Sona Machinery Ltd Management Discussions

industry Overview

Indias agro-processing and ethanol machinery ecosystems are undergoing rapid structural transformation. The Government of Indias policy impetus under the National Biofuel Policy, including the 20% ethanol blending target by 2025, is catalysing a strong pipeline of distillery projects. As a result, demand for integrated ethanol distillery machinery and advanced process technologies is set to accelerate.

India remains the worlds largest exporter of rice, which sustains a robust requirement for efficient, modern rice-milling equipment. Rising consumption, urbanisation and competitiveness are compelling millers to adopt technology-led, cost-efficient and energy-conserving solutions.

A notable market shift is the preference for sustainable manufacturing and automation. Customers increasingly seek complete plant solutions rather than fragmented machinery supply. This trend aligns with Sona Machinerys strength in delivering end-to-end EPC solutions, encompassing Engineering, Procurement and Commissioning.

Company Performance (FY 2024-25)

During the year, the Company executed a calibrated realignment of its ethanol segment to broaden the customer base and reduce client-concentration risk. While this shift moderated revenue versus FY 2023-24, Sona Machinery secured prestigious mandates from marquee clients such as Oasis distillery, SPAC Starch reflecting rising confidence in our technical depth and execution credibility.

The rice-milling machinery portfolio remained resilient, supported by steady domestic demand and healthy traction in export markets. Focused initiatives on margin enhancement through prudent negotiations, disciplined procurement, and operational rigour supported healthy profitability despite revenue moderation.

The Company also invested in product development to strengthen its technological edge. In-house design and development of the Pre-Mesher/Shifter progressed well, reinforcing a pipeline of innovative, efficient and cost-effective solutions for customers.

Strategic Initiatives

a) Post-Listing Progress: Following the successful listing on NSE Emerge (SME platform) on March 11,2024, the Company has gained heightened visibility, stronger governance scaffolding and enhanced credibility with customers, vendors and investors.

b) Capacity Expansion: Work is advancing on a new, state-of-the-art manufacturing facility that will augment production capacity, optimise the supply chain and enable faster execution of large, complex projects.

c) Flour Mill Division: Diversification into flour-milling machinery complements leadership in rice-milling and ethanol equipment. This strategic addition is expected to temper cyclicality and address growth in packaged foods and flour markets.

d) Product Innovation and R&D: Strengthened internal R&D drove progress on the Pre-Mesher/Shifter and related innovations focused on higher throughput, accuracy and energy efficiency. Continuous innovation remains central to competitive positioning.

e) Human Capital: The Company strengthened its execution backbone by onboarding seasoned professionals across engineering, project management, and customer service, deepening organisational capability and agility.

Board Update

After the close of FY 2024-25, Mr. Narender Kumar rejoined the organisation as a non executive director.

Industry Legacy: Active in agro-processing since 1995, he founded Sona Foods India in 2003, laying the groundwork for what is now Sona Machinery Limited.

Visionary Contribution: His technical acuity and customer-first approach enabled bespoke rice-milling and ethanol plant solutions, positioning the Company among Indias respected OEMs.

Future Direction: With his return, the Company anticipates leveraging his valuable experience to further strengthen and enhance the capabilities of the management team.

Risks and Concerns

Policy and Regulatory Risk

Context: Ethanol EPC depends on biofuel policy, blending targets, pricing mechanisms, and regulatory approvals. Adverse policy changes or approval delays can affect project velocity.

Mitigation: Diversify across rice, flour, and allied agro-processing segments to reduce dependence on a single policy framework. Maintain policy monitoring and scenario planning.

Commodity and Input Cost Risk

Context: Steel, motors, and engineered components form a material share of project cost. Price volatility, supply disruptions, geopolitics and currency movements can pressure margins.

Mitigation: Long-term vendor partnerships and procurement contracts, selective use of price-variation clauses, and continuous design optimisation and operational efficiency to offset volatility.

Project Execution Risk

Context: Turnkey EPC mandates carry schedule, cost and quality risks that may impact profitability and client relationships.

Mitigation: Robust in-house execution with experienced engineers and project managers. Digital project monitoring, milestone controls and defined escalation protocols. Repeat business from reputed clients evidences delivery reliability.

