sayaji industries ltd Management discussions

REVIEW OF FINANCIAL & OPERATIONAL PERFORMANCE

For the first time in the history of the company, the total income of the company increased to more than Rs 1000 Crores. The company expanded its grinding capacity to 850 Tons per day which resulted into increased grinding activity which in turn improved the topline of the company. The bottom line however remained subdued during the year under review due to worsening of geopolitical situation and increase in the price of maize. Though the company could pass on some portion of the increased cost to its customer, the bottom line of the company remained affected and, as a result of this, despite of increase in the total income of the company, there has not been corresponding increase the net profit of the company. The price of maize during the year under review remained high as compared to the previous year. Cost of some other inputs has also increased. The company could pass on only some portion of such increased cost to its customer. As a result of this the bottom-line of the company remained subdued as compared to previous year. The EBITDA of the company during the year under review remained lower at Rs 3351 lakhs as against Rs 5181 lakhs in the previous year. The gross profit of the company decreased to Rs 2317.69 lakhs as against Rs 4173.72 lakhs in the previous year. The profit before tax of the company reduced to Rs 912.85 lakhs as againstRs 2958.51 lakhs in the previous year and profit after tax declined to Rs 721.65 lakhs as against Rs 1884.39 lakhs in the previous year.

Maize Processing

There has been increase in the grinding capacity of the company due to small capital expenditure and process improvements in the plants. The bottom line remained affected due to very high maize and coal prices during the year under review as compared to last year which could not be passed on to the consumers fully.

There has been increase in turnover. However there has been slight reduction in the bottom line of the company due to increased input costs.

Spray Dried Food Products Segment (W.e.f. 18/ 01/2022)

The revenue from operation of spray dried food products segment was 1403.76 Lakhs during the year under review as against Rs 155.38 in the previous year. The profit before interest and tax during the year under review was (244.12 Lakhs) against (65.17 Lakhs) in the previous year.

RISKS AND THREATS Competition Risk

The corn starch industry has been witnessing increased capacity expansion by existing players and growing availability of substitute materials. Due to the abrupt increase in maize prices in the domestic market, the company is facing pricing pressure in the international Market (where the prices of maize have remained steady). This, in turn, may impact the export market share of the company.

Mitigation

Over the years, the company has cemented its reputation as a leading manufacturer and supplier of high-quality corn starch products at right prices to diverse industries. Further, its consistent focus on capacity expansion for production of high-margin products and cost optimization are likely to drive the overall profitability and sustain the market position.

Raw Material Risk

Maize, as an agricultural product, is highly vulnerable to the impacts of climate change. Extreme weather events such as droughts, floods, and heatwaves can disrupt corn production, leading to shortages in supply and increased production costs. Additionally, changing precipitation patterns and water stress can further exacerbate the challenges faced by the industry. The increased occurrence of pests and diseases associated with climate change also poses a threat to maize crops. Moreover, regulatory changes aimed at mitigating climate change effects can impact the production practices and costs within the industry. These climate-related factors may result in high production costs, under-utilization of capacities, and market volatility.

Furthermore, climate change influences the cost of power, a major input for starch manufacturing. Increased energy costs driven by renewable energy transitions or resource scarcity may further impact the margins and profitability of companies in the industry. To mitigate the impacts of climate change, implementing sustainable agricultural practices such as improving irrigation efficiency, developing drought-resistant maize varieties, and promoting integrated pest management becomes crucial.

Mitigation

The Company has established an effective maize procurement policy to ensure a continuous supply of quality corn while reducing the risks associated with climate-related production shortages. The strategic location of its storing facilities near manufacturing plants minimizes transportation emissions. The companys power generation turbine and biogas engine utilize methane gas from effluent treatment for low-cost energy production. Procuring power from the open market helps mitigate the impact of rising power costs and supports a transition to sustainable energy sources. These actions demonstrate the companys commitment to reducing its carbon footprint and promoting a sustainable future.

Environmental Risk

In addition to the risks associated with maize supply, the company also faces environmental risks such as increasing regulation and changing government policies related to sustainability and climate change. Indias Nationally Determined Contributions (NDCs) have set targets for reducing greenhouse gas emissions, increasing renewable energy use, and improving energy efficiency. Failure to comply with these regulations could result in fines, legal action, and damage to the companys reputation.

