Global Economic Scenario
The South-Asian region including India is a major hub of sugar producing countries with
ample presence in the global sugar scenario. India has a rich history of sugarcane and
sugar production since time immemorial, and the industry has gradually evolved to find a
place among the top sugar producing countries of the world. The innovative technological
interventions for sugarcane improvement, production and management have helped the
industry to progress towards a diversified and bio-based productive, sustainable and
profitable one, thereby gradually becoming self-reliant. This self-reliant industry with
the right mix of linkages and collaborations, has been successful in tackling the various
unforeseen challenges including those that cropped up during COVID-19 pandemic. The
industry also fulfils its Corporate Social Responsibilities leading to the overall
betterment of its stakeholders. This has enabled the Indian sugar industry to align itself
with the 2030 Agenda for Sustainable Development Goals.
Indian economic scenario
India is a major sugar producing country in the South-Asian region and has recorded
bumper sugar production in the recent past. It has a strong sugar sector backed by a
well-developed R&D set-up. This has helped the industry overcome most of the
challenges, be it in the area of production, processing or other related sectors. Even
from very early period, as mentioned in medieval literature, India has been cultivating
sugarcane and processing the cane. Slowly innovative technologies were developed to suit
the time-based and location-specific demands that facilitated India to become a major
player at the global level.
Industry Structure and development
The sugar industry is inherently inclusive with the crop occupying around 5.0 million
hectares, i.e. 2.57% of the gross cropped area and supporting over 7 million farmers and
their families, along with workers and entrepreneurs of over 550 sugar mills. In India,
sugar is an essential item of mass consumption, and the domestic demand is around 27
million tons per annum. Sugar and jaggery are the cheapest source of energy, supplying
around 10% of the daily calorie intake. Sugarcane has been projected as the crop for the
future contributing to the production of not only sugar but also as a renewable source of
green energy in the form of bio-fuels, bio-electricity and many bio-based products. The
industry produces 370–400 million tons (MT) cane, 27–30 MT white sugar and
6–8 MT jaggery and khandsari every year. Besides, about 3.2 billion litres of alcohol
and 4700 MW of power and many chemicals are also produced. The industry has the capability
to export around 3500 MW of power to the national grid. Sugar industry has gradually
transformed into sugar complexes by producing sugar, bioelectricity, bioethanol,
biomanure, bio-CNG and chemicals. The Indian sugar industry has been capable of meeting
the sweetener and energy demand of the nation and to a great extent, has become
self-reliant, showing the path to the other countries in building a productive, profitable
and sustainable industry.
Risks and Concerns
The Indian sugar sector is highly cyclical in nature and is sensitive to Government
policy and weather conditions. A typical sugar cycle lasts for 3-5 years – lower
sugarcane and sugar production results in an increase in sugar prices and higher and
prompt payments to farmers, which, in turn, leads to an increase in area under cane
cultivation. An increase in cane acreage then leads to higher sugar production, decline in
sugar prices, lower profitability for mills and consequently delayed payments to farmers,
which, in turn, results in area under cane cultivation coming down. Sugar is consumed by
every household and also major food Industries like, biscuits, chocolates, ice-creams and
Pharmacy Industries. A large number of farmers draw their livelihood from sugarcane
cultivation, the Central Government has always wanted to control prices in the open
market, while the States want to ensure higher and higher prices for sugarcane farmers.
The major risks faced by sugar business are the availability of cane, regulatory risks,
price of sugar and that of sugar cane. Sugar cane is the key raw material for sugar and
any difficulty in getting cane at right time will have impact on the business. The key
factors that influence cane availability are climatic condition, availability of cane
harvesting labor and farmers opting for competitive crops.
The sugar industry is regulated by the Central and State Governments. Sugar cane price,
known as FRP, is fixed by the Central Government well before the start of the season while
the State Government fixes the State Advised Price (SAP), always significantly higher than
FRP. The State Government controls the sugar cane command area while the Central
Government regulates Exports and Imports
Outlook
Indian sugar production is projected to increase by 4 Million Mt to 36 Mt in
2023-24 season (October 2023 to September 2024).
