trade shock, as well as spike in imported energy prices. In China, the pandemic-related slowdown in 2022 and the property sector crisis contribute to the larger output losses of about 4.2 percent, compared with pre pandemic predictions. Other emerging market and developing economies have seen even weaker recoveries, especially low-income countries, where output losses average more than 6.5 percent. Higher interest rates and depreciated currencies have exacerbated the difficulties of low-income countries, placing more than half either at high risk of distress or already in distress. Overall, global output for 2023 is estimated at 3.4 percent (or about $3.6 trillion in 2023 prices) below pre pandemic projections. Private consumption has also recovered faster in advanced economies than in emerging market and developing economies, owing to an earlier reopening in the former group facilitated by greater availability of effective vaccines, stronger safety nets, more ample policy stimulus, and greater feasibility of remote work. These factors supported livelihoods during the pandemic, and household consumption is now broadly back to pre pandemic trends. Among advanced economies, private consumption has been stronger in the United States than in the euro area, with households receiving larger fiscal transfers early in the pandemic and spending the associated savings more quickly; being better insulated from the rise in energy prices resulting from the war in Ukraine; and feeling relatively confident amid historically tight US labour markets, which have supported real disposable incomes.

INDIAN ECONOMY

Strong economic growth in the first quarter of FY23 helped India overcome the UK to become the fifth-largest economy after it recovered from the COVID-19 pandemic shock. Nominal GDP or GDP at Current Prices in the year 2023-24 is estimated at Rs. 293.90 lakh crores (US$ 3.52 trillion), against the First Revised Estimates (FRE) of GDP for the year 2022-23 of Rs. 269.50 lakh crores (US$ 3.23 trillion). The growth in nominal GDP during 2023-24 is estimated at 9.1% as compared to 14.2% in 2022-23. Strong domestic demand for consumption and investment, along with Governments continued emphasis on capital expenditure are seen as among the key driver of the GDP in the first half of FY24. During the period January-March 2024, Indias exports stood at US$ 119.10 billion, with Engineering Goods (25.01%), Petroleum Products (17.88%) and Organic and Inorganic Chemicals (7.65%) being the top three exported commodity. Rising employment and increasing private consumption, supported by rising consumer sentiment, will support GDP growth in the coming months.

Future capital spending of the government in the economy is expected to be supported by factors such as tax buoyancy, the streamlined tax system with low rates, a thorough assessment and rationalisation of the tariff structure, and the digitization of tax filing. In the medium run, increased capital spending on infrastructure and asset-building projects is set to increase growth multipliers. The contact-based services sector has demonstrated promise to boost growth by unleashing the pent-up demand. The sectors success is being captured by a number of HFIs (High-Frequency Indicators) that are performing well, indicating the beginnings of a comeback.

India has emerged as the fastest-growing major economy in the world and is expected to be one of the top three economic powers in the world over the next 10-15 years, backed by its robust democracy and strong partnerships.

Indias appeal as a destination for investments has grown stronger and more sustainable because of the current period of global unpredictability and volatility, and the record amounts of money raised by India-focused funds in 2022 are evidence of investor faith in the "Invest in India" narrative.

Industry Overview

Global sugar sector review

Global production is estimated to be up ~1 million tonnes year-on-year to179.5 million tonnes in 2023-24 as higher production in Brazil is expected to more than cover up a decline in Thailand and India. Global sugar consumption is expected to reach a new record due to growth in markets including India and Pakistan. Global sugar consumption ispegged to surpass 180 million tonnes in 2023-24. Global sugar consumption grew even during high prices and this trend is expected to continue along side population growth, leading to an additional 2 million tonne consumption growth in 2024-25.

The global sugar market is expected to grow at a CAGR growth rate of 1.4%during 2024-2032. Based on the product type, the global sugar market has been divided into white sugar, brown sugar and liquid sugar where white sugar holds the largest market share. The global sugar market is experiencing a significant rise as key players operating in the industry are including organic sugar varieties in their existing portfolios to attract health conscious consumers. Moreover, these companies are focusing on developing advanced production facilities to increase overall production less expenditure on raw materials and labour. Besides, the introduction of innovative products and technological advancements to reduce costs and increase sugar sales is offering lucrative growth opportunities to key players.