Mitigation

To mitigate these risks, Sayaji Industries Ltd. - Maize Products has implemented several initiatives aimed at reducing its environmental impact and promoting sustainability. The company has recently commissioned a new solar power plant that will generate clean energy and reduce its reliance on fossil fuels. Additionally, the company is utilizing waste heat to generate steam and and utilizes the organic waste generated to convert into Bio CNG to power its manufacturing operations, further reducing its emissions and fossil fuel related energy demand.

CLIMATE RISK

As a company based in Ahmedabad, Gujarat, Sayaji Industries Ltd. is exposed to various acute physical risks that could impact its operations, including extreme weather events such as floods, droughts, storms, fires, and heavy rains. These risks could affect the companys manufacturing facilities, inventory, and supply chain, leading to disruptions in production and delivery, as well as potential damage to property and equipment.

Mitigation

To mitigate these risks, the company has implemented various measures, including regular monitoring of weather patterns and climate-related risks, as well as disaster preparedness plans. In addition, the company has invested in infrastructure and technology to enhance its resilience to extreme weather events, such as building flood protection measures and implementing fire safety protocols beyond the legal requirements.

PHYSICAL RISKS & MITIGATION OF SUCH RISKS

Sayaji Industries Ltd. also recognizes the potential impact of physical risks on its supply chain, particularly with regard to its reliance on agricultural products such as maize. The company works closely with its suppliers to encourages its suppliers to implement sustainable practices and where possible climate-resilient farming techniques to reduce the risk of crop failures and supply chain disruptions. Sayaji has further tied up with its major customers like Colgate and has initiated measures to reduce its footprint by supplying to the closest factories from supplying to several across the country.

Physical Risk Matrix and Scenario Analysis

To better understand the potential impact of physical risks on our operations, we have developed a Physical Risk Matrix, which assesses the likelihood and potential impact of various physical risks. Based on this assessment, we have identified several scenarios that could affect our operations and developed contingency plans to minimize potential disruptions. For example, in the event of a flood or heavy rainfall, we have established protocols for managing water infiltration and ensuring the safety of our employees and facilities and have emergency preparedness plans. Sayaji conducts mock drills periodically covering all possible scenarios and is well prepared to handle any such emergency

Conclusion

Sayaji Industries Ltd. recognizes the importance of addressing physical risks and is committed to implementing measures to enhance its resilience to extreme weather events and other acute physical risks. Through ongoing monitoring, contingency planning, and collaboration with suppliers, the company aims to minimize potential disruptions and ensure the continued delivery of high-quality products and services to its customers.

LEGAL RISKS AND MITIGATION OF SUCH RISKS

As a company operating in the corn wet milling industry in India, Sayaji Industries Ltd. - Maize Products is well aware of the importance of managing legal risks in our business operations. There are several legal risks that we face, including compliance with government regulations, intellectual property disputes, and contractual obligations. To mitigate these risks, we have put in place comprehensive compliance programs that ensure our operations meet all relevant regulatory requirements. We have also taken steps to protect our intellectual property, such as trademarks and patents, to safeguard our products and processes. Additionally, we maintain strong relationships with our customers and suppliers, ensuring that all contractual obligations are clearly defined and met.

Despite our best efforts, however, legal risks can be unpredictable and difficult to control. We recognize that any failure to comply with legal requirements or contractual obligations can have a significant impact on our business, reputation, and financial performance. Therefore, we remain vigilant in our approach to legal risks, continuously monitoring changes in laws and regulations, and working with legal experts to mitigate any potential legal issues that may arise.

By prioritizing legal compliance and proactively managing legal risks, we are confident in our ability to operate effectively and responsibly

TECHNOLOGY RISKS AND MITIGATION OF SUCH RISKS

As a leading player in the corn wet milling industry, Sayaji Industries Ltd. - Maize Products is well aware of the importance of keeping up with the latest technologies to stay competitive. We understand that the technological landscape is constantly evolving, and we recognize the risks associated with failing to adapt to changing trends.

