upper ganges sugar industries ltd Management discussions

GLOBAL ECONOMY

The global economy stumbled in 2015-16, in the midst of weak cumulative demand, falling commodity prices and increasing financial market volatility in major economies. Average global inflation continued to drop amid persistently subdued economic activity, modest wage growth and lower commodity prices. All these factors weighed on consumer and business sentiment at a time when household consumption, industrial production and demand for exports have already shown signs of easing.

Chinas slowdown also slashed trade and investment in many countries and prompted broader concerns about growth prospects in advanced economies. According to International Monetary Fund (IMF) going forward some of the factors which should be taken into consideration to make economies more efficient include more government stimulus, especially through spending on infrastructure; more extensive monetary policy from central banks; and structural reforms, such as changes in labour and competition policies.

GLOBAL GROWTH

(%)

	Projections
Particulars	2014	2015	2016	2017
World Output	3.4	3.1	3.2	3.5
Advanced Economies	1.8	1.9	1.9	2.0
United States	2.4	2.4	2.4	2.5
Euro Area	0.9	1.6	1.5	1.6
Japan	0.0	0.5	0.5	(0.1)
United Kingdom	2.9	2.2	1.9	2.2
Other Advanced Economies *	2.8	2.0	2.1	2.4
Emerging and Developing Economies	4.6	4.0	4.1	4.6
China	7.3	6.9	6.5	6.2

*Excludes the G7 (Canada, France, Germany, Italy, Japan, United Kingdom, United States) and Euro area countries.

Source: International Monetary Fund (IMF)

INDIAN ECONOMY

India remained one of the fastest growing major economies in the world in 2015-16 and was acknowledged in a bright spot in the global economic development by both, the World Bank and the IMF. The Indian economy drew substantial comfort from prevailing favourable macro conditions in terms of decline in inflation, increase in foreign capital inflows, fairly stable currency, narrowing trade deficit and current account deficit, lower interest rate regime and growth supportive government policies and initiatives.

Inflationary pressures for the country receded during the year. Both CPI and WPI inflation have been at comfort levels and within the target set by the monetary experts. Wholesale Price Index (WPI) contracted for 16th straight month as February 2016 WPI came in at -0.91% y-o-y vs -0.9% y-o-y in January 2016 as inflation in food articles declined in tandem with CPI data. Indias trade deficit has seen noteworthy improvement in 2015-16 with decline in both imports and exports. It came in at a 30 month low (to $6.5 billion) in February 2016. Indian economy demonstrated a lot of resilience in maintaining growth during a time of subsiding global demand, falling commodity prices and weakening growth in emerging economies.

ECONOMIC FUNDAMENTALS

Particulars	2014-15	2015-16
	(actuals)	(estimated)
GDP Growth	7.20%	7.60%
Inflation	5.90%	4.90%
Fiscal Deficit	4.00%	3.90%
Current Account Deficit	1.30%	1.40%
Forex Reserves	$3.41.6 billion	$349.6 billion
Industrial Growth	2.80%	3.10%
Source: Economic Survey 2015-16

INDUSTRY STRUCTURE AND DEVELOPMENT

Global Sugar Industry

According to International Sugar Organization (ISO), the world sugar economy is expected to enter a deficit phase in 2015-16 of 3.527 million tonnes as compared to a surplus of 1.3 million tonnes in 2014-15. This is mainly due to downgrading of production projections for India, the EU and Ukraine which is partially compensated by developed prospects for sugar output in Australia, Russia and Thailand.

Fast facts: Global sugar industry

Sugar is one of the worlds major agro-based industries and is also one of the most actively traded soft commodities on the exchanges

Brazil, India, EU, China and Thailand rank amongst the global producers of sugar

More than 80% of sugar is produced from sugarcane, while the balance is from sugar beet

More than 100 countries around the world rely on sugar from Brazil with key export markets that include the Russian Federation, India, Iran and the United Arab Emirates

Brazil and India are the largest sugar producers from sugarcane and EU and US are the major sugar producers from beet

World Sugar Balance

(mln tonnes, tel quel)

