Rajshree Sugars Management Discussions

Industry Scenario and Development Global Sugar Outlook

The estimated Global sugar production as per the International Sugar Organization (ISO) is 180.437 million tons with an increase of 7.911 million tons from the previous season. The consumption is expected to grow by 1.507 million tons from the previous season; it is now pegged at 176.280 million tons. The overall global surplus is anticipated to be 4.151 million tons.

World Sugar Balance
October to September in (Million Tons)
2022- 23 2021- 22 Changes %
Production 180.437 172.526 7.911 4.58
Consumption 176.280 174.773 1.507 0.86
Surplus / Deficit 4.151 -2.247 - -
End stocks 103.386 99.92 3.466 3.47
Stocks to Consumption Ratio 58.6 57.17 - -

Sugar Sector in India

The estimated sugar production for the sugar season 2022-23 is around 32.8 million tons, down by 2.96 million tons from the previous year. Domestic consumption is estimated at 27.5 million tons compared to 27.33 million tons of the previous year. With the exports of around 6.2 million tons, the closing stock is expected to be around 4.64 million tons as compared to the opening stock of 5.54 million tons.

Sugar Sector in Tamil Nadu

The average rainfall for Tamil Nadu (TN) was better than the preceding years and therefore cane availability, yield and recovery showed a marked improvement, resulting in a positive impact on the capacity utilization. The cane availability and the capacity utilization from 2011-12 seasons are illustrated below:

Sugar season Cane Crushed (in lakh tons) Sugar Production (in lakh tons) Capacity Utilisation %
2011-12 254.55 23.79 99
2012-13 214.57 19.07 84
2013-14 157.60 14.13 61
2014-15 140.50 12.18 55
2015-16 155.86 13.61 61
2016-17 119.04 10.65 46
2017-18 81.42 7.00 31
2018-19 108.54 9.55 39
2019-20 92.20 7.89 32
2020-21 97.85 8.78 38
2021-22 139.15 12.39 52

l Despite the improvement in the cane availability, sugar production and capacity utilization over the last year, the State is still below its last peak in the Sugar Year (SY) 2011-12.

l The average recovery of the State is the highest for the last 10 years, however is below its best of 9.35% in SY2011-12.

l With low capacity utilization, there is a big gap between Fair and Remunerative Price (FRP) payable and Revenue Sharing Formula (RSF) value which mills are unable to bridge.

l Market price for sugar as on 31 March 2023 was around Rs 3400/- per quintal. At 9.1% average sugar recovery, the RSF value (@ 75% of realization from sugar sales), and works out to Rs 2550 per ton of cane. But FRP payable is Rs 2821.25 per ton of cane pegged to a minimum 9.5% recovery. The gap between FRP payable and RSF value is Rs 271.25 per ton of cane.

l The capacity utilization is around 52% which has resulted in the sub-optimal production of sugar, power and alcohol.

Accordingly, the incidence of fixed cost has more than doubled compared to normal times, leaving correspondingly lower amount in the hands of mills for cane payment. TN sugar mills will have to pay FRP at 9.5% irrespective of the actual sugar recovery even if lower than 9.5%. In TN, sugar mills will have to pay for 95 Kgs of sugar equivalent whereas actually they recover only 91 Kgs.

l The loss works out to Rs 136 per ton of cane crushed.

The good monsoon from 2019 to 2022 has revitalized the agricultural operations in the state and the sugar sector too has benefitted and our company has recorded around 40% increase in cane crushing from 12.78 Lakh tons in financial year 2021-22 to 17.81 lakh tons in financial year 2022-23.

Government measures in the Sugar Industry

The Government had announced a slew of measures to revive the sugar industry last year: a) Ethanol

The Central Government has an ambitious target of achieving 20% blending of locally produced Ethanol with petrol by 2025. To enable this, it allowed the sugar mills to produce ethanol from Cane Juice by amending the provisions of Sugarcane Control Act, 1966. As a fallout of the Central Government announcing source based prices for ethanol, the national blending average stands at 11.59% as on 31 March 2023.

b) Tamil Nadu State Sugarcane Policy

During the year, the TN Government continued the transitional production subsidy of Rs 195 per MT of sugarcane, which was introduced in 2020-21, to benefit all registered farmers who had supplied sugarcane during 2022-23 sugar season.

Opportunities :

Despite a surplus of 4.151 Million Tons as against a deficit of 2.247 Million Tons last year, World Sugar prices are firming up and thereby pushing the domestic prices up, leading to improved domestic average realization.