SME Listing and Liquidity Risk

Context: SME-platform listings can have lower secondary-market liquidity than main-board peers, which may constrain broader institutional participation and increase price volatility.

Mitigation: Strengthen investor confidence through transparent disclosures, consistent performance, and proactive engagement. Evaluate migration to the Main Board as scale and eligibility mature.

Competition and Market Risk

Context: The agro-machinery and ethanol EPC landscape includes domestic and international players with aggressive pricing and new technologies.

Mitigation: Differentiate through custom-engineered solutions, superior quality, responsive after-sales service and ongoing R&D. Deepen strategic client relationships to raise switching costs.

Outlook

Ethanol Opportunity: The policy thrust toward 20% ethanol blending is sustaining a robust project pipeline supported by incentives and financing access. With established EPC credentials and marquee customers such as Zuari and Olam, the Company is positioned to consolidate leadership in ethanol EPC.

Modernisation of Milling: Rice, flour and grain milling in India is modernising to meet global standards and reduce losses. The flour-milling division, alongside established rice-milling and ethanol machinery, enables cross-selling and reduces cyclicality. In-house innovations such as the Pre-Mesher/Shifter support higher efficiency and automation.

Exports: Indian agro-machinery is gaining global recognition for reliability and customisation. The Company anticipates increased traction across Africa, Southeast Asia and the Middle East, which should diversify revenue and temper domestic cyclicality.

Capacity and New Products: The upcoming manufacturing facility will expand capacity, compress delivery timelines, and support simultaneous product lines. Ongoing R&D will introduce advanced, energy-efficient, automation-enabled solutions tailored to evolving customer needs.

Margin Strength and Professionalisation: Alongside growth, the Company is pursuing margin accretion through sharper commercial terms, optimised procurement and process excellence. Continued professionalisation across leadership and technical roles embeds world-class practices while preserving entrepreneurial agility.

OPPORTUNITIES AND THREATS OPPORTUNITIES

S.no. Particulars	Area	Analysis
1. Growing Demand	Global Population Growth	Trend Analysis: According to the UN, the global population is projected to reach 9.7 billion by 2050. This growth will increase demand for staple foods, including rice.
		Market Expansion: Companies can expand into emerging markets with high population growth rates, such as Southeast Asia and Sub-Saharan Africa, to capitalize on rising demand.
	Upgrading & replacing old setup	With the new generation entering the rice milling business, there is a clear shift from traditional setups to modern, automated rice mills. Leveraging its expertise, Sona Machinery Limited is well positioned to capture this demand and has already established its Electrical Panel and Automation division to serve the industrys future needs.
	Government Push for Ethanol:	Policy Impact: The Indian governments target to blend 20% ethanol with gasoline by 2025 creates substantial growth opportunities for ethanol distilleries..
		Partnerships: Collaborating with government agencies and participating in public-private partnerships can provide addit onal funding and resources.
S.no. Particulars	Area	Analysis
2. Government Support	Food Processing Initiatives	Investment Programs: Various countries have launched programs to modernize food processing infrastructure. For instance, the Indian governments Pradhan Mantri Krishi Sinchai Yojana aims to improve irrigation efficiency.
		Subsidies and Grants: Utilize government subsidies and grants for upgrading machinery and expanding production capabilities. Ensure to stay updated on eligibility criteria and application processes.
	Renewable Energy Policies:	Incentives for Biofuels: Look for tax credits, production subsidies, and research grants for biofuel technologies.
		Technology Adoption: Adopt advanced technologies in ethanol production, such as cellulosic ethanol or algae-based biofuels, to benefit from specific incentives.
3. Technological Advancements	Automation and Efficiency	Smart Systems: Integrate smart sensors and machine learning algorithms to monitor and optimize rice milling processes in real-time.
		Maintenance: Use predictive maintenance techniques to reduce downtime and extend equipment lifespan.
	Renewable Energy Innovations	Next-Generation Biofuels: Explore advancements in biofuel production, such as the use of waste materials and agricultural residues to produce ethanol.
		Carbon Capture: Invest in carbon capture and storage (CCS) technologies to meet environmental regulations and improve sustainability.

