Ugar Sugar Works Ltd Management Discussions

Global Development:

The global sugar balance for the 2024-25 season highlighting a significant shift in the global supply- demand outlook. According to the latest update, ISO forecasts a substantial global sugar deficit of 5.466 million tonnes — an increase of 0.585 million tonnes since the February estimate. This marks the largest deficit in nine years, tightening global sugar supplies.

Global sugar production for the 2024-25 season projected at 174.795 million tonnes, representing a decline of 6.469 million tonnes compared to the previous season.

Industrial Structure and Development:

Overall sugarcane production in 2024-25 is estimated to be at 439.9 MMT. A general decreasing trend in sugarcane production has been witnessed across the past three years. Sugarcane production in current year has reached the 2021-22 level of production.

India is the second largest producer of sugarcane and largest consumer of sugar in the world. India produces 19 per cent of the worlds sugar while contributing 16 per cent to world sugar consumption. Domestic sugarcane production is expected to decline from 453.16 MMT in 2023- 24 to 439.9 MMT in 2024-25. While domestic sugar production is expected to decline to 33.3 MMT in SY 2024-25 from 34 MMT in SY 2023-24. Post consideration of sugar diversion towards ethanol production, net sugar production is expected to stand at 29.3 MMT. The area sown under sugarcane has seen a marginal increase. Which stands in contrast to the trend of decrease in sugarcane production.

Sugar production is expected to decrease from 34 MMT in SY 2023-24 to 33.3 MMT in SY 2024-25. Diversion under Ethanol Blending Programme (EBP) is expected to increase form 2 MMT to 4 MMT in SY 2024-25. Sufficient availability of sugar will ensure a comfortable stock for domestic consumption and increase stocks.

Ethanol Blending Programme (EBP)

Molasses is derived from manufacturing sugar. It is a byproduct of sugarcane. Molasses is used to manufacture ethanol; ethanol is used in the automotive industry as a fuel additive and used to produce alcoholic beverages in spirit industry.

A significant increase in ethanol supply for ESY 2024-25 can be seen compared to ESY 2023-24. Increased blending targets from 13.8 per cent to 20 per cent are the prime reason. Blending will be further supported by the recent government decision to lift cap on diversion of sugarcane (and related byproducts) towards ethanol production.

In line with the increasing importance of sugar in the energy sector, the premier sugar industrial association - Indian Sugar Mill Association has renamed itself to Indian Sugar and Bio energy Manufacturing Association in Dec-2023

Sugar Export:

Exports, which showed an increasing trend till 2022-23, have decreased substantially. In the current FY, 1.8 million tonnes of sugar have been exported, earning 1.1 billion USD. The reason for the drop in exports post FY 2023-24 was the exports restrictions put in place in May-2022. These restrictions have been periodically extended and are the primary reason for low sugar exports.

Trade policy for sugar in the past year has not seen any major changes. In January- 2024, the government imposed 50 per cent export duty on molasses. This is done to ensure sufficient supply of molasses for ethanol blending.

Government Initiatives impacting the Sugar Industry

The sugar industry is impacted by several government initiatives both directly and indirectly. Some initiatives are:

a. Sugarcane variety: The Government released four high yielding climate resilient sugarcane varieties on 11th August 2024. Among the four-sugarcane variety: Karan 17 (Co 17018) with yield of 91.5 tonnes/ha, IKSHU-16 (CoLK 16202) with yield of 93.2 tonnes/ha has been recommended for cultivation in states of Uttar Pradesh, Haryana, Punjab, Rajasthan, and Uttarakhand. If adopted, these sugarcane variety will help increase overall yield and production.

b. Efficiency through Farm mechanization: Farm mechanization is crucial for agriculture as it helps in reducing cost of cultivation. In sugarcane cultivation, human labour constitutes 52.5 per cent of the total cost of production. Scheme such as Sub-Mission on Agricultural Mechanization (SNAM), will have a direct impact on the reducing the overall human cost while further increase the profitability of the sector.

c. Global Biofuel Alliance: In September-2023, Government of India launched the Global Biofuel Alliance to promote the development and adoption of sustainable fuels 10. Recently, on the sideline of G20-Brazil, India and Brazil agreed to cooperate on technology exchange, share regulatory & policy experience and leverage ethanol production from all sources. This will benefit the sugar industry both in India and world by developing a framework for adoption of ethanol. It will also help in dealing with the issue of climate change while providing income security and promoting just transition.

d. International Sugar Organisation: In 2023, India became the Chair of International Sugar Organisation for 2024. The Chair will provide India a platform to bring together member countries to adopt sustainable practices in sugarcane cultivation, promote ethanol production and utilisation of by-products. Technical collaboration by sharing latest technologies and best practice is being carried out by National Sugar Institute-Kanpur with member countries - Indonesia, Nigeria, Egypt.

e. Improving Financial Health of Sugar Mills: Government has proposed the formulation of a comprehensive five-year plan to boost the financial capacity of sugar mills, with a target funding to 25,000 crores spread across five years. This will help improve financial health and support longterm development of sugar mills.

Challenges

a. Pricing: MSP has not been revised since 2019. Industry is urging the government to revise the MSP to ? 39 per kg. Further Industry, is also requesting the price of ethanol derived from sugar byproducts to be revised upward.

b. Farm Labour: Human Labour constitutes 52 per cent of the total sugarcane cultivation cost. Any reduction will directly impact the total cost of cultivation. Increased farm mechanization may help reduce the cost of cultivation.

c. Water Requirement: Sugarcane is a highly water intensive crop and has been the prime reason

for groundwater depletion in North and Northwestern states. Increase in sugar production and adoption of high yield varieties may further exacerbate the issue.

d. Industrial Alcohol: In October 2024, Supreme Court upheld States power to regulate industrial alcohol. This may provide state government the ability to tax industrial alcohol.

Segment-wise Performance: Sugar:

During the Current Year the Company has crushed 19.81 Lakh MT of sugar cane from both Ugar and Jewargi unit (as against 20.87 Lakh MT during the previous year) and produced 12.84 Lakh QTLs of sugar (as against 15.11 Lakhs QTLs of sugar during the previous year) at the recovery of 10.75% and 8.80% respectively for Ugar and Jewargi unit.

Industrial and Potable Alcohol:

The company has produced 942.24 Lakh BLS of Industrial and Potable Alcohol during the year (against the last years production of 754.87 Lakh BLS).

Co-generation (Ugar & Jewargi):

We have generated 1471.30 Lakh kW power during the year at Ugar and Jewargi Unit (as against 1,658.49 Lakh during the previous year) and have exported 508.56 Lakh KW of power during the year (as against 748.83 Lakh KW during the previous year). We have supplied power to the exchange through PTC India Ltd.

Adequacy of Internal Control:

The Company has a proper and adequate system of internal control to ensure that all assets are safeguarded and protected. The Internal Auditor submits a report covering almost all the areas of operations.

Human Resources Development:

The Company provides regular training and all-round exposure to the employees and staff. The Company has a well-equipped township with recreational facilities such as a clubhouse, playground, swimming pool, gymnasium, etc. The Company also operates a Cooperative Society, Hospital, School, and College for the benefit of the workers and the general public.

Workforce related information is available in BRSR Report.