The risk of El Nino conditions strengthening during the Third Quarter of 2023 and its impact on the rainfall in the later stages of monsoon season remains a key variable for 2023-24 sugar output.

Sugarcane Price

The Central Government has increased the 2022-23 seasons FRP to Rs 305/- per quintal for a basic recovery rate of 10.25% providing a premium of Rs 3.05 per quintal for each 0.1% increase in recovery over and above 10.25% and reduction in FRP at the same rate for each 0.1% decrease in the recovery rate till 9.5%. However, in case of the mill with a recovery of lower than 9.5%, the price remains pegged to this minimum recovery at Rs 282.125 per quintal for the 2022-23 season.


The company has continued to export power to third party customers from the power plant at Mundiyampakkam. This has ensured receipt of timely payment and support the working capital requirement. During the year, the Tamil Nadu Electricity Regulatory Commission (TNERC) has issued an order increasing the additional surcharge of 70 paise per unit to 83 paise from 25.2.2023 to 31.3.2023 of power exported to third party. The company could negotiate with third party customers for partly sharing this additional burden. The South Indian Sugar mills Association has made a representation to TNERC seeking waiver of this additional surcharge in the tariff order expected to be issued for the period 2022-24.

The company has continued to export power to State Grid from the power plant at Gingee. The applicable power tariff rate is approved by State Regulatory Commission from time to time. The rate that was proposed in the consultative paper issued by TNERC for the control period 2022-24 for Power Plant at Gingee was Rs 5.50 per unit, but till date the official order is not issued by the Commission and hence the rate offered has been at the previous rate of Rs 5.29 per unit. The Commission invariably releases the tariff only after a lapse of few months from the beginning of the Financial year (1 April), that too prospectively, depriving the generators of the increase that would have been received had the increase been retrospective. A delegation from SISMA proposes to meet the Chairman of TNERC with a request that Tariff revision order for the control period 2022-24 may be released at the earliest.


The Central Government has fixed higher ethanol price for sugarcane and its byproducts derived from different stages of production under the Ethanol Blended Petrol (EBP) Program for the forthcoming sugar season 2022-23 during Ethanol

Supply Year (ESY) 2022-23 from 1 December 2022 to 30 October 2023:

1. Ethanol from C heavy molasses increased from Rs 46.66 per liter to Rs 49.41 per liter

2. Ethanol from B heavy molasses increased from Rs 59.08 per liter to Rs 60.73 per liter

3. Ethanol from sugarcane juice / sugar / sugar syrup increased from Rs 63.45 per liter to Rs 65.61 per liter.


The country is set to produce 32.8 million tons in the current season 2022-23. With an export possibility of 6.2 million tons and a consumption figure standing at 27.5 million tons, would leave the industry with a closing stock at 4.65 million tons. As there would be a squeeze in the closing stock compared to the last year, there is a distinct possibility that sugar prices are likely to stay firm, which would have a positive bearing on the prospects of the industry in the coming year.

Risks Analysis

The major risks faced by the industry include sugarcane availability, sugar recovery, price realization, regulatory control by Government and financial liquidity amongst others.

For managing such risks emanating from such a volatile environment, the company has put in place a dynamic and robust management process for review at periodic intervals.

Sugar Price Realization Risk

The perceived risk on sugar price realization is lower given the outlook of lower stock available.

Risk Mitigation

To de-risk the challenges of cyclicality in the sugar business, the Company has installed downstream plants for producing alcohol and cogeneration of power by using byproducts of sugar production viz., molasses and bagasse. The Power and Alcohol business enhances the profitability of the company and de-risks the business from the adverse movements of sugar price. Further the company has also added flexibility to produce Ethanol from Sugar Cane Juice/Syrup.

The Company is also focusing on selling sugar regularly on every price point thereby improving average realization.

In order to stabilize the domestic sugar prices, due to glut in the sugar production in the country, and to enable the sugar mills across the country to clear the cane price arrears, the government had taken the following measures during the year:

a. The Government of India had continued the monthly sugar release mechanism to control sugar supply to the domestic market for the 2022-23 season.

b. The Government of India has also maintained the Minimum Selling Price (MSP) of Rs 31/- per kg, below which the mills cannot sell sugar.

c. Export of sugar to the extent of 6.2 million tons permitted by the Central Government to clear the excess stock and stabilize the domestic sugar price.

