Sukhjit Starch & Chemicals Ltd Management Discussions

Annexure ‘A to the Directors Report

Economic overview

Global economy

During FY 2023, the global economy faced significant challenges including geopolitical tensions, supply chain interruptions, and weakened global trade. These factors aggravated existing problems, but global risks and uncertainties are slowly becoming more manageable. In FY 2023 the global economy grew at 3.2% despite these challenge1 . Interest rates were raised in several major economies to counter inflation which peaked in FY 2022. The Global inflation rate for FY 2023 was 6.8%. Prolonged geopolitical tensions, particularly in the Middle East have adversely impacted supply chains and global trade. Investment declined in FY 2023 reflecting diminished enthusiasm among businesses for expansion.

Outlook

The global economy is expected to rebound in growth due to declining inflationary pressures. It is also expected to facilitate a more accommodating financial environment. However, countries must remain vigilant in monitoring and implementing effective monetary policies to keep inflation under control. Emerging markets and developing economies (EMDEs) are expected to grow in the coming years. Moreover, targeted and strategic structural reforms by economies are anticipated to stimulate investments and foster business expansion.

Indian economy

India is one of the worlds fastest-growing economies, demonstrating remarkable resilience amidst a volatile global landscape. Backed by robust macroeconomic fundamentals, India has emerged as a powerhouse economy. In FY 2024, the Indian economy recorded a GDP growth of 8.2%, as per National Statistical Office (NSO). This growth has been propelled by rising income levels, leading to increased private consumption. Strong private consumption has played an important role in shielding the domestic economy from global uncertainties, geopolitical concerns, and sluggish global economic activity. Notably, the countrys gross Goods and Services Tax (GST) collection reached a total of Rs. 20.18 lakh2.

The Reserve Bank of India (RBI), with its timely and effective monetary policy interventions, has significantly contributed to sustaining Indias positive growth trajectory. Concurrently, the Government of India has fostered a conducive environment for investors, attracting substantial Foreign Direct Investment (FDI) inflows. In FY 2024 alone, India attracted FDI inflows totalling USD 17.96 billion3.

Outlook

The prospects for Indias economy are promising and upbeat. As inflation rates decline, economic activity is anticipated to bounce back, thereby fostering overall growth. The Government of India is implementing policies and programmes aimed at holistic development, to transform India into a developed economy by FY 2047. This growth trajectory creates optimism about the Indian economy. Furthermore, the normal rainfall forecast by the Indian Meteorological Department (IMD) from June to September is expected to boost the countrys agricultural production.

Industry overview

Global starch industry

The global industrial starch market has demonstrated consistent growth over time, experiencing a significant increase in FY 2023 by USD 1.5 billion. The United States and China are leading manufacturers of starch worldwide. Furthermore, the growing preference for biodegradable plastics, aimed at promoting sustainability, has fuelled the demand for starch in global markets. The widespread availability and cultivation of corn on a global scale ensure a steady supply of raw materials for the starch industry. Industrial starch, derived from sources such as rice, wheat, potato, tapioca, and maize, plays a pivotal role in this market. As of FY 2023, the global industrial starch industry is valued at USD 57.9 billion, projected to grow at a Compound Annual Growth Rate (CAGR) of 3.4% from 2023 to 20285. Notably, North American markets have significantly contributed to the expansion of the global industrial starch market.

Outlook

The global starch market is set to expand significantly, driven by increasing demand from the Food and Beverage industry. Technological advancements in starch processing and the development of innovative starch-based products like biodegradable plastics will further fuel market growth. The global starch industry is expected to thrive, driven by ongoing innovations that cater to evolving consumer needs and preferences.

Indian starch industry

Starch and its derivatives find extensive applications across various sectors including chemicals, agriculture, medical, and cosmetics industries. Indian starch market has

1. Diverse application

Starch has a wide range of applications across many industries, and this brings significant opportunity for the industry. Diversified application of starch will help in expansion and innovation across all sectors contributing to the long-term sustenance of the businesses.

2. Abundant availability of raw material

In India, the production of maize crops in FY 2024 reached 34.6 million tonnes8. The surplus production of maize can be utilised by the starch industry, offering growth opportunities.

3. Industrial application of starch

Starch-based products find sizeable applications in industries such as textiles and biodegradable packaging offering significant growth potential to the industry.

