SBEC Sugar Ltd Management Discussions

The Indian sugar industry, one of the largest globally, experienced a notable shift during the 2024-25 season with production dropping to approximately 25.8 million metric tonnes (MMT)-falling below domestic consumption for the first time in nearly a decade. Despite the shortfall, retail prices remained stable due to substantial carry-forward stocks of around 8-9 MMT. The Indian Sugar Mills Association (ISMA) expects a strong recovery in 2025-26, with output projected to rise by 18% to 34.9 MMT, driven by favorable weather and expanded cane acreage. The industry also anticipates increased ethanol production, targeting around 5 MMT of sugar diversion, as part of Indias broader ethanol blending initiative. However, the sector continues to face pressure due to the mismatch between the rising Fair and Remunerative Price (FRP) for sugarcane and the static Minimum Selling Price (MSP) of sugar, which has remained at Rs.31/kg since 2019. Industry bodies have urged the government to revise the MSP to Rs.39-40 per kg to maintain operational viability. Regulatory constraints on exports have also impacted market dynamics, though a limited EU quota has been allocated. Encouragingly, financial compliance improved, with most mills in key producing states clearing 100% of cane dues. The sectors strategic focus remains on ethanol blending, policy alignment, and capacity utilization, positioning it for a more stable and diversified future.

For the sugar season 2025-26, the Government of India, through the Department of Food & Public Distribution, has fixed the Fair and Remunerative Price (FRP) of sugarcane at Rs.355 per quintal for a basic recovery rate of 10.25%. This revised FRP, approved by the Cabinet Committee on Economic Affairs (CCEA) on April 30, 2025, represents an increase of 4.41% over the previous seasons FRP of Rs.340 per quintal. For every 0.1 percentage point increase in sugar recovery above 10.25%, a premium of Rs.3.46 per quintal is payable to farmers. Conversely, for every 0.1 percentage point decrease in recovery below 10.25% (down to 9.5%), the FRP will be reduced by Rs.3.46 per quintal. In cases where the sugar recovery rate is 9.5% or lower, the FRP is fixed at Rs.329.05 per quintal, with no further deductions permitted.

The Ministry of Power (MOP) issued Electricity (Promoting Renewable Energy through Green Energy Open Access) Rules, 2022 vide Notification No. GSR 418(E) dated 6th June, 2022 whereby the consumers will be eligible for green energy open access if they have contract demand or sanctioned load of 100 KW or more and for captive consumers, there will be no load limitation. The rules will be applicable for the generation, purchase and consumption of green energy including the energy from the waste-to-energy projects. Further, as per the regulations from the date of commencement of these rules, there will be a uniform renewable purchase obligation on all obligated entities in the area of a distribution licensee.

The Jute Packaging Materials (Compulsory use in Packing Commodities) Act, 1987 specifies the percentage of commodities to be packed mandatorily in the jute packaging material. As per notification No. INSP.F-1(3)/20o7/VOL.I dated 24th April, 2023, the Central Government prescribed that 20% of the total production of sugar is to be mandatorily packed in the Jute packaging material. However, certain category of sugar is excluded from the purview of the said reservation viz., (a) sugar fortified with vitamins, (b) packaging for export of commodities (c) small consumer packs of 25 Kgs and below for sugar (d) bulk packing of more than 100 Kgs. and (e) sugar packed for export.

Molasses is a viscous by-product obtained from raw sugar during the manufacturing process. Cane-based ethanol can be produced in three different ways - directly from cane juice, and from B-heavy and C-heavy molasses. The end products (cane sugar and the molasses) could be used to produce ethanol. The difference lies in the quantity of ethanol produced. One tonne of cane can produce 10.8 litres of ethanol if it is produced from molasses. On the other hand, the same cane can produce 84 litres of ethanol, if used directly as an input.

The Central Government has been focusing on reducing the countrys dependence on imported crude oil while minimizing the environmental impact resulting from pollution and emissions. The Government has been actively promoting the production and blending of ethanol with petrol and has targeted 20% blending through Ethanol Blended Petrol (EBP) Programme or EBP20 by 2025-26. EBP20, which was earlier targeted by 2030, was advanced in December 2020, reaffirming the Governments focus and commitment towards biofuels. EBP20 will lead to numerous benefits, such as saving of Rs. 30,000 crore of foreign exchange per year, lower carbon emissions, self-reliance, use of damaged food grains, increased farmers incomes, and better investment opportunities.

India has achieved an average ethanol blending rate of 11.60% in the first four months of 2023-24 Ethanol Supply Year (ESY) that started from November, against the 15% target set by the government for the whole year. The government decided to advance the targets of 20% ethanol blending in petrol from 2030 to ESY 2025-26. The Roadmap for Ethanol Blending in India 2020-25, prepared by an inter-ministerial Committee, estimated ethanol requirement of 1016 crore litres to achieve 20% blending targets in ESY 2025-26.