Consumption is anticipated to up on increased demand from bulk buyers and processed
food manufacturers.
Over the past five years, the Indian Government has been encouraging ethanol capacity
expansion to cut its dependency on imported crude oil and channelize the excess sugar
inventories in to ethanol production. Those factors will further propel the growth of the
ethanol market in India. India currently aims to achieve an E20 blend by 2030. The
countrys ethanol blending programme highlights procurement of ethanol produced directly
from B Heavy molasses, sugarcane juice and damaged foodgrains. A surplus sugar season
coupled with financial incentives to convert excess sugar in to ethanol is expected to
boost the ethanol produced volumes, over the years ahead.
The sugar mills in India consume their own bagasse to run their mills during the season
and generate steam, to run the boilers and turbines. They generate power to run their
plants. Surplus energy can be exported to the grid of distribution licensees. Trading of
energy in form of Renewable Energy certificate are allowed since 2010.
Opportunities and Threats
Being a second largest sugar producer in the world, Indian sugar industry plays a
significant role in the global sugar supply and agro-based Indian economy. Although a
homeland of sugar, Indian sugar industry was late to adopt mechanized techniques for sugar
production. The production technologies and processes have remained stable for quite some
time now. Also, inclusion of sugar as an essential commodity has limited the scope for
product innovation. Consequently, in coming years, sugar mills will look to tap into the
opportunities presented by ICT enabled productivity improvement measures.
In India, Sugar is predominantly produced from Sugarcane, the crop yield of which is
highly dependent on seasonal variations and is impacted by climate changes. This induces
cyclicality in sugar production. This cyclicality, not just on the business of mills but
on associated farmers, workers and end consumers as well.
On the financial front, sugar mills depend a lot on banking system for working capital.
Along with working capital risks, mills need to manage pricing risks induced by demand and
supply imbalance. Data analytics hasnt made much head way into Indian sugar industry yet,
but it will surely make its progress as the industry is gearing up for its next wave of
transformation after mechanization.
Indian Government has been encouraging ethanol capacity expansion to cut its dependency
on imported crude oil and channelize the excess sugar inventories in to ethanol
production. Those factors will further propel the growth of the ethanol market in India.
India currently aims to achieve an E20 blend by 2030
Discussion on financial performance with respect to operational perfomrance
In the financial year 2022-23, the Company crushed 10,59,379.15 MT of sugar cane and
produced 8,93,500.00 quintals of sugar, produced 28,965.77 kilo liters of ethanol and
generated 10,60,64,100 KWh of power. Out of the power generated 6,33,98,450 KWh was
exported and the balance was consumed by the Company.
The Companys revenue from operations stood at Rs. 61649.49 lakhs in financial year
2022-23 vis-a-vis 46,875.10 lakhs in 2021-22, with a growth rate of 31.52% by volumes over
last year. Operating expenses for the year stood at 59,381.25 lakhs as against 42,309.38
lakhs in the financial year 2021-22. The Company generated EBITDA of Rs. 6906.05 lakhs
vis-a-vis 9,497.19 lakhs during 2021-22.
Risk Management
VSIL considers timely identification and effective mitigation of risks as the utmost
pre-requisite for maintaining stable and genuine returns, besides ensuring consistent
increase in shareholder value. The major risks in this industry include impact on
sugarcane production due to seasonal uncertainties.
Internal Control system and their Adequacy
The compliance certificate from the Whole Time Director and the Chief Financial Officer
provided in the Annual Report confirms the adequacy of our internal control system and
procedure. The Audit Committee in every meeting evaluates Internal Financial control and
Risk Management Systems.
Material Development in Human Resources/Industrial Relations Front including number of
people employed
Our strategic objective is to build a sustainable organization while creating growth
opportunities for our employees and generating profitable returns to our investors. The
total work force of the Company is 859. Number will be increased with the growth of
business of the Company. The Company is aware that satisfied highly motivated and loyal
employees contribute to the growth of the Company. The employee relations remained cordial
throughout the year.