	2015/16	2014/15	Change in min tonnes in %
Production	169.371	171.340	(1.969)	(1.15)
Consumption	172.898	169.160	3.738	2.21
Surplus/Deficit	(3.527)	2.180
Import demand	57.010	55.484	1.526	2.75
Export availability	57.049	55.530	1.519	2.74
End Stocks	81.788	85.354	(3.566)	(4.18)
Stocks/Consumption ratio in %	47.30	50.46

Source: International Sugar Organisation

Global sugar demand and supply

World output is predicted to decline by 1.969 million tonnes in 2015-16 or 1.15% from 2014-15. The world market continued to be effected by the unforeseen changes caused by uncertainties as to how weather, political and currency factors will affect supply and demand. On the supply side, the beet harvest has reached its peak in the Northern hemisphere.

(Source: International Sugar Organisation)

PRODUCTION

According to International Sugar Organization (ISO), the world production is expected to reach 169.371 million tonnes in 2015-16, a decrease of 1.969 million tonnes from 2014-15. This is mainly due to reductions in Brazil, India, the European Union, and Ukraine.

Main Production Falls and Rises in 2015-16

Falls	Changes from 2014-15 in million tonnes	Rises	Changes from 2014-15 in million tonnes
EU	(3.079)	Brazil	+ 1.805
India	(1.200)
Ukraine	(0.800)

Source: International Sugar Organisation

REGIONAL PLAY

Brazils production is forecast to be unchanged at 35.59 million tonnes, up 965,000 tonnes or 2.45% from the previous season as a higher percentage of sugarcane is converted to ethanol. Higher demand in the domestic market is due to the increase of the assigned ethanol blend in gasoline from 25% to 27% and the increase in federal and state taxes for gasoline. Additionally, the state of Minas Gerais, where there is a large fleet of flex-fuel vehicles, has lowered its ethanol tax. Sugar consumption is lower as the economic recession has reduced sales of processed food items. Exports are projected down 200,000 tons to 23.8 million on lower exportable supplies.

Thailands production is predicted to be flat at 10.8 million tonnes as increased area is counterbalanced by a drought-induced yield decrease, with the same amount of cane diverted to ethanol production as last year. Exports are forecast to jump to a record 8.8 million tonnes as stocks are drawn down to meet high demand from fast growing markets such as China and Sudan.

CONSUMPTION

Global consumption is expected to continue rising and reach an estimated 172.898 million tonnes (including a 3.294 million tonnes adjustment for unknown trade). The anticipated growth rate of 2.21% is generally in line with the previous season (2.28%) and the 5-year average (2.15%). Sugar consumption in the long-run is mostly driven by per capita income and population growth.

Geographical Distribution of World Sugar Consumption

	2015-16		2014-15	2013-14		2012-13	2011-12		2010-11
Total consumption
(in 1,000 tonnes, tel quel)
Western and Central Europe	19,134		18,913	18,139		18,678	18.951		18,348
Eastern Europe and as	10,349		10,210	10,119		10,280	10.261		10,298
North America	15,715		15,545	15.679		15,510	15.051		14,843
Central America	3,553		3,476	3.389		3,298	3.216		3,152
	2015-16	2014-15			2013-14	2012-13	2011-12	2010-11
South America	20,172	20,024			19.852	19,601	19.369	19,440
Middle East and North Africa	18,536	17,967			17.384	17,649	17.041	15,947
Far East and Oceania	38,207	37,137			36,036	34,848	33.593	32,150
Indian Subcontinent	33,698	32,640			31,576	30,031	29.527	27,488
Equatorial and Southern Africa	10,241	9,955			9,324	9,532	8.545	8,245
WORLD	172,898	169,160			105,391	164,384	158,034	153,254

 

		5-year average
Annual growth rate in%
Western and Central Europe	1.17	0.93	0.33	(1.44)	3.29	0.54
Eastern Europe and CIS	1 .36	0.90	(1.57)	0.19	(0.36)	0.02
North America	1.09	0.85	1.09	3.05	1.40	0.66
Central America	2.22	2.57	2.76	2.55	2.03	2.01
South America	0.74	0.87	1.28	1.20	(0.37)	1.12
Middle East and North Africa	3.17	3.35	(1.50)	3.57	6.86	2.34
Far East and Oceania	2.88	3.06	3.41	3.74	4.49	2.92
Indian Subcontinent	3.24	3.37	5.14	1.71	7.42	3.04
Equatorial and Southern Africa	2.87	6.77	(2.18)	11.55	3.64	4.68
WORLD	2.21	2.28	0.61	4.02	3.12	2.15