Outlook

The Indian starch industry is on track for further expansion in the coming years. With starch finding diverse applications and Indias overall economic activity on the rise, the industry is set to capitalise on this growth trajectory. With the increasing population, urbanization, and consumer spending, there is going to be a substantial growth in the end-use industries. This will further boost the demand for starch and starch derivatives. Overall, the industry is set for a sustainable growth both in the medium and long term. reached a size of over 4 millon tons in 2023. The market is projected to grow at a CAGR of 6.31% over 2023-2032 reaching a size of 11.1 Million tons by 20327.

The growth of the starch industry in India is driven by several factors including increased demand in the food and beverage sector, expansion in the pharmaceutical industry and the growth of the textile industry. At present there is too low per capita consumption of starch in India viz-a-viz the neighbouring countries like China. Moreover, the market is significantly influenced by import-export dynamics. Exports play a key role in contributing to the growth of the Indian starch market, with companies leveraging international markets to drive expansion and profitability.

Challenges

1. Raw material price

The starch industry is considerably impacted by the volatility in the price of raw materials such as maize. These fluctuations impact business as increased output costs lead to higher pricing, thereby consequently reducing profit for the starch industry.

2. Change in climate pattern

The starch industry in India faces challenges which directly affect the productivity of raw materials including maize. With visible shifts in climatic patterns, this phenomenon can undermine the true potential of the industry.

Company Overview

Sukhjit Starch and Chemicals Limited (Sukhjit) is an agro-processing Company specialising in the production of starch and its derivatives. Established in 1943 in Punjab by visionary entrepreneurs, Sukhjit is the oldest and one of the largest producers of starch in India. Sukhjit prioritises quality in its operations, starting with an initial capacity of 1800 metric tonnes per annum (TPA) of corn grind. Over the years, the Company has expanded its capacity to approximately 550000 TPA of corn grind across four manufacturing locations in India. Sukhjit also maintains impeccable credit ratings, with CRISIL A1 (A One) for short-term debts and CRISIL A+/STABLE for long-term debts. With over 75 years of technical expertise, Sukhjit specialises in producing a range of products including Native Starch, Modified Starch, Dextrines, Liquid Glucose, HMS, Malto-Dextrin, Anhydrose Dextrose, Mono-Hydrate Dextrose, Sorbitol-70% Solution and other by-products. These products find applications across diverse industries such as food and beverages, personal care, pharmaceuticals, textiles and FMCG (Fast-Moving Consumer Goods).

Key highlights of the Company for FY 2024

Growth drivers

1. Cutting-edge R&D facility

The Company has strong R&D facilities to drive innovation across its process. Innovation is vital for meeting client needs effectively and serving them better. Leveraging these capabilities allows the Company to remain ahead of the curve and introduce new products, expand its market presence and attract a wider customer base, thus sustaining its competitive edge.

2. Large client base

Sukhjit serves an extensive customer base, thereby diversifying its revenue-earning potential. It also enables the Company to consistently improve its offerings and focus on introducing products that are aligned with evolving market demands. It facilitates customer retention and enhances brand reputation.

3. Diverse product portfolio

Sukhjit has diverse product portfolio comprising Maize Starch & its derivatives like Sorbitol, Dextrose Monohydrate, Dextrose Anhydrous, Malto Dextrin Powder, Liquid Glucose etc. which find usage and cater to large spectrum of Industries in areas such as food & beverages, paper & board, personal care & pharmaceuticals, textile, FMCG etc. Its other co-products like Maize Gluten, Maize Germ, Maize Oil and Maize Bran, are used as poultry feed / cattle feed. It helps the Company diversify its revenue stream and mitigate risks associated with evolving user demands.

4. Environmental sustainability

Sukhjit remains committed to improving its contribution towards a sustainable future by increasing investments in advanced facilities for generating energy from biodegradable waste. The initiatives undertaken by the Company towards environmental protection will help the Company to be in alignment with its sustainability goals.

5. Experienced workforce

The Companys management has extensive experience in the starch industry, with deep insights into market trends, regulatory requirements and customer preferences. Additionally, the workforce is highly experienced and plays an integral role in the Companys success.

Human resource

The Companys workforce plays a pivotal role in its success. It, therefore, strives to create a conducive working environment that promotes professional as well as personal growth. The Company also provides opportunities for training and development, rewards performance and engages in several employee welfare initiatives.