Disclosure of Accounting Treatment
In the preparation of financial statement for the year ended March 31, 2023, no
treatment different from that prescribed in the Accounting Standards has been followed by
the Company.
Segment-wise or product-wise performance
(Rs. In lakhs)
Particulars |
31.03.2023 |
31.03.2022 |
1. Segment Revenue |
|
|
-- Income from Operations |
|
|
(a) Sugar |
37,865.02 |
27,289.04 |
(b) Co-generation |
4,366.90 |
2,480.75 |
(c) Distillery |
17,901.03 |
15,042.56 |
(d) IML |
- |
- |
(e) Vinegar Unit |
1,389.37 |
1,929.48 |
-- Other operating income |
|
|
(a) Others |
127.18 |
133.27 |
(b) Unallocable revenue |
- |
- |
Income from operations (net) |
61,649.50 |
46,875.10 |
2. Segment Results |
|
|
(a) Sugar |
-13,007.61 |
11,964.33 |
(b) Co-generation |
2,298.73 |
2,480.42 |
(c) Distillery |
15,844.51 |
15,876.00 |
(d) IML |
97.52 |
45.39 |
(e) Vinegar Unit |
900.73 |
1,418.66 |
(a) Finance Costs |
2,753.65 |
3,227.91 |
(b) Other expendituure (net of other income) |
828.88 |
-89.81 |
Profit before tax |
2,551.35 |
4,718.03 |
3. Segment Assets |
|
|
(a) Sugar |
39,891.71 |
19,445.27 |
(b) Co-generation |
7,564.92 |
7,157.41 |
(c) Distillery |
19,853.72 |
3,998.29 |
(d) IML |
358.19 |
337.02 |
(e) Vinegar Unit |
2,465.59 |
2,334.28 |
(f) Un-allocable |
2,482.91 |
43,683.31 |
Total Assets |
72,617.05 |
76,955.57 |
4. Segment Liabilities |
|
|
(a) Sugar |
37,032.29 |
42,070.93 |
(b) Co-generation |
- |
1,625.00 |
(c) Distillery |
- |
2,025.00 |
(d) IML |
- |
- |
(e) Vinegar Unit |
- |
- |
(f) Un-allocable |
35,584.76 |
31,234.64 |
Total Liabilities |
72,617.05 |
76,955.57 |
Details of Significant Changes in Key Financial Ratios
Ratio |
Formula |
Values |
2022-23 |
Values |
2021-22 |
% of Change |
|
|
|
Ratio |
|
Ratio |
|
1. Current Ratio |
Current Assets |
41,831.29 |
1.20 |
44,996.20 |
1.14 |
5% |
|
Current Liabilities |
35,003.78 |
|
39,432.75 |
|
Less than 25% change |
2. Debt Equity |
Short Term Debt + Long Term Debt + Other Fixed Payments |
47,057.12 |
1.84 |
48,691.25 |
1.72 |
7% |
|
Share Holders Equity |
25,559.93 |
|
28,259.27 |
|
Less than 25% change |
3. Debt Service Coverage Ratio |
Earnings available for debt service |
9,631.30 |
1.76 |
12,069.25 |
2.68 |
-34% |
|
Debt Service |
5,478.90 |
|
4,501.54 |
|
|
Explanation: There has been a Decrease in profitability of the company due to the
increase in cost of Raw material and other input cost. Further, the government policies in
respect to sugar also have resulted in stable sale prices and not increasing in
consistency to Input cost. Hence, resulted in reduction in profit and DSCR is reduced.
4. Return on Equity (ROE) |
Net Profits after taxes – Preference Dividend (if any) |
-2,323.36 |
-0.09 |
6,034.30 |
0.21 |
-143% |
|
Average Shareholders Equity |
25,559.93 |
|
28,259.27 |
|
|
Explanation: There has been a Decrease in profitability of the company due to the
increase in cost of Raw material and other input cost. Further, the government policies in
respect to sugar also have resulted in stable prices and not increasing in consistency to
Input cost. Further, DTL effect of Shift of new tax regime in previous year has also
resulted in reduction of PAT. Hence, resulted in reduction in profit and ROE is negative.