Sugarcane Availability and Sugar Recovery

Sugarcane is the main raw material in sugar mills which is monsoon dependent and it becomes unpredictable in adverse climatic conditions. Similarly other factors like scarcity of harvest labor, sugarcane price, and availability of attractive competitive/ alternate crops will have a direct impact on cane availability, sugar recovery and our business. The sugar industry continues to be regulated by State Governments by other controls viz., reservation of cane area and fixation of sugarcane price.

Risk Mitigation

The Company has a strong and extensive work force in the Cane and Extension Department to increase and develop clean sugarcane in the field. Further, Research and Development wing ensures new technology and high yielding varieties are made available at the right time to the farmers.

Measures taken by the Company to mitigate the risks :

· Micro level continuous yield improvement activities to obtain a higher yield per acre focusing on Low yielding

farmers and villages.

· Promoting high sucrose yielding varieties for better sugar recovery.

· Maintaining above 90% of the area with high yield and high sugar varieties for better cane and sugar productivity.

· Implementing activities like trash shredding, trash mulching and organic manure application to improve soil fertility.

· Close monitoring of nursery development, supply of good quality seeds, fertilizers, micro nutrients and growth promoting inputs, among others as a part of cane development activities.

· More Focus on areas with better ground water availability.

· Promoting wider row planting, timely mechanized inter cultural operation and mechanical harvesting which includes entrepreneur development.

· Implementation of good agronomical and pest management practices.

· Promoting drip irrigation.

· Testing new improved varieties of cane with the support of Sugarcane Breeding Institute and Tamil Nadu Agricultural


· Continuous monitoring of cane planting, clean cane management and harvesting schedule.

· Implementation of better Ratoon management practices.

· Developing local and outside cane harvest work force for timely harvest and supply.

· Support farmers with timely updated information on technical and entrepreneurial subjects for yield and quality improvement of sugarcane.

· Increasing the quantum of registered cane and the gradual reduction of outside cane.

· Focusing on factory efficiency parameters to recover maximum sugar.

Financial liquidity risk

· Sugar industry is highly working capital intensive. Raising adequate and rightly-priced working capital or arranging funds for payment of the interest and principal with respect to loans availed might pose a challenge.

· The sugarcane availability and sugar price risk continue to have significant impact on the financial liquidity of the


· Since the Company has been under monitoring period after implementing the debt restructuring by lenders with retrospective effect from 30.06.2020, it is operating without working capital facilities, and has to continuously sell inventory to maintain cash flows. This situation will continue till the companys account is upgraded as standard with the lenders.

· The Company had challenged the monthly sugar release mechanism, before the court of law and got an interim order in favor of the Company. This enables the company to sell sugar as required to meet operational expenditure. The Madras High Court has now taken up this Petition for hearing and is pending for disposal.

Risk mitigation:

· The continuation of the approved debt restructuring proposal of the company by all the lenders with the beneficial terms which includes reduction in interest rate and the deferred repayment schedule to mitigate the liquidity crunch faced by the company.

Restructuring of Sugar Development Fund Loan :

The Company was in default of loans received from Sugar Development Fund (SDF), Government of India, since the Financial Year 2016. The Company has received the Administrative Approval (AA) dated 20 May 2022 vide letter reference

No.File No.8-4/2010-SDF from the SDF, Ministry of Consumer Affairs, Food & Public Distribution, Department of Food &


Public Distribution, for restructuring of SDF Ethanol loan of Rs 32.45 crore and Co-generation loan of Rs 21.10 crore availed by the Company. The Company has completed execution of Tripartite Agreement (TPA) with SDF and their nodal agency, for restructuring of the SDF loans, within the stipulated time.

The pending compliance of the terms of Tripartite Agreement is the perfection and modification of the existing security. The company has requested the appropriate authority of SDF for an amendment in the existing guidelines on security cover for the restructured debt in line with Statutory provisions of Indian Accounting Standards. Pending amendment, the Company has also requested that the validity of AA be extended for a period of four months from the date of such amendment to the security guidelines to enable the Company to register the modified security and file the necessary charge with Registrar of Companies

Internal control systems and their adequacy

The Company has well-established internal control systems in the form of well-documented policies, authorization guidelines commensurate with the level of responsibility standard operating procedures and effective internal audit system to ensure smooth functioning of the company.

The Board, Audit Committee and the Key Management review the findings and recommendations of the Internal Auditors and take corrective action, wherever necessary. Moreover the Audit Committee periodically interacts with Statutory Auditors and makes continuous assessments of the adequacy and effectiveness of the internal control systems.

