Naraingarh Sugar Mills Ltd Management Discussions.

Industry Overview:

With an annual production capacity of over 35.50 million metric tonne (MMT), the Indian Sugar Industry (ISI) is the second largest producer of sugar in the world. It is also the second largest agro based industry in the country after cotton. The sugar industry contributes significantly to socio-economic development of the rural; population.

Sugarcane Area under Cultivation, Production and yield:

Indias sugarcane production and area under cultivation registered a compounded annual growth rate (CAGR) of 4.07% and 2.21%, respectively, during last 10-years ending SS 17-18 (Sugar Season; refers to the period from October 01 to September 30). Although sugar cane extracted from any crop having sugar content, sugarcane is preferred by the farmers as it is a durable crop backed by strong price support by the Government of India (GOI) in terms of favorable prices for cane through the Fair & Remuneration Price (FRP) / State Advisory Price (SAP) mechanism which has helped it to generate competitive returns as compared with paddy and cotton (refer Chart 1 for sugarcane acreage, production and yield trend during last 10 years)..

However, climatic conditions, inadequate availability of quality seed and irrigation facilities, lack of efficient technology and inadequate farm credit were primarily responsible for fluctuating yield ratio.

Industry size, Structure and state wise Production Trends:

The ISI accounted for more than 15% of the total world sugar production in last 5 years ending SS17-18. As on January 31, 2018, India had 716 sugar mills (including two standalone re neries) with major concentration rural areas. About 50% of the sugar mills are promoted by sugarcane farmers in the form of co-operative societies

Sugar mills in India Segregated on the basis of ownership structure

Sr. No. Sector Number of Units
1 Private Limited Companies 347
2 Co-operave Sociees 326
3 Public Limited Companies 62
Total 735

India produces around 325-375 mmt sugarcane during season 2017-18, more than 30-35 MMT white sugar and 6-8 MMT jaggery and khandsari annually to meet the demand for sweeteners. Moreover, the ISI produces more than 139.51 Cr. liters of alcohol, 5000 Mega Watt (MW) of power and multiple allied products. The industry exports about 3221 MW of power to grid after meeting its captive power requirement. ISI is gradually transforming into sugar complexes by producing sugar, bio-electricity, bio-ethanol, bio-manures and chemicals, contributing about 1% to the national GDP. Maharastra, Uttar Pradesh (UP) and Karnataka are the major sugar producing states in the country.

Sugar production

At the beginning of Sugar Season 2017-18 the carry forwarded stock was 3.96 MMT, the estimated production of sugar was 24.88 MMT and the estimated consumption was 24.45 MMT. Whereas the actual production was 32.25 MMT. Thus the surplus production during the season 2017-18 was 7.62 MMT more compared to estimated. This will increase carry forward stock on 01-10-2018 to 10.26 MMT in comparison to previous season of 3.96 MMT approx.

Key constraints of Indian sugar Industry

According to the preliminary estimates of the industry body Indian Sugar Mills Association (ISMA), Indias 2018 2019 sugar production is likely to increase by 9%:

1. Raw material sugarcane) prices are highly regulated; sugar prices are vulnerable to market dynamics:

The ISI continues to be highly regulated by the GoI; in terms of sugar production and cane procurement areas for sugar mills and most importantly for determining sugarcane pricing. The FRP is decided by the central government every year at the beginning of SS; which is the minimum price the sugar-mill has to pay to the farmers for procuring sugarcane. Furthermore, some state governments also announce SAP and in that case, the mills have to pay FRP or SAP, whichever is higher. Internationally, the FRP/ SAP declared by the Indian government for sugarcane is very high compared to other major producers in the world.

The sugar price is market driven and is governed by domestic and global demand- supply dynamics. The recommendation of the Rangarajan committee to determine the sugarcane price as percentage of the sugar price and realization of its by-products has not been implemented by sugar producing states, which makes Indian sugar uncompetitive in international market. Furthermore, the rising inventory level coupled with virtually no export (because of relatively lower international prices) has resulted in sluggish price trend during the current SS.

2. Price trend of sugarcane(FRP) and Sugar in India

Declining trend of sugar prices and consistent increase in the FRP declared by the government have resulted in moderation on operating margins of sugar mills and delay in payment to farmers for sugarcane produced by the sugar manufacturers. The GOI has increased FRP by Rs. 20 for the coming sugar season 2018-19.


The Agro based sugar industry has a specific set of risk characteristics, which at NSML, are carefully evaluated, managed and mitigated. The major risks are classified as under:-

Raw material risk

Sugarcane is the raw material and any disturbance on its timely availability will have a substantial impact on operational cost. This risk may be caused by climatic conditions influenced by the monsoon and local weather conditions over the crop cycle, which also affects both the quantity and quality of cane. The profitability of alternative crops will influence the area of planting under cane. Pests and disease and non-availability of farm labour also impact the cost incurred by the cane grower.

Sugar Price Risk

The market price for sugar is function of demand and supply. Even a slight fluctuation in demand or supply of sugar may move sugar price up or down, thereby directly impact the sugar industry. Wholesale price of sugar has significant impact on our profits. Higher the price higher the profit is. Like other agricultural commodities, sugar is subject to price fluctuations resulting from weather, natural disasters, domestic and foreign trade policies, movements in demand and supply and other factors beyond the control of management. Besides, around 15-30% of sugar in the world is traded on stock exchanges and hence is subject to speculation. As a result, any prolonged decrease in sugar price may have an adverse effect on financial results of the company.

