Sakuma Exports Ltd Management Discussions

1. Indian Agri Overview

The agriculture sector is the largest source of livelihood in India. The country is one of the largest producers of agriculture and food products in the world. In 2022-23, Indias agriculture sector growth rate was estimated to be at 3.5% and it was 3.0% in 2021-22. The gross value added (GVA) in agriculture and allied activities grew a targeted 4% for 2022-23. The first advance estimate of GVA in agriculture sector for 2023-24 is expected to be 5.5%. The country produces many crops and food grains such as rice, wheat, pulses, oilseeds, coffee, jute, sugarcane, tea, tobacco, groundnuts, dairy products, fruits, etc.

The top crop-producing states in India are West Bengal, Uttar Pradesh, Punjab, Gujarat, Haryana, Madhya Pradesh, Assam, Andhra Pradesh, Karnataka and Chhattisgarh. Most of the wheat produced in the country comes from Uttar Pradesh, Punjab, Haryana, Madhya Pradesh, Rajasthan, Bihar, and Gujarat. Uttar Pradesh is the largest producer of sugarcane in India contributing about 48%, followed by Maharashtra and Karnataka at 23% and 9% of the total production respectively.

Source: RBI Handbook of Statstics, Ministry of Agriculture and Farmers Welfare.

Indias sugar production reached approximately 314 lakh tones as of the end of April 2024, said the Indian Sugar and Bio-Energy Manufacturers Association (ISMA). It further added that with additional output of 5-6 lakh tones expected from mills in Karnataka and Tamil Nadu, the final net sugar production is estimated to be close to 320 lakh tones.

Overall, 516 factories have concluded their crushing operations nationwide against 460 closed last year, as of April end. This means the number of operating factories was 16, which is 57 lesser than last year. ISMA said that 73 mills were operating the previous year on the corresponding date. Since some factories in Karnataka and Tamil Nadu will operate special season during June- September and are expected to collectively contribute around 5- 6 lakh tonnes of sugar. Therefore, final net sugar production (after diversion) for the season would be around 320 lakh tonnes, as estimated by ISMA in March 2024.

Taking into account an opening stock of approximately 56lakh tonnes as of October 1st, 2023, and a forecasted domestic consumption of 285 lakh tonnes for the season, ISMA has projected a significantly higher closing stock of 91 lakh tonnes by September 30th, 2024. This estimate, amounting to 36 lakh tonnes above the normative stock of 55 lakh tonnes, can potentially lead to additional costs for the millers on account of idle inventory and carrying costs, stated ISMA.

The association also said that a moderate crushing season is expected in 2024-25 due to several factors, including the early announcement of an increased Fair and Remunerative Price (FRP) for sugarcane, favourable pre-monsoon rainfall, and forecasts indicating an above-normal monsoon. These factors are further expected to lead to a higher stock in the coming year.

In light of these projections, ISMA has urged the Government to consider permitting the export of 20 lakh tonnes of sugar in the current season. This would not only ensure sufficient stocks for domestic consumption and the Ethanol Blending Program (EBP) but also improve the financial liquidity of sugar mills and enable timely payments to farmers, it said.

Sources:- FE Business

2. Global Business Environment

The world economy to continue growing at 3.2 percent during 2024 and 2025, at the same pace as in 2023. A slight acceleration for advanced economies where growth is expected to rise from 1.6 percent in 2023 to 1.7 percent in 2024 and 1.8 percent in 2025 will be offset by a modest slowdown in emerging market and developing economies from 4.3 percent in 2023 to 4.2 percent in both 2024 and 2025. The forecast for global growth five years from now at 3.1 percent is at its lowest in decades. Global inflation is forecast to decline steadily, from 6.8 percent in 2023 to 5.9 percent in 2024 and 4.5 percent in 2025, with advanced economies returning to their inflation targets sooner than emerging market and developing economies. Core inflation is generally projected to decline more gradually. The global economy has been surprisingly resilient, despite significant central bank interest rate hikes to restore price stability.

Global sugar production is forecast up 2.5 million tons to 186.0 million with lower production in Brazil expected to more than offset higher production in Thailand, India, China, and Mexico. Consumption is anticipated to rise to a new record with growth in markets such as India and Pakistan. Exports are forecast lower due to reduced shipments from Brazil, India, and Thailand. Stocks are forecast lower as reduced stocks in Thailand are projected to more than offset a rise in stocks in India.