Human Resources / Employee Wellbeing

The Management Staff Strength as on 31 March 2023 is 213 and the Non-Management Staff strength is 752. Industrial Relations have been cordial and there is no significant development. For the year, there has been 100% retention of Key Management Talent and staff attrition is at 11.4% as against the same at 6.5% in the previous year. The employees were imparted 517 man-days of learning through the year.

Financial performance with respect to operational performance

Operational performance :

Particulars Year ended % Increase (Decrease)
31.3.2023 31.3.2022
Cane Crushed (MT) 17,81,221 12,78,164 39.36
Recovery % 8.87 9.01 (0.14)*
Sugar Production (MT) 1,58,042 1,15,109 37.30
Sugar Sales (MT) 1,67,203 95,595 78.95
Power Production (Lakh Kwh) 2.042 1,535 33.03
Power Export to Grid (Lakh Kwh) 1,253 974 28.75
Alcohol Production (Lakh Litres) 223.35 160.03 39.51

Financial Performance- Segment Wise

The company is engaged in three segments, namely Sugar, Cogeneration and Distillery ( in Lakhs)

Particulars 31.3.2023 31.3.2022
Sales / Turnover
Sugar 63,037.91 35,900.16
Co-generation 9,841.16 7,159.41
Distillery 12,914.26 10,281.05
Less: Inter Segment revenue 9,101.03 6,573.86
Net Sales / Income from Operations 76,692.30 46,766.76
Profit / (Loss) before tax
Sugar (4,656.97) (3,457.55)
Co-generation 5,400.95 3,754.06
Distillery 3,796.53 2,653.24
Less: i. Interest 1,418.76 2,218.38
ii. Other un-allocable expenditure 1,048.46 991.41
Add : Exceptional Income - -
Profit /(Loss) before tax 2073.27 (260.04)

Ratios where there has been significant change for Financial Year (FY) 2021-22 to FY 2022-23 :

Sl. No. Key Profitability Ratios FY 2022-23 FY 2021-22 Remarks
Operating Profit Margin has marginally decreased due to increase in cost of raw materials, process materials and Machinery maintenance materials.
1. EBITDA/Sales % (Operating Profit Margin) 7.73% 9.35% However, the EBITDA, on value basis, has been higher at Rs 59.13 crores in FY 2022-23 as against the same at Rs 43.69 crores in FY 2021-22. The improvement in Net Profit Margin is due to
2. Net Profit Margin (%) 2.71% -0.56% decrease in Interest cost. This is mainly due to effect has been given for the concessions approved by Sugar Development Fund in the interest rates vide debt restructuring scheme.
3. Return on Net Worth 8.25% -1.00% As explained in point no. 2 above
Sl. No. Key Liquidity Ratios FY 2022-23 FY 2021-22 Remarks
1. Current Ratio 1.09 0.94 Improvement in the current ratio is due to improved scale of operation.
2. Debtors Turnover Ratio 20.98 15.36 The value of Debtors as on 31st March 2023 has been higher by 20% as compared to the same as on 31st March 2022 while the increase in sales during the year 2022-23 is by 64% as compared to the same during the year 2021-22. This has led to an improvement in the Debtors turnover ratio.
3. Inventory Turnover 5.14 2.63 The Company has focused on selling sugar regularly on every price point which led to better inventory turnover ratio.
Key Capital FY FY
Sl. No. Structure Ratios 2022-23 2021-22 Remarks
1. Debt Equity Ratio 1.60 1.72 Reduction in Debt Equity Ratio is due to reduction in debt arising out of repayment of the principal as per repayment schedule of approved debt restructuring scheme.
2. Interest Coverage Ratio 4.17 1.97 The EBITDA has been at Rs 59.13 crores in FY 2022-23 as against the same at Rs 43.69 crores in FY 2021-22. The interest charge has been recorded at Rs 14.19 crores in the year 2022-23 as against the same at Rs 22.18 crores in 2021-22. This is mainly due to effect has been given for the concessions approved by Sugar Development Fund in the interest rates vide debt restructuring scheme. This led to the increase in interest coverage ratio.

Cautionary statement

Statements in this Report describing the Companys objectives, estimates and expectations may constitute "forward looking statements" within the meaning of applicable laws and regulations. Actual results might differ materially from those either expressed or implied.

For and on behalf of the Board
Place : Coimbatore Wholetime Director Independent Director
Date : 15 May 2023 DIN 00001738 DIN 00595312