To mitigate these risks, we have invested in state-of-the-art technologies that allow us to improve efficiency, reduce waste, and enhance the quality of our products. For example, we use advanced processing techniques to manufacture modified starches and other derivatives like liquid glucose, dextrose monohydrate, dextrose anhydrous, and sorbitol. We have also implemented innovative solutions to reduce our environmental footprint, such as utilizing renewable energy sources as well as energy from effluents in addition to implementing water conservation measures where we have achieved our target within a couple of years We understand that technology risks can have a significant impact on our business, and we are committed to staying up-to-date with the latest developments in the industry to ensure that we are well-positioned to meet the evolving needs of our customers. By investing in the right technology and continuously updating our processes, we are confident in our ability to remain a leader in the corn wet milling industry and deliver high-quality products to our customers.

MARKET RISKS AND MITIGATION OF SUCH RISKS

As a manufacturer and supplier of maize products, Sayaji Industries Ltd. is exposed to various market risks that can impact its financial performance. One of the key market risks is the growing demand from industries for sustainable sourcing and production processes. As industries are increasingly focused on environmental sustainability and social responsibility, they are seeking suppliers who can demonstrate their commitment to these values.

Sayaji Industries Ltd. recognizes this market risk and has implemented several measures to mitigate it. The company has adopted sustainable practices in its sourcing and production processes , reducing its environmental footprint and demonstrating social responsibility. The company besides evaluating suppliers on parameters like price and quality, also does an evaluation on sustainability and environment related parameters. Sayaji has also taken several initiatives within its production processes, like use of renewable power, energy from waste water and waste energy. In addition, the company has invested in advanced technology and innovative processes to reduce waste, conserve natural resources, and minimize its carbon footprint.

Overall, we believe that our commitment to sustainability is not only a responsible business practice but also a strategic advantage in todays market. We remain committed to continuously improving our sustainable practices, promoting social responsibility, and mitigating market risks associated with sustainability. By adopting sustainable practices, Sayaji Industries Ltd. is well-positioned to meet the growing demand for environmentally responsible and socially conscious suppliers. The companys commitment to sustainability and social responsibility not only mitigates market risk but also strengthens its reputation and brand value, building trust and credibility with customers and stakeholders.

RISKS RELATING TO REPUTATION OF THE COMPANY

As a supplier of renowned organizations, Sayaji Industries Ltd. - Maize Products recognizes the importance of maintaining a positive reputation in the industry. We understand that our customers and stakeholders expect us to be responsible and sustainable in our operations, and we strive to meet those expectations. To this end, we have taken significant steps to reduce our environmental footprint, such as reducing water consumption and achieving our 10-year target in just a couple of years. We have also implemented many energy efficiency measures and made changes throughout our organization to prioritize sustainability. We recognize that climate change is an increasingly pressing issue, and we stay informed of developments in this landscape to ensure that we are doing our part. We evaluate stakeholder responses and perspectives on our climate change strategy to understand their potential reputational impacts on our company. We understand that negative publicity from stakeholders about our products, supply chain, ingredients, packaging, or employees, whether or not deserved, could adversely affect our reputation. As such, we are committed to managing any potential reputational risks and to maintaining our sustainability practices to ensure a positive impact on the environment and society.

In all of our operations, we strive to meet the highest standards of social and environmental responsibility, and we are committed to maintaining our position as a trusted supplier of high-quality maize products.

RISKS RELATING TO EMERGING REGULATIONS

As part of Sayaji Industries Maize Products commitment to monitor and comply with regulations, we continuously assess emerging regulations that may affect our operations. One such emerging regulation that we are monitoring closely is the development of a National Emissions Trading Scheme (ETS) in India. The Indian government has set ambitious targets to reduce greenhouse gas emissions as part of its Nationally Determined Contribution (NDC) under the Paris Agreement. The upcoming National ETS, which is currently under development, is expected to play a significant role in achieving these targets. As a company operating in the corn wet milling industry in India, we recognize that the implementation of this regulation may impact our operating costs over time. Our commitment to comply with all applicable laws and regulations remains steadfast. Non-compliance with applicable laws and regulations could result in civil remedies, fines, damages, injunctions, product recalls, or criminal sanctions, any of which could adversely affect our business, results of operations, cash flows, and financial condition. Therefore, emerging regulation risks related to climate change are always included in our climate-related risk assessments. We continue to stay informed about new regulations and work to mitigate any risks that may arise.