Global production is flat at 183.5 million tons. to Brazil jumps 4.5 million tons higher to 45.5 million as favorable prices stimulate producers to prioritize sugar production over ethanol. o Thailand is reduced by 605,000 tons to 8.8 million due to reduced sugarcane production and a lower sugar extraction rate. o Mexico is lowered 722,000 tons to 4.9 million due to unfavorable weather and reduced yields. o India is revised down 2.0 million tons to 34.0 million due to unfavorable weather and lower area harvested.

India production is estimated up 500,000 tons to 34.5 million on higher yields with the planting of early maturing varieties. Consumption is anticipated to be up to meet demand during festivals and growth in pre-packed foods, sugar, and confectioneries, and catering services. Imports are forecast higher as the growth in consumption is expected to exceed the growth in production. Exports are down slightly on the likelihood that the government maintains export caps to meet domestic food consumption and sugar to ethanol diversion for the Ethanol Blending Program.

Source; Foreign Agricultural Service/USDA

3. Indian Economic Overview

Indias economy showed robust growth over the past year. Headline inflation has, on average, moderated although it remains volatile. Employment has surpassed the pre pandemic level and, while the informal sector continues to dominate, formalization has progressed. The financial sector has been resilient strongest in several years and largely unaffected by global financial stress in early 2023. The current account deficit in FY2022/23 widened as the post-pandemic recovery of domestic demand and transitory external shocks outweighed the impact of robust services exports and proactive diversification of critical oil imports. While the budget deficit has eased, public debt remains elevated and fiscal buffers need to be rebuilt. Globally, Indias 2023 G20 presidency has demonstrated the countrys important role in advancing multilateral policy priorities.

Growth is expected to remain strong, supported by macroeconomic and financial stability. Real GDP is projected to grow at 6.3 percent in FY2023/24 and FY2024/25. Headline inflation is expected to gradually decline to the target although it remains volatile due to food price shocks. The current account deficit is expected to improve to 1.8 percent of GDP in FY2023/24 as a result of resilient services exports and, to a lesser extent, lower oil imports costs. Going forward, the countrys foundational digital public infrastructure and a strong government infrastructure program will continue to sustain growth. India has potential for even higher growth, with greater contributions from labor and human capital, if comprehensive reforms are implemented.

Risks to the outlook are balanced. A sharp global growth slowdown in the near term would affect India through trade and financial channels. Further global supply disruptions could cause recurrent commodity price volatility, increasing fiscal pressures for India. Domestically, weather shocks could reignite inflationary pressures and prompt further food export restrictions. On the upside, stronger than expected consumer demand and private investment would raise growth. Further liberalization of foreign investment could increase Indias role in global value chains, boosting exports. Implementation of labor market reforms could raise employment and growth.

Source: Indian Economic Outlook January 2024, IMF i. Industry Structure and Development:

The Company has 3 major business verticals namely Sugar, Edible Oil and Grain & Pulses. The Sugar business performed very well on the back of restricted exports policy of Government of India. The Company has maintained its domestic market share in the domestic business in spite of tough global markets conditions. Other business verticals were also remunerative vis-?-vis sugar business due to which contributions to the top & bottom lines of other business verticals were higher during the year compare to the previous year. Other factors which affected these segments were mainly price mismatch, slow demand coupled with tight liquidity, partial recessionary conditions and withdrawal of investments, restricted government policy, geo political issues, global war tension . The Company is looking out for more opportunities in other commodities to keep the trajectory of growth maintained in coming year.

ii. Opportunities and Threats:

These have the various bench marks and keep changing on the various domestic and global business outlooks.

Opportunities: a. Sugar and Ethanol policies by the government, leading healthy prices and margins in Sugar b. Strong global demand of Edible Oil and Grains to continue

c. Capacity expansion and production efficiency

d. Expertise in new products development.

e. Good geographical reach and continued efforts to expand it.

f. Have positional to expand on our own, lower dependency of others.

Risks and Threats: a. Increase in cost of supply chain and logistics b. Increase in inflation rate and cost of products

c. Non availability of manpower, farm labors.

d. Uncertainty of monsoon rain and threat of global warming. India agrarian economy is mainly dependent on the agriculture production which largely contribute to the farmers income.

e. Increasing global trade war and sanction

f. Unstable Indian Rupee exchange rate against major foreign currencies.

g. Monsoon has a direct impact on cane farming and a weak monsoon can impact the availability of cane and hence sugar for exports.