The Ethanol Blended Petrol (EBP) Programme has multiple objectives including reducing import dependence, savings in foreign exchange, providing boost to domestic agriculture sector and for associated environmental benefits. Under the EBP Programme, Public Sector Oil Marketing Companies (OMCs) have saved approximately 509 crore litres of petrol on account of ethanol blending during the ESY 2022-23 resulting in savings of more than Rs.24,300 crore of foreign exchange and expeditious payment of about Rs.19,300 crore to farmers, bolstering the agriculture sector.

The Central Government with a view to increase production of ethanol and its supply under Ethanol Blending Programme have been extending financial assistance to sugar mills & molasses based standalone distilleries for enhancement and augmentation of ethanol production capacity. During the year, vide Notification No.1 (10)/2018-SP-I dated 22.04.2022 the Government opened a window for six months w.e.f. 22nd April, 2022 under modified scheme dated 14.01.2021 for inviting fresh applications from project proponents who have acquired land for ethanol project and obtained Environmental Clearance (EC) for enhancement of their existing ethanol distillation capacity or to set up new distillery for producing 1st Generation (1G) ethanol from feed stocks such as cereals (rice, wheat, barley, corn & sorghum), sugarcane (including sugar, sugar syrup, sugarcane juice, B-heavy molasses, C-heavy molasses), sugar beet etc.

The Company is located at Village Malakpur, District Baghpat, Uttar Pradesh. The plant started with an initial crushing capacity of 3500 tons of cane crushed per day (TCD), which has been gradually increased to 9,000 TCD. The Company has one of the most modern and efficient sugar factories in the country.

The company is considering augmenting its production capacity in due course to 10,000 TCD. The first phase to increase the plant capacity upto 9,000 TCD was completed which has been operative from season 2022-23. The Company is increasing its capacity upto 10,000 TCD. Regarding that the company has received Consolidated Consent to Operate and Authorisation ("CCA") to operate the plant capacity to 10000 TCD under Section-25 of the Water (Prevention & Control of Pollution) Act, 1974 and under Section-21 of the Air (Prevention & Control of Pollution) Act, 1981 from the Uttar Pradesh Pollution Control Board.

The crushing for the season 2024-25 started on October 27, 2024 and ended on April 09, 2025 and cane crushed during season 2023-24 was 134.31 Lac Qtls as compared to 133.44Qtls in the last season.

• Located in sugarcane rich belt of Western UP with high sucrose varieties of cane.

• The Company has continued its focus on cane quality promotion and is continually investing in cane variety development. The same is also visible in form of increased availability of high yield variety of cane and higher Sugar recovery.

• The State Government decides sugarcane prices in a manner that is not linked to sugar prices. Unviable sugarcane prices may impact the profitability of the Company.

• High Cane arrears due to low sugar prices.

• Risk of coercive measures by the State Government on account of huge cane arrears.

• Higher recovery, Higher rates of by-products of Sugar.

• Government support towards production of Ethanol.

• Due to domestic surplus, there could be a softening in the sugar prices affecting the profitability.

• Increase in State Administrative Price of Sugarcane by the State Government.

• Reduction of Co-generation tariffs.

The sugar industry will be a major player in producing cost effective energy and fuel from its by-products bagasse and molasses. Bagasse can be processed for co-generation of power, ethanol produced from molasses can be used for blending with petrol for motor fuel.

Your company has in place an adequate internal control system in order to ensure that all transactions are authorized, recorded and reported correctly and that all assets are protected against the perils of unauthorized use or disposition. Towards enhancing the efficiency of internal controls, services of consultants are hired wherever necessary, and their suggestions are reviewed and implemented. Your Company has in place an Internal Audit system, whereby an independent professional firm of Internal Auditors conducts regular audit across the Company and their scope and findings are reviewed by the Management and Audit Committee on a regular basis.

The Audit Committee of the board also meets periodically to review the internal controls, internal audit findings, action taken reports and to advise the management on corrective policies, if any.

The Company considers human capital as a critical asset and success factor for smooth organizational work flow. Efforts are made to improve skills, knowledge and performance of employees by timely training, job satisfaction and enrichment. The Company has added to its fold, experienced manpower in line with future areas of growth.

Details of significant changes as required under SEBI (LODR) Regulations, 2015 are as under:

The above Management Discussion and Analysis Report contains "forward looking statements" within the meaning of applicable laws, and regulations and is futuristic in nature. All statements that address expectations or projections about the future, including, but not limited to statements about the Companys strategy for growth, market position, expenditures and financial results are forward looking statements. The Companys actual results, performance or achievement could thus differ materially from those projected in any such forward looking statements. Investors are requested to make their own independent judgments before taking any investment decisions and the Company assumes no responsibility.