Suraj Industries Ltd Management Discussions

SPIRITS INDUSTRY IN INDIA

Indias spirits industry offers significant structural growth potential, supported by a large legal-drinking-age population, rising incomes, urbanisation, increasing socialisation and premiumisation. Spirits dominate Indias Alcoholic Drinks Market, both in volume and value terms, accounting for more than 82% market share, reflecting strong cultural preference and established domestic production. Whisky alone accounts for nearly two-thirds of all spirits sales in India, making it the largest alcoholic beverage category nationwide. ^[1]

Within the spirits segment, IMFL and Country Liquor continue to offer significant market opportunities, supported by established consumption patterns and a large domestic consumer base. Volumes are projected to continue growing over the medium to long term, although the pace of growth is expected to vary across categories and geographies. The market will, however, remain sensitive to State- specific excise policies, taxation, regulatory requirements, product pricing and changing consumer behaviour. Companies with efficient manufacturing and bottling capabilities, strong compliance systems and the ability to respond to evolving market requirements are expected to be well positioned to participate in the growth of the Indian AlcoBev sector.

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OPPORTUNITY & RISK

OPPORTUNITIES:

a. Growing AlcoBev Market: Increasing consumer demand for alcoholic beverages presents opportunities for business expansion and revenue growth.

b. Capacity Expansion: The Companys expanding manufacturing and bottling infrastructure provides opportunities to increase production volumes and cater to growing market demand.

c. Product Portfolio Expansion: Opportunities exist to expand the product portfolio across various segments of the alcoholic beverages market, including Country Liquor and IMFL.

d. Contract Manufacturing & Franchise Opportunities: The Company can leverage its manufacturing capabilities through contract manufacturing and franchise arrangements with established industry participants.

e. Geographical Expansion: Expansion into new markets and strengthening the Companys presence across existing markets can provide additional avenues for growth.

f. Own Brand Development: Development and strengthening ofthe Companys own brands can support improved market positioning and long-term business growth.

RISKS AND CONCERNS

a. Regulatory and Excise Policy Risk: The alcoholic beverages industry is highly regulated and is subject to various excise, licensing, taxation, pricing and other statutory requirements. Any adverse change in applicable laws, regulations or government policies may impact the Companys operations and financial performance.

b. State-wise Prohibition Risk: The business of potable liquor is subject to the policies of respective State Governments, as alcoholic beverages are a State subject under the Constitution of India. Prohibition or restrictions on the manufacture, sale and consumption of alcoholic beverages in certain States, such as Gujarat and Bihar, may restrict legitimate market opportunities and adversely affect the Companys business prospects.

c. Raw Material and Input Cost Risk: Volatility in the prices and availability of key raw materials, packaging materials, fuel and other inputs may increase production costs and adversely affect margins.

d. Market and Competition Risk: The Company operates in a competitive market and faces competition from established players, regional manufacturers and other brands, which may impact market share and pricing.

e. Product and Consumer Preference Risk: Changes in consumer preferences, consumption patterns and market trends may affect the demand for particular products and require the Company to continuously adapt its product portfolio.

f. Operational Risk: The Companys manufacturing and bottling operations are dependent on the availability and efficient utilisation of production facilities, utilities, manpower, logistics and other operational resources.

g. Reputation and Product Quality Risk: Product quality, regulatory compliance and responsible business practices are critical to maintaining consumer confidence and the Companys reputation. Any quality-related issue or non-compliance may adversely affect the business.

h. Geographical and State-specific Risk: The Companys operations and market opportunities may be affected by differences in state-wise regulatory frameworks, distribution systems, taxation and market conditions. ^i.

i. Financial and Working Capital Risk: Changes in business volumes, input costs, receivables and funding requirements may affect

the Companys working capital position and liquidity.

j. Business Continuity Risk: Unforeseen events, including disruptions in supply chains, manufacturing operations, logistics or utilities, may affect production and timely fulfilment of business requirements.