Indian sugar sector review

Indias sugar production in marketing year (MY) 2023-2024 (October September) is expected to reach 32 million metric tonnes. Sugar production in MY 2022-23 was 32.8 million tonne as adverse weather conditions in Maharashtra during the vegetative growth stage led to a significant drop in cane yields following consecutive seasons of record yields. Indias sugar exports in MY 2023-2024 are estimated to be negligible as the Indian government could maintain tight export controls to prevent any domestic shortages or price fluctuations during the national election year. Sugar consumption in the year is expected to continue its upward trajectory and reach ~28.7 million tonnes as Indias ethanol and potable alcohol industries support growing demand of sugarcane and derivatives.

According to FAS New Delhi, Indias sugarcane planted area for MY 2023/2024 is expected to slightly increase to 5.6 million hectares and production to reach to 32 million tonnes following the significantly strong crushing tail in Maharashtra and Karnataka. Despite the increased potential on account of adverse weather conditions from the El Ni?o weather phenomenon, the Indian governments market price supports and augmented diversion of sugar to both ethanol and potable alcohol production will ensure sugarcane remains as the most remunerative crop for farmers.

Sugar exports and imports

During the marketing year 2023-2024, Indias sugar exports was restricted on account of higher domestic demand and the likelihood that the Indian government maintains export caps to control inflation. India extended curbs on sugar export for the 2023-24 sugar season according to a federal notification, a measure that may result in a complete halt of overseas sales for the first time in seven years amid an estimated fall in domestic output and the worst global shortage in decades. According to the Director General of Foreign Trade, India had earlier restricted exports of the sweetener until October 31, 2023, and those curbs have been extended until further orders. The restrictions on shipments abroad are aimed at boosting domestic availability during 2023-24 and keeping prices stable during the on-going festive season, when demand typically soars.

The decision is expected to worsen a global supply crunch due to a smaller crop since India is a major international supplier. The sweetener is one among 22 notified food items deemed ‘essential because consumers are sensitive to a rise in its prices. A deficient and uneven monsoon this year coupled with lower plantation across the Deccan plateau, a global weather anomaly is expected to reduce the output of sugarcane. India is unlikely to allow any export this season to stem inflation. The country had limited overseas shipments to 6.1 million tonnes in 2022-23, compared to 11.1 million tonnes in 2021-22. Indias decision to curb export also comes of the back of higher demand for ethanol under a high priority national programme

Sugar export (in million tonnes)

Sugar Season	Export
2018-19	3.8
2019-20	6.0
2020-21	7.2
2021-22	11.1
2022-23	6.1
2023-24(Estimated)	-

Market dynamics

The government approved the fair and remunerative price (FRP) of sugarcane for the sugar season 2023-24 at H315 per quintal for a basic recovery rate of 10.25%. The government has approved to provide a premium of H3.07 per quintal for each 0.1% increase in recovery over and above 10.25% and reduction in fair remunerative price by H3.07 per quintal for every 0.1% decrease in recovery.

Moreover, with a view to protect the interest of sugarcane farmers, the government has decided that there shall not be any deduction in case of sugar mills where recovery is below 9.5%. Such farmers are expected to get H291.975 per quintal for sugarcane in ensuing sugar season 2023-24 in place of H282.125 per quintal in sugar season 2022-23.

The cost of production of sugarcane for the sugar season 2023-24 is H157 per quintal. This fair and remunerative price of H315 per quintal at a recovery rate of 10.25% is higher by 100.6% over production cost. The fair and remunerative price for sugar season 2023-24 is 3.28% higher than sugar season 2022-23. The fair and remunerative price of sugarcane for sugar season 2024-25 has been increased to H340 per quintal. The fair and remunerative price approved shall be applicable for the purchase of sugarcane from the farmers in the sugar season 2023-24 (with effect from 1st October 2023) by sugar mills.