Company accords utmost importance to the quality of human resource and believes that continuous honing of the skills of employees is vital to develop and improve the talent pool of the Company. We follow a systematic plan for training new employees in our facilities at different locations. The inter- locational transfers to employees are encouraged to better and diversify their skill sets. Employees are also sent to attend the seminars/workshops organised by other institutions from time to time to keep pace with the latest technological developments happening in the market place.

Besidesthestatutorybenefitsavailabletotheemployees like provident fund, employees state insurance and gratuity, the Company provides education allowance/ subsidy / free text books to promote the education of the children of the employees, uniform allowance free / subsidized canteen / mess facilities and benefit of supperannuation scheme for the select employees/ key personnel. The Company has a system to take care of any major medical expenditure of the employees / workers in addition to their coverage under Companys group health insurance policies or statutory coverage under the Employees State Insurance Act and so on. It has an effective system in place to take care of the emergency medical requirements of the employees like round the clock ambulance facility, necessary arrangements with the local practitioners / hospitals for emergent / immediate treatment of its employees / workers in case of non-availability of the necessary facility with hospitals covered under ESI Act.

Further, time tested systems and proper preventive measures have been put in place to ensure employees health and safety. The employees / workers are periodically imparted training on safety measures and this aspect has been recognized by the respective State Governments by awarding State Safety Awards invariably to our Units. Periodic medical checkup camps are also organized to ensure good health of the employees. The Company is also open to the direct employment of physically disabled persons with equal rights as per the Rights of Persons with Disabilities Act, 2016. The Company presently has 8 physically disabled employees with varying degrees of disability up to 85% and all the persons are entitled to equal benefits / opportunities as are available to others.

Research and development (R&D)

Research and Development (R&D) is integral to the Companys growth and success. It has a dedicated R&D facility at Phagwara and invested Rs. 64.85 lacs during the financial year to further upgrade its R&D capabilities. At Sukhjit, innovation is at the heart of our operations as we continually strive to be the preferred choice for our customers. Our strong Research and Development (R&D) arm serves as a driving force behind our success, enabling us to stay ahead of the curve.

Our R&D hub, located in Phagwara, acts as a central resource centre for all our units enhancing collaboration and synergy across our organisation. Through our ideas and technologies, we are committed to delivering exceptional products and solutions that meet the evolving needs of our valued customers.

We involve farmer community and educate them on improved agricultural and agronomic practices to promote good quality maize at economic cost. Good quality seeds are also made available to the farmers for maize and other related crops to introduce companion cropping for improving their return.

Corporate social responsibility (CSR)

The Company is committed to making a positive impact on societyandtheenvironmentthroughmeaningfulinitiatives.

Promoting education

Sukhjit has supported the establishment of various educational institutions for students from economically backward sections in rural areas.

Health camps

Sukhjit has collaborated with healthcare providers and other organisations to promote the health and well-being of underprivileged, widows & old helpless people of the society. It also organises regular health care dental checkup camps, eye care / operation camps.

Financial Performance

Particulars	FY 2024	FY 2023
Revenue from operations (in _ crore)	1370.86	1435.25
Other income (in _ crore)	8.28	1.72
Total income (in _ crore)	1379.14	1436.97
Profit before tax (PBT) (in _ crore)	77.12	92.74
Profit after tax (PAT) (in _ crore)	55.62	70.14
Basic Earnings Per Share (EPS) (In _)	35.60	44.90
Diluted Earnings Per Share (EPS) (In _)	35.60	44.90

Key Financial Ratios

Particulars	FY 2024	FY 2023	Variance
1 Debtors Turnover Ratio	16.91	19.17	(11.79)
2 Inventory Turnover Ratio	28.70	52.23	(45.05)
3 Interest Coverage Ratio	3.70	4.82	(23.24)
4 Current Ratio	1.48	1.47	0.68
5 Debt Equity Ratio	0.19	0.24	(20.83)
6 Operating Profit Margin Ratio	7.85	8.23	(4.62)
7 Net Profit Margin Ratio	4.06	4.89	(16.97)
8 Return on Net Worth	10.99	15.43	(28.78)

Notes on Variation

Sr. 1 Due to lower sales

Sr. 2 Due to lower sales & higher inventory

Sr. 3, 8 Due to lower profits

Sr. 5 Due to increase in Net Worth & decrease in Long Term Debt

Sr. 6 & 7 Due to lower margin on sales

Outlook

After a slight dip of about 4% in sales last year, we expect good turnaround this year with increased topline by 12 to 15% on the back of increased production from the part commissioning of ongoing expansion plans and improved demand from FMCG Sector as indian FMCG market ($121.8 billion) is expected to grow at a CAGR of 27.9% to reach $615 billion by 2027 (IBEF Retail Report 2024).