5. Inventory to Ratio |
Sales |
61,649.49 |
1.84 |
46,875.10 |
1.44 |
28% |
|
Avg. Inventory |
33,492.55 |
|
32,625.78 |
|
|
Explanation: There has been decrease in the average inventory held by the Company due
to increase in sales during the year.
6. Trade Receivables to Ratio |
Net Credit Sales |
4,330.24 |
1.15 |
3,224.51 |
1.04 |
11% |
|
Avg. Trade Receivables |
3,777.37 |
|
3,110.75 |
|
Less than 25% change |
7. Trade Payables to Ratio |
Net Credit Purchases |
6,137.12 |
0.79 |
9,370.21 |
1.17 |
-32% |
|
Avg. Trade Payables |
7,756.40 |
|
8,022.35 |
|
|
Explanation: Due to prompt and timely payment of trade creditors the Trade payable TO
has reduced.
8. Net Capital Turnover Ratio |
Net Sales |
61,649.49 |
9.95 |
46,875.10 |
9.35 |
6% |
|
Average Working Capital |
6,195.27 |
|
5,014.11 |
|
|
Ratio |
Formula |
Values |
2022-23 |
Values |
2021-22 |
% of Change |
|
|
|
Ratio |
|
Ratio |
|
9. Net Profit Margin (In %) |
PAT |
-2,344.59 |
-3.79 |
6,034.30 |
12.83 |
-130% |
|
Total Revenue |
61,935.96 |
|
47,027.41 |
|
|
Explanation: There has been a Decrease in profitability of the company due to the
increase in cost of Raw material and other input cost. Further, the government policies in
respect to sugar also have resulted in stable sale prices and not increasing in
consistency to Input cost. Further, DTL effect of Shift to new tax regime in previous year
has also resulted in reduction of PAT. Hence, resulted in reduction in net profit margin.
DTL is a non cash item and has temporary effect on profits for the current year only.
10. Return on capital employed (ROCE) |
Earnings before interest and taxes |
7,946.36 |
21.18 |
7,946.36 |
21.18 |
-33% |
|
Capital Employed |
37,517.77 |
|
37,517.77 |
|
|
Explanation: There has been a Decrease in profitability of the company due to the
increase in cost of Raw material and other input cost. Further, the government policies in
respect to sugar also have resulted in stable prices and not increasing in consistency to
Input cost. Hence, resulted in reduction in earnings.
11. Return on investment |
{MV(T1) – MV(T0) – Sum [C(t)]} |
-5.72 |
-0.28 |
-4.54 |
-0.18 |
56% |
|
{MV(T0) + Sum [W(t) * C(t)]} |
20.2 |
|
24.94 |
|
|
T1 = End of time period |
31-03-2023 |
|
|
31-03-2022 |
|
|
T0 = Beginning of time period |
01-04-2022 |
|
|
01-04-2021 |
|
|
t = Specific date falling between T1 and T0 |
1 |
|
|
1 |
|
|
MV(T1) = Market Value at T1 |
14.48 |
|
|
20.2 |
|
|
MV(T0) = Market Value at T0 |
20.2 |
|
|
24.94 |
|
|
C(t) = Cash inflow, cash outflow on specific date |
|
|
|
|
|
|
W(t) = Weight of the net cash flow (i.e. either net inflow or net
outflow) on day ‘t, calculated as [T1 – t] / T1 |
|
|
|
|
|
|
Explanation: There has been a Decrease in profitability of the company due to the
increase in cost of Raw material and other input cost. Further the government policies in
respect to sugar also have resulted in stable sale prices and not increasing in
consistency to Input cost. Hence, resulted in reduction in earnings. Further, Market price
of share is driven by the industry standards and external factors not within control of
the company has resulted in market value of shares as on T1. Hence, ROI has reduced.
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