The fair and remunerative price has been determined on the basis of recommendations of the Commission for Agricultural Costs and Prices (CACP) and after consultation with state governments and other stakeholders.

Fair and remunerative price

Year	Rs per quintal
2018-19	275
2019-20	275
2020-21	285
2021-22	290
2022-23	305
2023-24	315
2024-25	340

Indian ethanol sector review

Indias grain-based distilleries witnessed a significant capacity growth from ~200 crore litre in 2023 to 433 crore litres. The government has allowed sugar mills to use both cane juice and B-heavy molasses to produce ethanol but capped the diversion of sugar to 17 lakh tonnes (expected to reach ~18.2 lakh tonnes) for the ongoing 2023-24 supply year. The government permitted to convert 6.75 lakh tonnes of B heavy Molasses above the announced 17 lakh tonnes stipulated diversion. The governments target for attaining 20% ethanol-blended petrol by 2025- 26 and 30% by 2029-30 is expected to face setbacks due to the restriction in ethanol production from sugarcane juice in 2023-24. Domestic ethanol production is expected to decline by 20%, which could bring the ethanol blending rate to less than 10% in the ethanol supply year 2023-24 However, the supply of ethanol from existing offers received by oil marketing companies from C heavy molasses and grains will somewhat compensate this decline from Juice based and B-heavy based Ethanol. Out of the total ethanol produced in the country, ethanol from cane juice accounted for ~25% while that from B heavy molasses accounted for around ~46%. Ethanol from C heavy molasses and grains accounted for the rest of the ethanol year 2022-23.

SWOT analysis of the Indian sugar industry

Strengths

• Sugar cane is among the most profitable cash crops in India

• India stands as the second largest producer and largest consumer of sugar worldwide

• The sugar industry supports downstream sectors and enhances the countrys extensive rural economy.

• The government views the Indian sugar industry as a key contributor to the local economy.

• The Indian sugar sector provides livelihood to approximately 50 million sugarcane farmers and directly employs ~5 lakh workers.

Weaknesses

• Cane prices in India are high compared to international standards.

• Many companies in the sector use outdated technology.

• Many mills face economic instability

Opportunities

• Indias per capita sugar consumption is approximately 20 kg per person, compared to the global average of 23 kg. ƒ

• Implementing advanced farming techniques could significantly increase cane yield and recovery. ƒ

• The governments mandatory ethanol blending program is boosting ethanol production. Technological upgrades could enhance the utilisation of by-products.

Threats

• Climate change has affected crop patterns and yields. ƒ

• Political agendas have consistently influenced the sector. ƒ

• The sector relies on monsoon rains. ƒ

• A lack of necessary infrastructure makes cane farming susceptible to climatic variations.

GOVERNMENT POLICIES

Sugar subsidy scheme

The Indian government reviewed the existing sugar subsidy scheme for the distribution of sugar through Antyodaya Anna Yojana program (uplifting the poorest food plan) at H18.50/kg ($0.24/ kg), providing 1.0 kg of sugar per family per month. Furthermore, States and Union Territories are permitted to add on any extra expenses related to shipping and handling fees directly to the beneficiary to incur directly to the retail issue price of H13.50/kg ($0.16/kg)

National Biofuel Policy

The Indian government set a target for the national average ethanol blend rates in petrol of 10% and 20% by 2022 and 2025 under the 2018 National Biofuel Policy. The programs objective is to boost the production of ethanol from sugarcane, broken grains and other feedstocks. To achieve this target, the Indian government is encouraging sugar mills and distilleries to divert surplus sugar derivatives to produce ethanol under the ethanol blending program. India achieved its target, reaching a national blending average of 10.1% in June 2022 and additional projects are in place to reach 20% ethanol blending. The Ministry of Petroleum and Natural Gas increased procurement prices for ethanol derived from sugarcane derivatives under the EPB program for ethanol supply year (ESY) 2022-23 (December-November).