EXIM of sugar

Both export availability and import demand are expected to grow in 2015-16 as compared to 2014-15. Exports may increase as against the level achieved in the previous season on account of higher production in exporting countries as well as releases of stocks. Exporters production is projected to grow by 1.763 million tonnes, while their consumption increase is put at 1.672 million tonnes. Consumption in importing countries is expected to grow by 2.087 million tonnes at 57.010 million tonnes as compared to 55.484 million tonnes in the previous season. China is expected to remain the worlds largest sugar importer with 4.575 million tonnes of sugar expected to enter the country in 2015-16.

World sugar prices

During the year the sugar prices fluctuated in the global market. This was on account of several factors: (i) World consumption exceeded production for the first time in six years which might start to erode the high level of global stocks, (ii) the effect of the El Nino event caused lower rainfall and even drought in sugar producing countries such as South Africa, India, Thailand and Australia. Excessive rain in Brazil caused harvest problems and reduced sugar content in the cane. (iii) A change in Brazilian fuel tax policy caused by increased duty to petrol has stimulated increased demand for cheaper bio ethanol (originating from sugar) for the nations flex-fuel fleet. This in turn averted supply from sugar exports and increased the price.

INDIAN SUGAR INDUSTRY

India is the second largest producer of sugar in the world, producing around 28 million tons of white plantation sugar per annum. Called the growth engine of the rural economy, the sugar industry is ranked as the second largest agro processing industry in the country. During the last few years not only the number of factories in India has increased but also product capacity (TCD) has almost doubled all over the country. Many factories both from private and public sectors are facing bad times due to slump in market. Product diversification adding cogeneration and concentrating on export is the need of the hour. As compared to 366 sugar mills which were working on March 31, 2015, 215 sugar mills continue to crush sugarcane in the current season as on March 31, 2016.

Fast facts: Indian sugar industry

Second largest producer and largest consumer of sugar in the world.

Second largest agro processing industry after cotton, involving over 60 million farmers and dependents.

Unique industry structure with large number of stakeholders including millers, farmers, Government, industrial and retail consumers.

Small average farm size of around 1-2 hectares.

Indian sugar demand and supply

Production

As per Indian Sugar Mills Association (ISMA) Indias sugar production as on March 31, 2016 was 237 lac tonnes, lower by 11 lac tonnes a year ago. The trend indicates a shorter tail of crushing and sugar production this year, as compared to last sugar season. The decline in production is mainly driven by severe drought in the largest sugar producing state, Maharashtra, which impacted sugar cane availability.

Consumption

Indian sugar consumption in 2015-16 is forecast to be at 25 MMT. The input from the states showed that yields in Maharashtra and Karnataka could be impacted due to long dry spells in the sugarcane growing belts.

Export

Indias sugar industry exported more than 1 million tonnes of low-quality whites between October 2015 and March 2016, below the target of 3.2 million tonnes.

REGIONAL PLAY IN INDIA

The state-wise sugarcane production estimates are as follows:-

Maharashtra

Sugar mills have produced 82 lac tons of sugar as against 93.6tons produced during the corresponding period last year. As on March 31, 2016, 58 sugar mills were under operation as compared to 135 sugar mills in 204-15.Most of these sugar mills are operating in Kolhapur, Pune and Sangli Districts which are the main cane belt area and were not so badly affected due to less water availability. Due to drought like conditions, the average recovery in Maharashtra is reported to be slightly lower than last year.

Uttar Pradesh

Sugar mills of Uttar Pradesh produced 65.70 lac tons of sugar up to March 31, 2016 which was 63.4 lac tons

at the corresponding period last season. As against 76 sugar mills operating last year at this time, 48sugar mills are crushing sugarcane now. Due to good weather conditions in the State and substantial improvement in cane varieties and their acreage in the State, the average sugar recovery being reported from U.P. is significantly higher than last year by around 1%.