THREATS

S.no. Particulars	Area	Analysis
1. Climate and Raw Material Risks	Unpredictable Weather Patterns	Risk Mitigation: Develop contingency plans for weather-related disruptions, such as diversifying sources of raw materials and investing in resilient supply chains.
	Raw Material Volatility	Hedging Strategies: Implement financial hedging strategies to manage price volatility in raw materials. Contracts with fixed pricing can stabilize costs.
		Supply Chain Diversification: Source raw materials from multiple suppliers and regions to reduce dependence on any single source.
2. Competition and Technological Risks	Low-Cost Competitors	Differentiation: Differentiate products through superior quality, advanced features, or after-sales services. Emphasize the long-term cost benefits of higher-quality machinery.
		Cost Management: Improve operational efficiency to lower production costs and remain competitive against low-cost manufacturers.
	Technological Changes	Continuous Innovation: Invest in continuous research and development to keep pace with technological advancements. Attend industry conferences and collaborate with research institutions.
		Regulatory Compliance: Monitor changes in regulations and standards. Engage with industry groups to influence policy and stay ahead of compliance requirements.
	Regulatory Challenges	Compliance Strategies: Develop robust compliance strategies to adapt to changing regulations. Maintain a dedicated team for regulatory affairs and legal compliance.
		Advocacy: Participate in industry associations and advocacy groups to influence policy and ensure that regulatory changes are favorable to your business.
3. Economic Factors	Economic Downturns	Flexible Pricing: Implement flexible pricing strategies to adjust to changes in consumer spending and maintain competitiveness.
		Cost Efficiency: Focus on improving operational efficiency and reducing costs to weather economic downturns.
	Exchange Rate Fluctuations:	Currency Hedging: Use currency hedging instruments to manage exchange rate risk and protect profit margins. Local Production: Consider establishing local manufacturing or assembly facilities in key markets to mitigate the impact of currency fluctuations on costs.

OVERALL FINANCIAL PERFORMANCE

Financial Performance FY 2024-25 - Key Flighiights & Outlook

The financial year 2024-25 marked a period of steady revenue performance for Sona Machinery Limited {SML), with revenues remaining in line with the previous year. However, profitability was impacted, with EBITDA and PAT margins declining from 10% to 4%.

This margin pressure was primarily due to two factors:

Broader economic imbalances, which influenced customer decision-making and delayed certain projects.

Strategic choices to onboard a larger base of new customers, which required upfront investments but has significantly strengthened SMLs market position.

Despite this temporary impact, the company achieved several strategic milestones: expanding its customer portfolio with reputed industry names, strengthening its ethanol division, and laying the groundwork for new business lines including Flour Milling, Electrical Panels, and Colour Sorters under the Make in India vision

OUTLOOK

Looking ahead, SML is well positioned to recover and improve margins through:

In-house manufacturing of 80-90% of ethanol division products, reducing reliance on procurement and improving cost efficiency.

Expanding reach across India through a robust dealer and distributor network.

Improved payment terms and working capital discipline, supporting healthier cash flows.

Continued focus on innovation, automation, and customer satisfaction to drive growth across rice milling, ethanol, and diversified agro-processing segments.

Focusing on overseas markets to reduce dependency on domestic economic fluctuations and broaden revenue streams.

With these initiatives, SML is confident of restoring profitability levels and accelerating growth in the upcoming year, while staying true to its commitment of creating long-term value for shareholders and stakeholders. Focusing on overseas markets to reduce dependency on domestic economic fluctuations and broaden revenue streams.