INDIAN CO-GENERATION MARKET OVERVIEW

In India, the current biomass availability is 750 million metric tonnes (MMT) per year, with a surplus of 230 MMT per year. Approximately 32% of the total primary energy consumption in the country is currently derived from biomass, and more than 70% of the Indian population relies on biomass across the entire energy value chain.

Till now, over 800 biomass power projects have been installed in the country, encompassing both bagasse co-generation and non-bagasse co-generation initiatives. These projects have a combined capacity of 10,632 MW for power generation and 140 TPD for Compressed Biogas (CBG) production. There are about 230 biomass pellet manufacturers and around 1,030 briquette manufacturers operating in different states, supplying these products to power plants and industries.

The implementation of new initiatives supporting biomass co-generation projects is crucial for enhancing the capacities of small biogas plants located in remote and rural areas of India. Global green energy companies are increasingly investing in the Indian biomass market, responding to a rising demand for clean and reliable power for businesses. Biomass is anticipated to play a pivotal role in meeting this growing power demand.

The Government of India introduced a new scheme specifically targeting the conversion of biomass into Compressed Bio Gas (CBG). There is a planned phased mandatory blending of CBG with natural gas for use as fuel in vehicles and domestic applications. Another forthcoming initiative includes a new scheme for bio manufacturing and bio-foundry.

The Indian government has set a target of establishing 5,000 CBG plants by FY 2024- 25. This effort is facilitated through the Sustainable Alternative towards Affordable Transport (SATAT) scheme, which has already set up more than 46 CBG plants. According to the International Energy Agency (IEA), with the implementation of government policies, bioenergy could contribute around 130 million tonnes of oil equivalent (Mtoe) of useful energy by 2040, constituting about 15% of Indias total energy demand at that time

The details of revenue from Export and other than export for March 31, 2024 and previous three years on Standalone basis are as under:

( in Lakhs)

Category	2024 Amount	%	2023 Amount	%	2022 Amount	%	2021 Amount	%
Export	-	-	-	-	-	-	-	-
Domestic	12,458.48	99.57%	9,327.65	99.30%	13,067.11	98.52%	2,283.4	88.40%
Other Income	54.36	0.43%	65.98	0.70%	196.45	1.48%	299.7	11.60%

The highlights of the financial results for the year ended March 31, 2024 and the corresponding figure for the previous year are as under:

( in Lakhs)

	Standalone		Consolidated
PARTICULARS	2023-24	2022-23	2023-24	2022-23
Revenue from Operations	12458.48	9327.65	14,143.67	9,327.65
Other Income	54.36	65.98	222.24	65.98
Total Income	12512.84	9393.63	14,365.90	9,393.63
Total Expenditure	11643.45	8902.33	13,311.79	8,902.33
Profit before tax	869.39	491.30	1,054.12	491.30
Current Tax	168.46	46.89	197.09	46.89
Income tax Adjustment	-	-	-	-
Deferred Tax Adjustment	(15.15)	66.95	(15.15)	66.95
Profit after Tax	716.08	113.84	872.17	377.86
Basic Earnings per share	10.53	7.56	12.82	7.56

Quality Assurance

RISKS AND CONCERN

Risk and its Management: Risk accompanies prospects. As a responsible corporate, it is the endeavor of the management to minimize the risks inherent in the business with the view to maximize returns from business situations.

The architecture: At the heart of the Companys risk mitigation strategy is a comprehensive and integrated risk management framework that comprises prudential norms, structured reporting and control. This approach ensures that the risk management discipline is centrally initiated by the senior management but prudently decentralized across the organization, percolating to managers at various organizational levels helping them mitigate risks at the transactional level.

The discipline: The Company has clearly identified and segregated its risks into separate components, namely operational, financial, strategic and growth execution. All the identified risks are inter-linked with the Annual Business Plans of the Company, so as to facilitate Company-wide reviews.

The review: A Risk Management Committee of the Board of Directors, comprising Board Members, has been constituted to review periodically updates on identified risks, implementation of mitigation plans and adequacy thereof, identification of new risk areas etc.