Karnataka

Sugar production in Karnataka till March 31, 2016 was 40.16 lac tons, as against 42.47 lac tons produced last season on the corresponding period. Of the 51 sugar mills which crushed during 2014-15,15 are working as of now.

Tamil Nadu

In Tamil Nadu, sugar mills have produced 8 lac tons of sugar till March 31, 2016 as compared to 7.53 lac tons produced last year. Almost same number of sugar mills is still crushing sugarcane in Tamil Nadu at the end of March i.e. against 38 sugar mills last year; there are 39 sugar mills under operation currently.

Sugar Price

Domestic sugar prices continued to be influence by both the domestic and international markets. An aggressive sugar export strategy, with declining domestic production continued to mount pressure on domestic prices. Other factors include weather pattern like weak monsoon rains, El Nino phenomenon or excessive dryness, which hamper the sugar production and its crushing. The demand from the top sugar importing countries likes the US, Germany, UK and China are also important factors that affected prices.

SCOT Analysis of Indian Sugar Industry

Strengths

The Indian sugar industry is the second largest producer of sugar in the world after Brazil. The sector has made the country self-reliant in what is a highly sensitive, commoditised, mass consumption market.

The Indian sugar industry is a source of livelihood for more than 50 million people - directly and indirectly.

The Indian sugar industry also supports downstream industries by providing key raw materials like molasses and bagasse.

This sector has been the focal point of socioeconomic development of the rural India especially in parts of Uttar Pradesh, Maharashtra and Karnataka.

Challenges

Questionable governmental policies that regulate the input prices have resulted in mills incurring enormous losses.

Most of the sugar factories are more than 40 years old and still reliant on outdated technology - leading to lowered installed production capacities, lower efficiencies and increased losses.

Opportunities

High value by products for downstream industries like distilleries and power.

Huge potential to increase the productivity of cane and sugar recovery rate.

Advanced technology available to enhance by product utilisation.

Threats

Sugar sector is vulnerable to political interests.

Lack of ground water availability for irrigation purposes.

Quality of soil deteriorates due to overuse of fertilisers and pesticides to increase yield. Unhealthy competition between members of the society.

Government Initiative

On November 18, 2015, the Government of Indias (GOI) Cabinet Committee on Economic Affairs (CCEA) approved a sugarcane production subsidy of 4.50 per quintal for sugarcane crushed during MY 2015/16 (October- September). This will ensure timely payment to farmers by mills and reduce their cost of procurement. The production subsidy will be provided to farmers on behalf of the sugar millers which are indebted to cane farmers for old crop sales. Qualifying sugar millers must have exported at least 80% of the indicative sugar export quota, and achieved 80% of respective targets of ethanol production.

In order to further reduce these arrears and support cane growers, the government has taken out a World Trade Organization compliant scheme in which production subsidy will be given to offset the cost of cane.

Outlook

The outlook for the sugar industry remains grim. The longterm prices and profitability of Indian sugar companies will remain highly cyclical and reliant on domesticand international supply-demand trends. It would also hinge on agro-climatic conditions in the major sugar producing countries and the trends in crude oil prices. Further, government/court action in ensuring removal of mandatory crushing by sugar mills for the entire cane offered to them by farmers in the command area and a rational linkage between cane and sugar prices will have a critical bearing on the long-term viability of sugar operations.

Over the medium term, international sugar prices will be largely determined by fluctuations in world sugar production as well as crude oil prices, which determine the raw sugar-ethanol blend in major exporting countries like Brazil. Going ahead lower sugar prices will increase consumption, but on the supply side, farmers are likely to shift to other crops, which in turn would reduce the sugar output, leading to a supply correction.

Within the sugar industry however, players with high operating competences, forward integration and strong capital structure will be best placed to ride out the cycles. The support extended by the Central government and some State governments during the year to support sugar companies by way of export subsidy, renewed emphasis on EBP, and the linking of cane prices to sugar prices (in some States like UP) is appreciated. Going forward, there is need for balanced policy approach on sugarcane pricing and effective addressal of the surplus stock before situation is out of control leading to irreparable damages.

