Sir Shadi Lal Enterprises Ltd Management Discussions

AN OVER VIEW

Companys operations are broadly divided into two business segments i.e. "Sugar" and "Alcohol." The by-product molasses is used in the distilleries for manufacture of alcohol & ethanol. The segment-wise performance has already been reported vide note no. 51 of notes attached to the Annual accounts under report. Segment-wise detailed management discussion and analysis is stated below:

SEGMENT SUGAR (UNIT - UPPER DOAB SUGAR MILLS)

In the crushing season 2023-24, Sugar unit started crushing on 01.12.2023 and closed on 24.04.2024. The factory crushed 74.66 lac/ quintals of cane at an average recovery of 11.07% producing 8.27 lac/quintals of Sugar in 146 days of working.

The last crushing season 2022-23, Sugar unit started crushing on 01.11.2022 and closed on 13.05.2023. The factory crushed 99.83 lac/ quintals of cane at an average recovery of 10.15% producing 10.13 lac/quintals of Sugar in 194 days of working.

The average cost of cane for the financial year 2023-24 was Rs. 374.37 per quintal as against Rs. 359.96 per quintal for the financial year 2022-23. The average Sugar realization during the financial year 2023-24 was Rs. 3690.21 per quintal as against Rs. 3428.10 per quintal during the financial year 2022-23

SEGMENT ALCOHOL (UNIT SHAMLI DISTILLERY & CHEMICAL WORKS)

During the financial year 2023-24, the distillery produced 173.57lac/ BL of Rectified Spirit (RS) (last year 205.60lac/BL). During the year 2023-24, fermentation efficiency was 86.67% (last year 88.85%), distillation efficiency was 98.31 % (last year 98.03 %). During the year 2023-24, the recovery from C Heavy Molasses was 19.81 AL/ quintal (as against 22.97 AL/ quintal from B&C heavy molasses.

During the year 2023-24 Distillery unit B&C loss of Rs. 880.10 lacs. (last year 294.47 lacs).

Global sugar industry overview

The global sugar market size reached 194.0 million tonnes in 2023 and is anticipated to reach 196 million tonnes by 2028, exhibiting a growth rate (CAGR) of 1.64% during 2023-2028. Global production of sugar reached 194.0 million tonnes against 186.0 million tonnes in the previous season. Exports are projected higher as the drop in India is more than offset by higher exports from Brazil and Thailand. During the year under review, the global sugar consumption was estimated at 189 million tonnes, as compared to 188.0 million tonnes in 2023 on account of growth in markets like China, Indonesia and Russia. Stocks are estimated lower as growth in global consumption exceeds the rise in production. Higher exports from Brazil and Thailand are expected to offset the decline in India. Stocks are expected to remain at a low level as growth in global consumption surpasses production growth. This would lead to a global surplus of 1.6 million tonnes as compared to deficit of 0.3 million tonnes last year.

CANE PRICE:

The cane price during the crushing season 2023-24 was Rs. 370 per quintal.

OUTLOOK AND CHALLENGES BEFORE THE SUGAR INDUSTRY:

India began the sugar season 2023-24 (October to September) with an opening inventory of around 5.6 MMT (Metric Million Tonnes), restated from 6.5 MMT by Government of India. Sugar production for the current season is estimated at 31.3 MMT, around 1.5 MMT lower than the previous seasons production of 32.8 MMT. Current years production estimate is net of sugar sacrifice of around 1.7 MMT towards Ethanol (last year 4 MMT).

Maharashtra, Uttar Pradesh (UP) and Karnataka as usual remains the three largest sugar producing states and are expected to produce ~11.7 MMT, 9.6 MMT and 4.7 MMT of sugar in the ongoing season in comparison to the previous seasons production of 10.5 MMT, 10.5 MMT and 5.8 MMT respectively.

The reason for lower production in Maharashtra is owing to higher ratoon crop and uneven distribution of rainfall resulting in lower production. Uttar Pradesh is expected to produce marginally higher sugar than last year on account of higher acreage and better yield. In Karnataka likewise Maharashtra, lower yield led to lower production. No Sugar exports in the current season as compared to 6.1 MMT in previous season.

The domestic demand for sugar is expected to be around 28.5 MMT as compared to 28.0 MMT in the previous season. The demand of 28.5 MMT will be a new record for the Indian sugar industry. As a result, the carry forward stock of sugar in the country as on 30th September 2024, is expected to be around 9.1 MMT or around Three and half months of consumption.

Domestic sugar prices for UP based millers ranged between R37.00 and R39.00 per kg through the course of the year.