The Board of Directors also reviews the Risk identification process and mitigation plans regularly. A senior executive has been entrusted at all the levels of business operation in the Company whose role is not only to identify the Risk but also to educate about the identified risk and to develop Risk Management culture within the business.

Key counter measures: The Company has institutionalized certain risk mitigation procedures outline as under:

• Roles and responsibilities of the various entities in relation to risk management have been clearly laid down. A range of responsibilities, from the strategic to the operational, is specified therein. These role definitions, inter alia, are aimed at ensuring formulation of appropriate risk management policies and procedures, their effective implementation, independent monitoring and reporting by internal audit.

• Appropriate structures are in place to proactively monitor and manage the inherent risks in businesses with proper risk profiling.

• Wherever possible and necessary, appropriate insurance cover is taken for financial risk mitigation. Confirmation of compliance with applicable statutory requirements are obtained from the respective unit/divisions and subjected to an elaborate verification process.

• Quarterly reports on statutory compliances, duly certified, are submitted to the Audit Committee as well as the Board of Directors for review.

• Status of Demand/Notices on the Company, under various Acts and Rules, as well as status of litigations are reported to the Board of Directors every quarter.

INTERNAL CONTROL SYSTEMS

The Company has both external and internal audit systems in place. Auditors have access to all records and information of the Company. The Board recognizes the work of the auditors as an independent check on the information received from the management on the operations and performance of the Company. The Board and the management periodically review the findings and recommendations of the statutory and internal auditors and takes corrective actions whenever necessary.

The Company maintains a system of internal controls designed to provide reasonable assurance regarding:

• Effectiveness and efficiency of operations.

• Adequacy of safeguards for assets.

• Reliability of financial controls.

• Compliance with applicable laws and regulations.

CORPORATE SOCIAL RESPONSIBILITY

During the year under review, the provision of Section 135 of the Companies Act, 2013 and the rules made thereunder were not applicable to the Company. Further, the Company had undertaken IPO during the year under review and at that time CSR Committee were also constituted and CSR policy were adopted considering the expected profit for FY 2024. The provisions of CSR have become applicable to the Company w.e.f April 2024 as the net profit for FY 2024 exceeded the limit of Rs 5 Crores. The Audited Accounts for FY 2024 were approved by the Board of Directors on May 30, 2024.

The Company is liable to spend Rs 11.86 Lakhs towards CSR activities as per the Companys CSR policy. The CSR report for FY 2024 was not applicable as the Company was not covered by the provision of Section 135 of the Companies Act, 2013.

HUMAN RESOURCES AND INDUSTRIAL RELATIONS

Our employees are our core resource and the Company has continuously evolved policies to strengthen its employee value proposition. Your Company was able to attract and retain best talent in the market and the same can be felt in the past growth of the Company. The Company is constantly working on providing the best working environment to its Human Resources with a view to inculcate leadership, autonomy and towards this objective; your company spends large efforts on training. Your Company shall always place all necessary emphasis on continuous development of its Human Resources. The belief "great people create great organization" has been at the core of the Companys approach to its people.

KEY RATIOS

Particulars	FY 2024	FY2023
Revenue (Rs. in Lacs)	12,512.84	9,393.63
Net Profit After Tax (Rs. in Lacs)	716.08	377.46
Earnings per share (in Rs.)	10.53	7.55
Operating Profit Margin (%)	15.99%	15.26%
Net Profit Margin (%)	5.72%	4.02%
Return on Net worth	9.09%	28.22%
Current Ratio (times)	1.37	0.86
Debtors Turnover(times)	847.41	7960.70
Debt-equity (times)	2.39	10.38
Interest Coverage Ratio(times)	2.01	1.76

CAUTIONARY STATEMENT

Statements in this Management Discussion and Analysis report detailing the Companys objectives, projections, estimates, expectations or predictions may be "forward looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include global and Indian demand supply conditions, raw material prices, finished goods prices, cyclical demand and pricing in the Companys products and their principal markets, changes in Government regulations, tax regimes, economic developments within India and the countries with which the Company conducts business and other factors such as litigation and / or labor negotiations.