RISKS AND CONCERNS

RICE MILLING
S.no. Particulars	Area	Risk	Analysis
1. Operational Risks	Equipment Downtime	Unexpected machinery breakdowns or maintenance issues can lead to production downtime and reduced efficiency.	Maintenance Scheduling: Implement a regular maintenance schedule to minimize unexpected breakdowns. Predictive Maintenance: Utilize predictive maintenance technologies to anticipate and address potential issues before they cause downtime.
	Skill Shortages	A shortage of skilled technicians and engineers can affect machinery installation, maintenance, and repair.	Training Programs: Develop and offer training programs for current employees and potential hires. Partnerships with Educational Institutions: Collaborate with technical schools and universities to create a pipeline of skilled workers.
2. Financial Risks	Capital Investment Challenges	High capital requirements for upgrading or purchasing new machinery can strain financial resources.	Financing Options: Explore various financing options such as leasing, loans, or investment partnerships. Financial Planning: Develop detailed financial plans and models to assess the impact of capital investments on cash flow and profitability.
	Currency Fluctuations	Fluctuations in currency exchange rates can impact the cost of imported components and machinery.	Hedging Strategies: Use financial hedging tools to manage currency risk. Local Sourcing: Whenever possible, source components locally to reduce exposure to currency fluctuations.
3. Market Dynamics	Competitive Pressure	Increased competition from both local and international manufacturers can affect market share and pricing strategies.	Competitive Analysis: Conduct regular competitive analysis to understand market positioning and adjust strategies accordingly. Brand Differentiation: Focus on differentiating your products through innovation, quality, and customer service.
	Customer Loyalty	Difficulty in retaining customers due to better offers from competitors.	Customer Relationship Management: Implement a robust CRM system to build and maintain strong customer relationships.
			Value-Added Services: Offer additional services such as extended warranties, training, and support to enhance customer loyalty.
4. Environmental Risks	Regulatory Compliance Costs	Costs associated with meeting environmental regulations and sustainability requirements.	Sustainability Initiatives: Invest in sustainable technologies and practices to reduce compliance costs and improve environmental impact. Regulatory Advisory: Engage with environmental consultants to ensure compliance and manage regulatory requirements effectively.
	Waste Management	Inefficient waste management can lead to increased disposal costs and regulatory issues.	Waste Reduction Programs: Implement waste reduction and recycling programs to minimize waste and associated costs. Efficient Processes: Optimize production processes to reduce waste and improve resource efficiency.

ETHANOL DISTILLIERY

S.no. Particulars	Area	Risk	Analysis
1. Operational Risks	Process Efficiency	Inefficiencies in production processes can lead to higher costs and lower output.	Process Optimization: Continuously monitor and optimize production processes to enhance efficiency. Lean Manufacturing: Implement lean manufacturing principles to reduce waste and improve process efficiency.
	Safety and Compliance	Safety incidents or non-compliance with health and safety regulations can lead to legal issues and operational disruptions.	Safety Training: Conduct regular safety training and drills for employees. Compliance Audits: Perform regular audits to ensure adherence to health and safety regulations.
Financial Risks	Revenue Volatility	Fluctuations in ethanol prices and demand can impact revenue stability.	Diversified Revenue Streams: Explore additional revenue streams such as by-products or alternative markets.
			Financial Hedging: Use financial instruments to hedge against price volatility in the ethanol market.
	Investment Risks	High costs of investment in new technology or expansion projects may not yield the expected returns.	Feasibility Studies: Conduct thorough feasibility studies and financial projections before making significant investments. Incremental Investments: Consider phased investments to mitigate financial risk and evaluate returns incrementally.
2. Market Dynamics	Demand Fluctuations	Changes in market demand for ethanol due to shifts in fuel policies or consumer preferences.	Market Monitoring: Regularly monitor market trends and adjust production strategies accordingly. Product Flexibility: Develop flexible production capabilities to switch between different products based on market demand.
	Technological Advancements	Rapid advancements in production technologies may render existing systems obsolete	Technology Upgrades: Regularly upgrade technology to stay competitive and efficient. Innovation Focus: Maintain a strong focus on innovation and integrate new technologies that enhance production capabilities.
3. Environmental Risks	Regulatory Changes	New or changing environmental regulations may impose additional costs or operational adjustments.	Regulatory Forecasting: Stay informed about potential regulatory changes and prepare to adapt operations accordingly.
			Environmental Management: Implement robust environmental management systems to ensure compliance and reduce the risk of violations.
	Sustainability Concerns	Increasing pressure from stakeholders for sustainable practices and reduction of carbon footprint.	Sustainable Practices: Adopt sustainable production practices and seek certifications to demonstrate environmental responsibility.
			Stakeholder Engagement: Engage with stakeholders to understand their sustainability expectations and incorporate them into business practices.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The company has implemented a comprehensive internal control system designed to ensure the accuracy of financial reporting, compliance with regulatory requirements, and the safeguarding of assets. These systems are regularly reviewed and updated to align with the latest industry standards and best practices. The internal audit team conducts periodic reviews to assess the effectiveness of these controls and recommends improvements where necessary. The company is also leveraging digital technologies to enhance the efficiency and reliability of its internal controls, particularly in areas such as inventory management, procurement, and financial reporting.