OUTLOOK

There has been a substantial increase in the price of maize due to geopolitical tensions which continued throughout the year under review. However, the threat of new covid-19 waves has reduced substantially due to large scale vaccination drive by the Government of India and the activities has returned to pre pandemic levels. Your company is also hopeful that the geopolitical situation due to Russia Ukraine war turns for better in the times to come. This coupuled with normal rains forcast during the current financial year may ease the prices of maize and other inputs in the times to come. The company is also striving to pass on the increased input costs to its customers to the extent possible to ensure that its bottom line is not much adversely affected. The company is also planning to increase its grinding capacity with modernization of its equipment to meet the expected increased demand for its products.

Demand for corn starch products is set to grow with rising incomes, favourable demographics and swift industrial growth. The company offers quality products to consumers worldwide by combining customer insights with scientific and technical excellence. To remain competitive, the Company has invested in modernizing its plant and machinery and reducing the bottlenecks in the production process. The company has aggressively focused on strengthening its cost competitiveness and raising production of higher-margin value-added products to enhance profitability. The company is hopeful that normal monsoon in the maize growing areas like Karnataka, Maharashtra, Telangana, MP, etc. in this monsoon season coupled with culmination of the aforesaid factors will offer sustainable growth opportunities to the company.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The company has an adequate internal control framework commensurate with the size, nature and complexity of its business operations. The internal control systems are formulated as part of the principles of good governance and ensure proper recording and reporting of transactions, safeguarding of assets and protection against losses from any unauthorized use or disposition and misappropriation of funds.

The internal auditors ensures, checks and reviews the internal controls and proactively recommends measures for strengthening them. The internal controls are supplemented by documented policies and procedures, which provide reasonable assurance about the reliability of financial and operational information, fraud control, compliance with applicable statutes and internal policies. The Audit Committee of the Board periodically reviews the internal audit reports to ensure the effectiveness of the internal controls. The management as well as the statutory auditors of the Company review the internal audit findings and undertake relevant action.

HUMAN RESOURCES

Sayaji Industries Ltd. - Maize Products believes in top-down approach when it comes to sustainability and environmental responsibility. The Managing Director and Board of Directors are responsible for setting the tone and providing direction to ensure the companys commitment to sustainability is reflected in its policies and practices. Mr. Shah, the Company Secretary reports directly to the Managing Director and is responsible for ensuring compliance with all regulations including environmental regulations and implementing sustainability initiatives and monitoring the environmental impact of the companys operations. In addition, the company has an independent Environmental Manager, who is exclusively responsible for managing the function and reports to the Directors..

The company has also established an Internal Environmental Health and Safety (EHS) Committee, comprising of senior management representatives, along with worker initiatives which oversees the implementation of the companys sustainability, environmental as well as energy policies and procedures. In addition, the company has an Energy Management Committee, which is responsible for monitoring the companys energy usage and identifying areas for improvement. The committee is headed by the Electrical and Mechanical Heads of the plants in addition to representatives from various departments. Human resource function by creating adequate roles plays critical role in the company meeting its compliance regulations in addition to the emerging risks At Sayaji Industries Ltd. - Maize Products, sustainability and environmental responsibility are integral to the companys business operations and are deeply ingrained in its organizational structure. The company recognizes that it has a responsibility towards the environment and is committed to implementing best practices to minimize its environmental impact.

Salient features of the financial statement of Subsidiaries / Joint Ventures Pursuant to Section 129(3) of the Companies Act, 2013 read with Rule 5 of The Companies (Accounts) Rules, 2014 Part "A": Subsidiaries

There are no associates or joint ventures which are yet to commence operations. There are no associates or joint ventures which are liquidated or sold during the year.

Place : Ahmedabad

Dated: May 24, 2023