The Company recognizes that above risks are an integral part of business and is committed to control & manages these risks in a proactive and efficient manner. The Company assesses various potential risk factors from time to time in the internal & external environment and incorporate risk mitigation in its strategy, business and operation plans using cost-effective available tools to minimize its impact on the overall businesses.

4. Segment –wise or product – wise performance:

Your company is primarily engaged in the exports and imports exploiting the opportunities in bringing the expertise and economies of scale into the trading operations of major bulk commodities such as Sugar, Edible Oil, Pulses, Lentils, Cotton and other Agri commodities.

Sugar Trading Business:

The Government of India imposed restriction on export of sugar during the year to balance the domestic demand & supply dynamics & to stabiles domestic prices to contain food inflation. The imposition of restriction on export impacted the sugar export business volume of the Company despite having large export business on hand which could be otherwise freely executed in full in an OGL environment but due to limited availability of export quota, your Company had to curtail export business and diverted focus on domestic markets.

In domestic markets, your company is expected to be leading large supplier of sugar between sugar surplus & deficient regions and create value for the company.

Your company is also working with leading industrial consumers & FMCG companies to fulfill their long terms supply needs being reliable large suppliers of commodity.

In exports- Imports segment, your company is expected to be involved as reliable re-exports partner for leading suppliers of world market sugar by importing and re-exporting sugar to various regions.

Other strategic businesses:

Your company is working to be involved in the supply chain of various other agri and food businesses.

Your company has set up a dedicated trade desk for Diary and related products in domestic and exports market.

Your company is leveraging the world market relationships to develop imports of Pulses & lentils from Australia, Canada and other origins. India is net importer of pulses & lentils. it is anticipated that during current season, there will be a shortfall in the indigenous production vis-a-vis previous year and the country has to continue placing more dependence on import. Your

Company is hopeful to sustain viability of these new business verticals in future as well

5. Outlook

In the current year company has changed the business strategy to focus more on domestic trade as there was an export restriction on sugar imposed by government. The company has successfully established depots at Bihar, West Bengal and north east region and achieved significant growth on domestic sales in sugar business.

The company has also started business of supply of maize to multigrain refineries for ethanol.

The Company has also focused on supply of pulses domestically.

Companies is looking at expanding at above activities to compensate for loss of exports business and hence try to sustain growth

To strengthen its position in the international market, Company has also invested 10 Million USD in its subsidiary at UK to carry on global business of trading in commodities. With all these initiative the company is having a positive outlook to sustain growth and profit margins.

Risk and Concerns:

a. Foreign Exchange Risk

The Company is exposed to risk from market fluctuations of Foreign Exchange. We try to minimize the risk of foreign exchange fluctuation by entering into forward contracts immediately on booking the export orders.

b. Commodity Price Risk

To take care of commodities price risk, export orders are immediately tied up with suppliers for efficient sourcing. However, this risk cannot be eliminated in case of imports because there is a time lag between the date of placing order and receiving delivery. Further, for the sake of economy, size of import contracts is too big to achieve back-to-back tie up with local buyers.

c. Risk elements in business transactions

The buyers and suppliers are selected after due diligence. Advances of 10-20% from overseas buyers, irrevocable letters of credit, payment at sight documents, ECGC cover, etc. are obtained, wherever considered necessary. As regards domestic trade delivery is released on receipt of full payment.

d. Physical risks to cargo

All our warehouses are adequately insured. For imports on CIF basis the supplier obtains insurance cover and for import on C& F basis insurance cover is obtained by the Company. For export shipments made on C&F basis, insurance is covered by the buyer and in case of orders on CIF basis, insurance is obtained by the Company. Warehouse to Warehouse insurance cover is obtained for domestic trade.

6. Internal control systems and their adequacy:

The Company has well, structured internal control mechanisms and internal Audit department is headed by a senior executive which reviews all transactions independently on continuous basis. Internal audit department regularly briefs the management and necessary steps are taken wherever, necessary. Besides the Company has retained outside audit firm to conduct Internal

Audit on continuous basis.

7. Material development in Human Resources / Industrial Relations front, including number of people employed:

The Company provides a challenging, open and professional satisfying work environment to its employees. Necessary steps are taken for boosting their motivation and active involvement in the organization. The Company also encourages its employees to continuously upgrade and improve their skills and qualifications.

	For and on behalf of the Board of Directors Of Sakuma Exports Limited
Place: Mumbai	Saurabh Malhotra
Date: 30th May 2024	Chairman & Managing Director
	DIN:00214500