The Margins are also expected to recover due to moderation in the sale prices of most of our products and availability of maize (our basic raw material) at reasonable cost with better crop prospects on the back of good monsoon forecast by the IMD.

Risk management

Sukhjits risk management framework helps us overcome challenges and threats effectively. The Companys approach to risk management emphasises strong corporate governance, proactive risk recognition and solid internal controls to ensure sustainable growth and financial stability.

Risk name	Risk description	Risk mitigation
Climate Risk due to droughts, floods etc.	Basic raw material of the company is an agricultural produce and its production availability and price largely depend on natural vagaries. Hence, a correct strategy or its right implementation is essential for continuous and efficient running of the business. Timing of purchase is also crucial to control the cost of purchase and holding period also plays a vital role to ensure continuous running of plants throughout the year.	The Company has been adopting sustainable practices for raw material procurement. While the strategic locations of the Companys manufacturing units help to mitigate the risk to a larger extent, the holding period also comes down for the units having access to three crops in a year i.e. spring, kharif & Rabbi crops or two crops which are. Kharif & Rabbi.
	Water being a finite resource may pose a risk to the operation of the business.	The Company is making regular efforts to recycle, reuse the treated water achieving substantial reduction in withdrawal of ground water to save and protect as well as conserve the precious water resources.
Water management risks		In addition to the rain water harvesting the company is supplying treated water for irrigation purpose to the surrounding areas through SPV i.e. 100% subsidiary company and also adopting villages to clean and create ponds for better water storage.
		Zero Liquid Discharge (ZLD) facilities at some locations also help us reduce our dependence on ground water resources.
Environmental risk	Environmental factors can impact the Companys operations & supply chain	The Company is conscious of the environmental implications of its operations. Implementation of sustainable practices like water conservation, renewable energy adoption, replacement of fossil fuels with biomass, reduction in carbon foot print, waste management and tree plantation etc. helps to address the risk.
Employee health and safety risk	Employee health and safety includes risks associated with illness, disease and accidents at the workplace. This may lead to decreased productivity as it is of paramount importance to the Company	Time tested systems and proper preventive measures have been put in place to ensure employee health and safety. The employees / workers are periodically imparted training on safety measures and this aspect has been recognized by the respective State Governments by awarding state safety awards on a continuous basis.
Regulatory compliance risks	Non- Compliance with any law or regulation may have financial implications and reputational damage.	The Company is meticulous in complying with all the applicable laws, statutes, regulations. The company enjoys enviable creditability with various regulatory authorities.
CSR risks	Need based assessment done prior to the selection of projects of the organizations for funding to cause upliftment of the poor and needy in the best interest of the society at large. More emphasis has been given on girl education, especially from the rural areas.	The Company has continuously endeavored to remain proactive on this front.
Energy management risks	To conserve energy and reduce carbon foot prints.	The Company has taken extensive measures to conserve energy and is also utilizing alternate sources of energy like generation of bio gas and in turn generating hydrogen from the process effluents / bio gas. Further, the company uses substantial quantity of biomass to reduce its dependence on the fossil fuels.

Internal control systems and adequacy

The company maintains robust internal control current procedures to ensure accurate and timely documentation and reporting of all transactions, as well as protection of assets from unauthorized use or other risks. These internal control systems are further strengthened by an internal audit team overseen directly by the Head of Internal Audit. Management regularly reviews the findings of internal audits and takes appropriate action to address any identified gaps. Additionally, the Audit Committee of the Board meets regularly to discuss important issues (if any) highlighted by both the Internal Auditors and the Statutory Auditors.

Cautionary statement

The Management Discussion and Analysis Report contains forward-looking statements based on data available to the Company, assumptions about economic circumstances, current government policies, and so on. Despite managements ongoing monitoring of market conditions and other factors, the company cannot guarantee the accuracy of its assumptions or future performance. As a result, actual results, performance, or accomplishments may vary significantly from those anticipated in any such forward-looking statement. The Company accepts no responsibility to publicly change, modify, or revise any forward-looking statement based on any later development, information, or event.