UPPER GANGES SUGAR & INDUSTRIES LIMITED

Business segment review

Sugar

Production

Sugar segment registered a production of 23.78 lac quintals during the sugar season 2015-16, as against 23.04 lac quintals during 2014-15.

Crushing

At Upper Ganges, we crushed 220.29 lac quintals of sugarcane during the sugar season 2015-16, compared to 233.81 lac quintals in 2014-15.

Recovery

This season the Company witnessed good recovery of sugar from the cane crushed due to availability of better yield of sugarcane. The average recovery during the period was 10.78 as against the 9.88 of previous period.

Sugar realisations

The realisations per Qtl. (net of excise) of free sugar decreased to 2674.98 in 2015-16 from 2937.57 in 2014-15, thus registering a decrease of 8.94 %.

Comparative operational figures

	SS 2015-16			Total
	Seohara	Sidhwalia	Hasanpur	SS 2015-16	SS 2014-15
Installed capacity (TCD)	10,000	5,000	5,000	20,000	20,000
Sugar crushed (lac quintals)	143.32	45.84	31.13	220.29	233.81
Recovery (%)	11.36	9.37	10.18	10.78	9.88
Sugar produced (lac quintals)	16.29	4.30	3.19	23.78	23.04
Crushing days (Gross)	147	91	95

ETHANOL INDUSTRY STRUCTURE AND DEVELOPMENT Global Scenario

World fuel ethanol production is estimated to increase by only 0.4% to reach 97.0 bln litres in 2016. Global fuel ethanol trade is forecast to contract in 2016 to reach 4.3 bln litres. The US will continue to dominate world fuel ethanol exports with ample domestic supplies and competitive prices.

Table D4: World Fuel Ethanol Trade (mln litres)

Country	2011	2012	2013	2014	2015	2016f
Imports
United States	533	1,853	1,159	274	250	200
Brazil	1,150	546	132	452	510	500
Canada	926	1,005	1,067	1,360	1,400	1,400
EU	1,300	750	400	50	50	50
Philippines	216	248	297	339	350	330
Other	1,152	1,623	1,800	1,730	1,800	1,800
Total	5,277	6,025	4,855	4,205	4,360	4,280
Exports
Brazil	992	2,742	2,044	836	950	900
EU	50	45	10	110	95	90
United States	4,075	2,807	2,353	3,207	3,500	3,000
Other	350	400	300	150	200	250
Total	5,467	5,994	4,707	4,303	4,745	4,240

Source: ISO Ethanol Yearbook 2015; ISO forecasts

Production of ethanol

US production is anticipated to fall from 55.4 bln litres to 54.5 bln litres, whereas in Brazil output is expected to rise by 2.5% to 27.5 bln litres. EU production is set to consolidate at around 5.1 bln litres. At the same time several smaller scale producers such as Argentina, India, Philippines and Thailand will likely post gains.

Consumption

Global fuel ethanol consumption is expected to rise from 96.4 bln litres in 2015 to a record 97.2 bln litres in 2016 - an increase of 0.8%. Demand for ethanol will remain high in Brazil but growth will be much lower than seen in 2015, rising by less than 1% to 28.1 bln litres. At the same time no growth is presently anticipated in the worlds biggest consumer, the US, with off take remaining at around 52 bln litres, approximating the E10 blend wall. In the EU, consumption is slated to consolidate at around 5.2 bln litres. Despite the ongoing low oil price environment gains in consumption are expected in several smaller consumers such as Argentina, Colombia, India, Japan Philippines and Thailand.

Indian scenario

Ethanol is slated to gain in prominence as global awareness and climate regulations on greenhouse emissions mandate a shift to clean bio-fuels and environment friendly gasoline substitutes. According to the report published by Global Agriculture Information Network, Indias ethanol program is based on producing ethanol from sugar molasses, a byproduct of the sugar industry and not directly from sugarcane or corn as in most other countries. This is mainly done in the interest of food security. In order to encourage the use of bio-fuel, the Government also proposed an enhancement of the ethanol blending to 10% from the current 5% and fixing more remunerative prices.It is one of the areas which has the potential of improving the fundamentals of the sugar sector if pursued seriously by the Government.