Regulatory risks

Sugar industry and hence our company is subject to several legal and regulatory measures imposed by both Central and State Government. This includes both environmental and other legal strictures which directly or indirectly impacts the performance of the company. The company may be exposed to liability resulting from handling of hazardous substances and increased costs for ensuring compliance of various laws.

Risk mitigation

The company has always maintained an amicable relationship with its farmers and taken up initiatives to mitigate hardships by timely payment, cane development schemes through Bank loans, promotion of right cane variety, maintaining goodwill among farmers. The Company adopts appropriate procedures as per the policy and guidelines through internal control systems to minimize the risk. The company maintains strong relationship with the customers for stabilizing the domestic and international market through efficient production and best product delivery. As explained earlier sugar cane price is also governed by both Central and State Government, the company is always at a risk of a higher cane price and increased cost of production. These risks cannot be mitigated unless the industry is completely decontrolled.

Competition Risk

The prospect for high growth in the industry encourages the company to face tough competition from other companies in the industry and also from the new entrants.

Financial performance of the company


Particulars Year ended 31st March 2018 Year ended 31st March 2017 *
Income from operations
Net sales/income from operations 17188.23 18800.12
Other operating Income 43.76 76.00
Other Income 13.60 18.86
Total income 17245.59 18894.98
Total expenses (excluding Depreciation and Finance costs) 18149.32 17295.40
EBIDTA (903.73) 1599.58
Depreciation 547.75 196.53
Finance costs 799.53 284.15
Profit / (Loss) from ordinary activities after finance costs but before exceptional items (2251.01) 1118.90
Other Comprehensive Income/(Loss) (3.69) (15.04)
Profit / (Loss) from ordinary activities before tax (2254.70) 1103.86
Tax expense (1142.28) 86.14
Net Profit / (Loss) from ordinary activities (1112.42) 1017.72

* Figures for the year ended 31st March, 2017 have been reported as per Ind-AS.

It is informed that during the current financial year the company achieved a total income of Rs. 17245.59 Lac which is approximately 8.73% lower than the previous year figure of Rs 18894.98 Lac. The company had a net loss after tax of Rs. 1112.42 Lac compared to net profit after tax of Rs. 1017.72 Lac during last financial year. The comparative figures of Cane crushed and recovery during the current season and last season are given hereunder:-

Particulars 2017-18 2016-17
Cane Crushed(MT) 668540 492868
Recovery (%) 10.37 10.53
Production(MT) 69327.60 51902

Future Plans

We have set-up 25 MW Co-generation Power Plant in our Sugar Mill, the project cost was Rs. 116 Crores out of which IREDA (Indian Renewable Energy Development Limited) had financed Rs. 103.39 Crores. The loan was disbursed by IREDA only after signing the PPA with HPPC (Haryana Power Purchase Centre). We have commissioned our 25 MW Cogen Power Plant on 29th December 2017. We have exported around 3.46 Crores KWh (Units) till 31st March, 2018.. Besides, the company is also in the process to enhance the crushing capacity of the mill to 5500 TCD from the existing 4000 TCD as per the proposed plans of the company.

The proposed integrated project shall improve the quality of sugar for meeting the national and international standards while operating at optimum levels, thereby reducing the manufacturing costs and shall also provide raw material for cogen power plant in the form of Bagasse. In other words, this expansion and modernization program shall lend a new lease of life to the sugar factory.

Your Board hopes to improve in the years to come in the way of above mentioned modernization cum expansion project of the company.

Human Resources / Industrial Relations

Employee relation is one of the key success factors which are continued throughout the year. Lot of development initiatives in all facets is implemented and practiced including six sigma concepts in order to be competitive in the industry. The organization provides a learning atmosphere across levels and aims at improving the standards through innovation. The industrial relations maintained with the employees are satisfactory.


Statement in this Management Discussion and Analysis describing 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 di er materially from these expressed or implied. The Company assumes no responsibility in respect of these forward looking statements that may be amended or modified later, on the basis of subsequent developments, information or events and in view of the changes brought by the Government Rules and Regulations.


As provided under Clause 49 of the Listing Agreement with the Stock Exchanges, this is to confirm that all the members ofthe Board and the Senior Management have a rmed compliance with the Code of Conduct for the year ended March 31, 2018.

For & on Behalf of
Date: 14/08/2018 sd/-
Place: Chandigarh Sandeep Singh


We, Sandeep Singh, Executive Director and Ashwani Mittal, Chief Financial officer of the company hereby confirm and certify that:-

1. These statements do not contain any materially untrue statements or omit any material fact or contain statements that might be misleading;

2. These statements together present a true and fair view of the Companys a airs and are in compliance with existing accounting standards, applicable laws and regulations.

3. There are, to the best of our knowledge and belief, no transactions entered into by the Company during the year ended 31st March, 2018 which, are fraudulent, illegal or violative of the Companys Code of Conduct.

4. We accept responsibility for establishing and maintaining internal controls for financial reporting. We have evaluated the effectiveness of the internal control systems of the Company pertaining to financial reporting and we have disclosed to the auditors and the Audit Committee those deficiencies in the design or operation of such internal controls of which, we are aware and the steps we have taken or propose to take to rectify these deficiencies.

5. We have indicated to the Auditors and the Audit Committee:

(a) there have been no significant changes in internal control over financial reporting during this year.

(b) there have been no significant changes in accounting policies during this year.

c) there have been no instances of significant fraud of which we have become aware and the involvement therein, of management or an employee having significant role in the companys internal control systems over financial reporting.

Date: 14/08/2018 Sandeepsingh Ashwani Mittal
Place: Chandigarh Executive Director CFO