COMAPANY OVERVIEW

Suraj Industries is sharpening its focus on the alco bev business, with core business comprising the processing, manufacturing and bottling of Liquor. During FY2025-26, the Company discontinued its trading operations in edible oils and other commodities, allowing greater focus and resources to be directed towards the AlcoBev business. The strategic direction is increasingly centred on three levers: expanding manufacturing scale, deepening relationships with established industry players and building backward integration through ENA production.

a) Liquor Business

The Liquor Business continues to be one of the Companys core business segments and remains a significant contributor to its operational performance. During the year, the Company continued to strengthen its presence in this segment through contract manufacturing, brand development, and capacity expansion initiatives.:

-Processing and Bottling of Rajasthan Made Liquor (RML): The Company undertakes the processing and bottling of Rajasthan Made Liquor (RML) on a contract manufacturing basis for M/s Rajasthan State Ganganagar Sugar Mills Limited (RSGSM), a Government of Rajasthan undertaking, which enjoys the exclusive wholesale rights for Country Liquor and Rajasthan Made Liquor within the State of Rajasthan. Through this long-standing business arrangement, the Company continues to leverage its manufacturing capabilities while ensuring adherence to the prescribed quality and regulatory standards.

-Manufacturing and Marketing of Proprietary Brands: The Company also manufactures and markets Country Liquor under its own proprietary brands, thereby strengthening its presence in the Rajasthan market and expanding its brand portfolio. This strategic focus on proprietary brands enables the Company to enhance brand recognition, broaden its customer reach, and create long-term value for its stakeholders.

-Bottling Operation at Mandore, Rajasthan: The Company continues to operate its fully automated liquor bottling unit at the premises of Rajasthan State Ganganagar Sugar Mills Limited (RSGSM), located near Railway Station, Mandore, Jodhpur, Rajasthan - 342006. The facility has an installed bottling capacity of 2,200 cases per day, with each case comprising 48 bottles of 180 ml, and plays a significant role in supporting the Companys contract manufacturing operations while contributing to its operational efficiency, revenue generation and profitability.

b) Trading Business

The Company has discontinued its trading business and intends to focus its efforts and resources on strengthening, consolidating and expanding its liquor operations. The Company believes that this focused approach will enable it to leverage its existing capabilities and infrastructure and pursue sustainable growth opportunities in the liquor business.

During the Financial Year 2025-26, the Company made a strategic investment by acquiring a 20.01% stake in VRVFoods Ltd., a leading manufacturer of Country Liquor in the State of Himachal Pradesh with an estimated market share of approximately 30%. The Company proposes to subsequently increase its shareholding in VRV Foods Ltd. to 50.03%, upon which VRV Foods Ltd. would become a subsidiary of the Company. This strategic acquisition is expected to further consolidate the Companys presence in the alcobev sector and strengthen its position in the Country Liquor segment.

CARYA CHEMICALS & FERTILIZERS PRIVATE LIMITED ("CARYA")

As at March 31, 2026, the Company had one unlisted material subsidiary, M/s Carya Chemicals & Fertilizers Private Limited ("CARYA"). As on the date of this Report, the Company holds 96.06% of the equity share capital of CARYA.

CARYA is engaged in the processing and bottling of Indian Made Foreign Liquor (IMFL) and Country Liquor through its manufacturing unit located at SP 1-2, RIICO Industrial Area, Guwadi & Majhari, Block Shahbad, District Baran, Rajasthan - 325217. The Company undertakes manufacturing and bottling activities for its own brands as well as under contract manufacturing arrangements with established players in the Indian alcoholic beverages industry.

CARYA has entered into contract manufacturing arrangements with Allied Blenders and Distillers Limited ("ABD") and Radico Khaitan Limited ("RKL") for the manufacture and bottling of their IMFL brands. Under these arrangements, CARYA is engaged in the manufacture and bottling of Iconiq White and Officers Choice brands of ABD and 8PM brand of RKL.