A revived fuel ethanol blending program should ensure higher output next year. Production is expected to increase from 650 million litres to 850 million litres. In August the government announced that it would impose an E10 mandate from the current sugar cycle which started in October 2015. This mandate would require the use of 2.3 billion litres of fuel ethanol annually and a significant expansion in distilling capacity by the sugar industry. The government believes that the feedstock base for ethanol production should be expanded from final C- to B-molasses. Such a move would help reduce sugar production.

UPPER GANGES SUGAR & INDUSTRIES LIMITED:

ETHANOL DIVISION

Our ethanol operational snapshot

Particulars	2014-15	2015-16
Ethanol produced (lac litres)	262.55	184.60
No of days worked	270	204

Our ethanol operational snapshot

Particulars	2014-15	2015-16
Distillery capacity (KLPD)	100	100
Distillery capacity utilisation (%)	87.52	61.53
Average recovery (litres per	23.30	23.83
quintal) in percentage

COGENERATION INDUSTRY

Sugarindustryhasbeen traditionallypracticing cogeneration by using bagasse as a fuel. With the advancement in the technology for generation and utilisation of steam at high temperature and pressure, sugar industry can produce electricity and steam for their own requirements. It can also produce significant surplus electricity for sale to the grid using bagasse. Over 200 of the 600 sugar mills have cogeneration plants with an installed exportable capacity of over 3500 megawatts. A clear national regulation on cogeneration should be in place as this is considered as a non-conventional source of power and the industry should be paid higher than what it is being paid for per unit of power sold to state grid.

As of September, India remained well behind its target to add 400 MW of bio-power (including biomass power & gasification and bagasse-based cogeneration) to the national grid in 2015/16. In fact, no new projects have come online so far in the current fiscal year (April/March), leaving installed capacity stagnant at 4,419 MW, according to the Ministry of New and Renewable Energy. In the state of Uttar Pradesh, the Electricity Regulatory Commission (UPERC) has been advocating the idea of making cogeneration of power mandatory for all future sugar mills. There are 115 sugar mills in Uttar Pradesh. In Maharashtra state, the cabinet has recently sanctioned a plan to construct 27 transmission links for a capacity of 2,570 MW of renewable energy. This is part of a countrywide initiative to set up new power lines across India.

Source: International Sugar Organisation

What is co-generation?

Cogeneration (Combined Heat and Power or CHP) is the simultaneous production of electricity and heat, both of which are used. The most important principle of cogeneration is that, in order to make the most of the many benefits that arise from it, systems should be based on the heat demand of the application.

Why cogeneration?

Efficient conventional electricity generation using a large scale centralised power plant is assumed to be at 35%. A typical medium pressure boiler operates at an efficiency of about 85%. Assuming that an industrial process needs both heat and power in a ratio 1.5:1, the overall energy generation efficiency will thus be about 54%.

In case, similar thermal and electrical energy is supplied using a suitable co-generation system, the overall efficiency could range from 65 to 95%. If the efficiency is assumed to be 75%, the total primary fuel savings would be about 28%.

Government policy

According to a Government policy regulating cooperative sugar factories, the State Government provides 5% of the capital expenditure on the cogeneration project while the factory concerned puts in an equal amount. The Sugar Development Fund of the Union Government provides 30% funding of capital investment and the remaining is secured through institutional funding. An investment of about 4.50 crore per MW is needed to start a cogeneration plant in a cooperative factory.

UPPER GANGES SUGAR & INDUSTRIES LIMITED: COGENERATION DIVISION Our ethanol operational snapshot

	2015-16	2014-15
Generation of power (lac units)	1564.49	1,638.39
Sales of power to state grid (lac units)	1011.09	1,121.24

Our ethanol operational snapshot

	2015-16			Total
	Seohara	Sidhwalia	Hasanpur	2015-16	2014-15
Capacity (MW)	24	18	10	52	52
Power generated (in lac units)	835.39	528.46	200.64	1564.49	1,638.39
Power supplied to state grid (in lac units)	512.71	407.04	91.34	1011.09	1,121.24

INDIAS TEA INDUSTRY

India is one of the largest tea producers in the world as well as one of the largest consumer as well with over 70% of the tea produced in India gets consumed in India itself. There are 3 prominent tea growing regions in India i.e. Darjeeling, Assam and Nilgiri. While Darjeeling and Assam are located in the Northeast regions, Nilgiri is a part of the southern region of the country. The wide range of tea available in India is unparalleled.

