sir shadi lal enterprises ltd share price Management discussions

MATERIAL CHANGES AND COMMITMENTS AFFECTING THE FINANCIAL POSITION BETWEEN END OF THE FINANCIAL YEAR AND DATE OF THE REPORT

There have been no material changes or commitments made which affect the financial position of the Company between end of the financial year and date of the report.

OPERATIONAL PERFORMANCE

SUGAR UNIT (UPPER DOAB SUGAR MILLS) :

A) INDUSTRY PROFILE:

The Sugar industry in the state of Uttar Pradesh, which has earned huge profits in the year 2016-17 but due to higher production in Maharashtra and Karnatka the over all production of india increased and the consumption of india is approx. 250 Lakhs tonnes. Therefore on account of higher production and low demand prices of Sugar fallen sharply therefore the net profit decreased during the current year 2017-18. Indias Sugar production in the current season is set to touch a record 32 million tonnes, surprising both the industry and the Government, with the two biggest producing states of the sweetener reporting bumper output.

Maharashtra has already produced about 10 million tonnes, with the northern Sugar bowl of Uttar Pradesh following closely at 9.3 million tonnes. Indias earlier record output was in 2014-15 when mills here had produced 28.46 million tonnes of Sugar. This years production is much higher than the annual domestic demand of 25 million tonnes. The problem of plenty has led to crash in prices of Sugar below the cost of production.

However, declining Sugar prices in combination with a rising Fair and Remunerative Price (FRP) or State Advised Price (SAP) for SY 2017-18 has increased the backlog of the Sugar companies dues payable to the farmers in the ongoing season, particularly in states where cane costs are not directly linked to Revenue Sharing Formula (RSF). In latter case, farmers are paid the FRP as a first installment; if dues to farmers under the RSF are more than the FRP, than they will be entitled to a second payment. The FRP for the ongoing season is Rs. 255 which was Rs. 230 in previous years. Cane arrears soared to Rs. 22,654 crore as on June 1, which has come down to Rs. 19,816 crore till June 25 th, 2018.

To help loss-making Sugar mills, the Centre has taken various initiatives during the last five months, including doubling of import duty on Sugar to 100 per cent, scrapping of export duty and announcement of Rs. 8,500 crores worth package.

The package included creation of buffer stock of 3 million tonnes of Sugar, providing soft loan of Rs. 4,500 crore with interest subsidy for expansion of Ethanol capacity, besides a production-linked subsidy worth Rs. 1,500 crore to clear Sugarcane arrears of the farmers.

Further the Government hiked prices of Ethanol extracted from final or C-molasses by Rs 2.85 per litre to Rs. 43.70 per litre and also fixed for the first time the rate for Ethanol produced from B-molasses (called intermediary molasses) at Rs 47.49 per litre for the 2018-19 season beginning December.

This move will help boost production of Ethanol, used in blending with Petrol, and also enable mills to divert some of the Sugarcane juice during the surplus crop year.

B) COMPANY OPERATIONS :

The operating performance of the Sugar unit for crushing season 2017-18, as compared to the previous crushing season 2016-17, is as under:

Particulars	2017-18	2016-17
Gross working days	214	198
Cane Crushed (lakh/qtls.)	115.63	102.73
Average cane crush (qtls./day)	54033	51884
Manufacturing losses (%)	1.99	1.96
Steam Consumption (% cane)	51.40	53.08
Average Sugar recovery (%)	10.87	10.46
Downtime (%)	2.38	6.14
Sugar production (lakh/qtls)	12.56	10.67

The Company achieved higher cane crush by about 13 lakhs qtls and higher recovery by 0.41% over the previous year. However the longer duration of the crushing season resulted in increase in manufacturing losses by 0.03% and the downtimes comes down by 3.76% as compared to last year. The recovery % cane was higher mainly due to higher pol in cane which resulted from improved varietal mix and implementation of other cane development activities.

C) CANE DEVELOPMENT

Due to vigorous efforts made by the management in the area of Sugarcane development, the area under cultivation of high Sugar varieties of cane increased from 76% in season 2016-17 to 92% in season 2017-18. In addition, the management focused on execution of both extensive and intensive cane development activities comprising of appropriate usage of insecticides, pesticides and optimum use of fertilizers . Consequently, the Pol % cane increased by 0.44 i.e, from 12.41% in crushing season 2016-17 to 12.85% in crushing season 2017-18.

The management is further making efforts to increase the area under high Sugar variety cane from 92% to 95% as well as complete replacement of rejected varieties in the next season 2018-19. The management is also making efforts to increase the supply of cane at factory gate from 77.88% in crushing season 2017-18 to about 80% in crushing season 2018-19.

Extraneous materials such as trashes, green tops, diseased cane, mud with cane supplies have been reduced by 0.40% as a result of the close monitoring done by the management.

Management plans to continue these efforts in the next crushing season 2018-19 and consequently the Pol % cane is expected to further increase to about 13.25% from 12.85% in crushing season 2017-18.

DISTILLERY UNIT (SHAMLI DISTILLERY AND CHEMICAL WORKS) :

A) INDUSTRY PROFILE :

Government policy continues to focus on increasing the % age of mixing Ethanol with Petrol. Consequently, the demand for Ethanol continues to increase, which has a positive effect on the financial performance of the distilleries like yours, which are focused on production of industrial alcohol

B) COMPANY OPERATIONS :

i) DISTILLERY EXPANSION PROJECT :

The Company undertook an expansion project of Distillery, whereby the production capacity of the Distillery was increased from 25 KL per day to 45 KL per day, was commissioned during last year and is now running on full capacity. This year expansion of 45 KLPD to 70 KLPD is proposed.

ii) OPERATING PERFORMANCE :

The operating performance for the financial year 2017-18 as compared to the previous financial year 2016-17 is as under:

Particulars	2017-18	2016-17
i) Gross working days - Old plant (days)	-	14
ii) Gross working days - New plant (days)	203	34
iii) Production - RS (lakh/ltrs)	32.20	11.751
iv) Production - Ethanol (lakh/ltrs)	80.98	12.871
v) Alcohol recovery/qtl. molasses (AL )	21.93	22.50
vi) Fermentation efficiency (% )	89.06	89.06
vii) Distillation efficiency (% )	98.55	98.44

Distillery production was high during 2017-18 since the plant was running at its full capacity.

Further analysis of operating performance for Sugar and Distillery segments are covered under "Management Discussion and Analysis Report" at Annexure 5 of this Report.