There is worry on monsoon as El Nino fear is looming large across the Indian sub-continent and according to India Meteorological Departmet (IMD), major region that may get impacted are Maharashtra and partly Karnataka.

However, there is enough availability for domestic consumption post sacrifice for Ethanol which would still warrant the country to export the surplus of sugar in order to maintain the inventory at similar levels. The Government continued with most of the policies in the current sugar season related to sugar and ethanol that had been announced in the previous years with the objective to support sugar realisations and to ensure that farmers are paid on time.

The following policies were sustained: SUGAR

• Fair & Remunerative Price (FRP) of sugarcane for the sugar season 2023-24 was revised to Rs.315/- per quintal from Rs.305/- per quintal in the previous season (linked to a basic recovery of 10.25%). As of now it has also been revised for the crushing season 2024-25 @Rs.340/- per qtl.

• State Advised Price (SAP) of sugarcane for the state of Uttar Pradesh for the sugar season 2023-24 was kept Rs.370/- per quintal (for early maturing variety of sugarcane).

• Central Government announced export quota of 61 Lakh tonnes for the sugar season 2022-23 based on expected production (net of sugar sacrifice for Ethanol) after considering minimum closing inventory of 2.5 months of consumption.

• Duty structure on export and import of sugar remained same as per last year. However, export of Sugar is banned by Central Govt. for season 2023-24.

• Along with MSP, stock holding limits on mills in the form of maximum monthly sale quotas continued. The policy interventions by the Government have been supportive keeping in mind the health of the sugar sector. Still some measures are of importance to enable the industry to become self-sufficient.

• Central Govt. given direction that "State Govt." may ensure cane availability and water availability for irrigation in long run bebore issuing the NOC for increase the crushing capacity. Therefore, U.P. Govt. permission is mandatory before planing of increase in crushing capacity of any sugar mill in U.P. (Letter no. 215/C/Chini Mill/Cap. extension/dated 09.5.2024)

ETHANOL

As more than 100 countries at COP28 in Dubai pledged the tripling of global renewable energy capacity by 2030, India faces a tightrope walk with regard to its ethanol blending target. While Ethanol Blended Petrol (EBP) increased from 1.6% in 2013-14 to 11.8% in 2022-23, the 20% target by 2025 has run into trouble with low sugar stocks in 2022-23 and the impending shortfall in sugarcane production this year. As evident from Minister of Consumer Affairs, the government is looking at a major transition towards grain-based ethanol for meeting the target.

The recent authorization of the National Agricultural Cooperative Marketing Federation of India (NAFED) and the National Cooperative Consumers Federation of India (NCCF) to procure maize (corn) for supplying ethanol distilleries indicates emphasis on this transition and will boost an organized maize-feed supply chain for ethanol. This, however, risks creating more challenges for the economy.

Feedstock Availability and Cost: Ethanol production requires a large amount of biomass, such as sugarcane, corn, or lignocellulosic materials, which may compete with food, feed, or other uses. The availability and cost of these feedstocks may vary depending on the season, weather, market, and policy conditions.

India Ethanol Market is anticipated to witness a CAGR of 15.9% during the forecast period 2023-2030, owing to the increasing demand for ethanol as a fuel source. On the basis of the source segment, molasses is expected to hold a dominant position, owing to its widespread availability and sustainability.

India Ethanol Market has valued at USD 6512.27 Million in 2023 & anticipated to have growth in the forecast period with a CAGR of 8.84% through 2029.

India has achieved an average ethanol blending rate of 11.60 per cent in the first four months of2023-24 supply year that started from November, against the 15 per cent target set by the government for the whole year.

The NITI Aayog roadmap estimates that India will need about 13.5 billion litres of ethanol annually by 2025-26. Of this, about 10.16 billion litres will go towards meeting the fuel-blending mandate of E20 and the remaining will meet "other uses" in industries such as alcohol and pharmaceuticals.

Raise pan-India ethanol production capacity from the current 700 to 1500 crore litres. Phased rollout of E10 fuel by April 2022. Phased rollout of E20 from April 2023, its availability by April 2025. Rollout of E20 material-compliant and E10 engine-tuned vehicles from April 2023.

The agency maintained its forecast for 2025 ethanol production at 1.03 million barrels per day. Ethanol production averaged 1.02 million barrels per day in 2023. On a quarterly basis, ethanol production is currently expected to average 1.04 million barrels per day during the second, third and fourth quarters of 2024.

The Government has set target of 20% blending of ethanol in petrol under EBP programme by Ethanol Supply Year (ESY) 2025-26.

By 2025, at 20% blending level, ethanol demand will increase to 1016 crore litres. Therefore, the worth of the ethanol industry will jump by over 500% from around 9,000 crore to over 50,000 crore.