Fast facts of Indian tea industry

I ndia is the second largest producer of tea in the world and contributes to around 30% of the global tea production.

India is also one of the worlds largest consumers of tea.

The tea industry is also Indias second-largest employer with over 3.5 million workers employed in over 1,500 tea-growing estates.

The tea sector in the country is largely organised since 72% of the total area under tea cultivation and 74% of the total production comes from the organised sector.

Production of tea

Tea production in India rose 5% to 17.02 million kg in February 2016 from a year earlier as plucking gained in southern states. Production in south India jumped 5.75% to 14.75 million kg from a year ago.

State wise and month wise production data for the year 2015 -16 (E) Qty.in M.Kgs

State/Month	April	May	June	July	August	Sep	Oct	Nov	Dec	Jan	Feb	Apr to Feb
Assam Valley	32.16	55.34	57.49	84.68	84.27	85.06	85.69	51.84	19.94	0.69	0.47	557.63
Cachar	2.37	4.26	5.22	6.22	6.56	5.93	6.89	4.89	2.44	0.18	0.08	45.04
Assam	34.53	59.6	62.71	90.90	90.83	90.99	92.58	56.73	22.38	0.87	0.55	602.67
Dooars	9.01	18.27	18.94	23.99	24.66	22.92	26.32	17.99	9.58	0.75	1.12	173.55
Terai	6.38	13.63	15.33	18.21	17.50	15.29	16.50	12.84	8.25	1.57	0.54	126.04
Darjeeling	1.22	0.95	0.85	1.44	1.48	1.03	0.95	0.46	0.11	0.00	0.01	8.50
West Bengal	16.61	32.85	35.12	43.64	43.64	39.24	43.77	31.29	17.94	2.32	1.67	308.09
Others	2.03	2.78	3.1	3.53	3.42	3.28	3.24	2.36	1.04	0.12	0.05	24.95
North India	53.17	95.23	100.93	138.07	137.89	133.51	139.59	90.38	41.36	3.31	2.27	935.71
Tamil Nadu	17.77	18.14	17.32	14.07	12.21	13.60	14.83	12.31	10.43	9.34	10.40	150.42
Kerala	6.52	7.27	6.70	4.10	4.63	4.35	3.05	3.49	3.69	4.78	3.99	52.57
Karnataka	0.60	0.69	0.76	0.40	0.42	0.56	0.59	0.70	0.47	0.44	0.36	5.99
South India	24.89	26.10	24.78	18.57	17.26	18.51	18.47	16.50	14.59	14.56	14.75	208.98
All India	78.06	121.33	125.71	156.64	155.15	152.02	158.06	106.88	55.95	17.87	17.02	1144.69

(E) Estimated, subject to revision. (Source: Tea Board India)

Export

According to Tea Board of India, Tea exports have registered a 7.25% increase quantitatively and 4.2% increase in terms of value during 2015-16 (April-October) as compared to the corresponding period last year.

The provisional tea exports data released by Tea Board of India has pegged tea exports at 202.81 million kgs valued at 3884.74 crore during 2015-16 (April-February), while the export during the corresponding period last year was 180.84 million kgs valued at 3,508.38 crore. Increase of tea exports has been seen in major tea-importing countries like Russia, United Kingdom, Netherlands, Germany, Poland, UAE, Iran, Bangladesh and Pakistan.

Region wise provisional tea exports during 2015 16

Qty in M.Kgs. Value in Crs., Unit price /Kg.

Period	North India			South India		Unit		All India
	Qty	Value	Unit Price	Qty	Value	Price	Qty	Value	Unit Price
2015-16 (Apr-Feb)~	116,57	2712.36	232,68	86.24	1172.38	135,94	202.81	3884,74	191.55
2014-15 (Apr-Feb)	101.30	2423.23	239,21	79.54	1085.15	136.43	180.84	3508,38	194,00
Incr/Decr in %	15.07	11.93	(2.73)	8.42	8.04	-0.36	12.15	10.73	(1.27)

(*) Provisional. subject to revision.