The construction of 125 KLPD grain-based distillery for the manufacture of Extra Neutral Alcohol (ENA) set up by CARYA has been completed. All approvals and licences have been received and unit is likely to commence commercial operations in September, 2026. .

The commissioning of the distillery is expected to strengthen CARYAs integrated manufacturing capabilities, enhance operational efficiencies and support the long-term growth and diversification of its business.

In addition to its existing IMFL and Country Liquor manufacturing and bottling operations, CARYA holds licences for setting up a 12 lakh hectolitre brewery and a 125 KLPD ethanol plant. These projects are expected to further expand CARYAs manufacturing capabilities and strengthen its presence in the alcoholic beverages and allied manufacturing sector.

Pursuant to Regulation 16(1)(c) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Company has adopted a Policy for Determining Material Subsidiaries, which lays down the governance framework for material subsidiary companies.

ASSOCIATE COMPANIES

Shri Gang Industries and Allied Products Limited ("Shri Gang")

M/s Shri Gang Industries and Allied Products Limited ("Shri Gang") was an Associate Company of the Company within the meaning of Section 2(6) of the Companies Act, 2013 during the financial year under review. As on March 31, 2026, the Company held 20.02% of the equity share capital of Shri Gang and, accordingly, Shri Gang was classified as an Associate Company of the Company.

Subsequent to the close of the financial year, the Companys shareholding in Shri Gang was reduced from 20.02% to 18.83% on June 06, 2026. Consequently, Shri Gang ceased to be an Associate Company of the Company under the provisions of the Companies Act, 2013 with effect from June 06, 2026.

Shri Gang is engaged in the manufacture of Indian Made Foreign Liquor (IMFL), Scotch Whisky and Extra Neutral Alcohol (ENA). It has entered into an exclusive manufacturing arrangement with United Spirits Limited (Diageo) for the manufacture of premium IMFL and Scotch Whisky in the State of Uttar Pradesh. Shri Gang also owns brands such as Golden Cascade and Bulldozer. These strategic business arrangements provide operational stability and strengthen Shri Gangs position in the alcoholic beverages and ENA manufacturing industry.

VRV Foods Limited ("VRV")

During the financial year 2025-26, the Company entered into a Share Purchase Agreement for the proposed acquisition of up to 50.03% of the equity share capital of VRV Foods Limited ("VRV"), with the objective of making VRV a subsidiary of the Company upon completion of the proposed acquisition.

The proposed acquisition, being a material related party transaction, was approved by the Audit Committee and the Board of Directors on February 07, 2026, and subsequently approved by the Members of the Company at the Extra-Ordinary General Meeting held on March 06, 2026.

Pursuant to the aforesaid approvals, the Company completed the acquisition of 22,50,000 equity shares of VRV from the promoter group persons/entities on March 09, 2026, at a purchase consideration of ^66 per equity share, aggregating to ^14.85 crore, out of the total 56,25,400 equity shares approved for acquisition.

Consequent to the said acquisition, the Companys shareholding in VRV increased to 20.01% of the paid-up equity share capital with effect from March 09, 2026. Accordingly, VRV became an Associate Company of the Company within the meaning of Section 2(6) of the Companies Act, 2013 and the applicable provisions of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

VRV is engaged in the business of manufacturing and bottling of country liquor and operates a bottling plant at Sansarpur Terrace, District Kangra, Himachal Pradesh. The company has established a strong marketing and distribution network across the State of Himachal Pradesh and, over the years, has emerged as one of the leading manufacturers of country liquor in the State.

The business of VRV is strategically aligned with the Companys existing liquor business and is expected to provide operational and strategic synergies through expansion of the Companys presence in the alcoholic beverages segment. VRV has established a significant market presence in the country liquor segment in Himachal Pradesh, supported by its flagship brand, "VRV Santra".