Road ahead for the tea industry

The outlook for tea is mixed with increased production in most producing countries accompanied by strong consumption growth in developing countries. There is a continual shift of consumers towards health, wellness and convenience segments. With the passage of time and excellent marketing techniques, consumers are better aware of the health benefits of different varieties of tea like green tea among others. Drinking habits and lifestyles changes in the last one decade have shown that consumers are ready to pay more for quality teas.

Though, India needs to take a number of initiatives to reinforce its position in the global market and address emerging markets by further refining the quality as well as packaging standards, thereby enhancing product quality.

RISK MANAGEMENT AT UPPER GANGES SUGAR & INDUSTRIES LIMITED

Risk is an accepted part of doing business. The real provocation for any business is to identify the principal risks and how it faces it and develops, monitor appropriate controls.

Risks and its mitigation are given as under:

Fluctuations in the production due to climatic changes

Climatic conditions not only affect the productivity but also the quality of leaves harvested.

Mitigation

India being the worlds biggest sugar consumer is likely to produce 27 million tonnes of the sweetener in 2014-15, which is about 2% of growth. (Source: Economic Times)

Slower pace of re-plantation

Indias productivity has not grown due to slow pace of re-plantation of old bushes.

Mitigation

According to ISMA higher sugar production in the current season, against the estimated consumption of 24.8 mt, carryover stock for the 2015-16 season is estimated at 8.5 mt, 2.5 mt higher than the normative requirement of six million tonnes. (Source: Business standard)

Shortfall in the raw material supply could impact the Companys operations

A lower cane output usually translates into lower production of sugar and by-products.

Mitigation

In the past years, the Company has been working with large number of farmers in all its manufacturing facilities, resulting in the mitigation from any shortage of supply of raw material.

Increasing competition in the global tea market

India is a major exporter of CTC tea and faces stiff competition from Kenya.

Mitigation

Since Kenya is entirely a CTC producer, Indias strategy is to cater different markets, differently. For China, it would be taken up at the diplomatic level, as there are non-tariff barriers. This will result to lesser competition and diversified market reach.

Coffee acting as a strong substitute to tea

Coffee is emerging as a near perfect substitute and is posing a huge challenge to tea consumption.

Mitigation

Tea is probably the most popular drink in India. The country is the largest consumer of tea in the world and we consume 25% of the tea produced world-wide. India is also the second largest producer of tea in the world. (Source: The India Express)

HUMAN RESOURCES MANAGEMENT

Human resource management at Upper Ganges Sugar & Industries Limited plays a pivotal role in achieving organisational goals and objectives.

The following initiatives were taken during the year under review:

The current strength of management staff in 2015-16 is 55 and non-management staff is 1,727.

INTERNAL CONTROL

The Companys internal control system is commensurate with its business size and structure. This system is designed to provide reasonable assurance about the integrity and reliability of the financial statements. Such systems provide adequate protection to its assets and adherence to performance standards. Regular internal audit is conducted by a renowned firm of Chartered Accountants. Such audits continuously monitor the authenticity of the financial statements and the compliance with statutory norms and standards. The audit findings, along with corrective actions taken, are forwarded to the Audit Committee.

The Audit Committee after reviewing the findings, provides assurance about the internal control systems efficiency and effective performance. The Company has already implemented a robust accounting and internal reporting system with SAP package.

CAUTIONARY STATEMENT

The statements in the Management Discussion and Analysis Report detailing the Companys objectives, projections, estimates, expectations or predictions may be forward looking within the scope of applicable securities laws and regulations. As these statements are based on industry associations estimates, certain assumptions and expectations of future events by the Company, there is a strong likelihood of actual results differing materially from those expressed herein or implied. Important factors that could make a difference to the Companys operations include economic conditions affecting global or domestic demand and supplies, political and economic developments in India or other countries, Government regulations and taxation policies, prices and availability of raw materials, prices of finished goods, abnormal climatic and geographical conditions, etc. The Company assumes no responsibility in respect of all or any forward looking statement(s) contained in this Report as the same may be revised or modified in the future on the basis of subsequent developments, information or events.