Vishwaraj Sugar Industries Ltd Management Discussions

Global Economic Scenario

The sugar industry in the year 2024 continues to show signs of expansion, despite severe drought. Influencing factors include an upward-trending price. However, there is also a need to monitor the risks arising from the fragile global economy and export control policies of India.

This increase in production for this season is mainly due to weather conditions in Centre-South Brazil, allowing mills to continue crushing cane. However, despite CS Brazils record sugar output, the sugar market remains stressed and highly vulnerable to any adverse events. Relying on a single source of supply is unhealthy, and CS Brazil cannot save the market alone - other regions must also play a role. Without growth in India, global sugar production in 2024/25 is likely to fall. Despite high world market prices, global sugar consumption continues to remain strong and it is anticipated that this trend will continue as we enter the 2024/25 season, with global consumption reaching 180.3 million tonnes.

Indian economic scenario

The gross production of sugar during the 2024-25 season without diversion for ethanol is estimated at 333 lakh tonnes (LT). The total availability during the year would be 423.50 LT with domestic consumption estimated at 290.00 LT. The closing stock, as on September 30, 2025, is projected at 133.50 LT.

The Indian Sugar Mills and Bio-Energy Manufacturers Association (ISMA), the apex trade body for the sector, has projected sugar output for the 2024-25 season starting October at 331.10 LT. The estimates are a tad lower than the previous years output of 339.95 lt on a decline in production in States such as Maharashtra and Karnataka, where the sugarcane acreage is seen lower than last year.

The private sugar millers of the country have demanded that the government should allow export of two million tonnes of sugar in the upcoming sugar season 2024-25 as the industry expects the carry forward sugar stocks to be 55-60% higher than the norm.

ISMA and WISMA have demanded upward revision of the minimum selling price (MSP) of sugar, which was fixed at Rs. 31/kg in February, 2019.

"MSP of sugar should be revised upwards and a formula needs to be worked out to align MSP with the FRP of sugar," the release stated.

WISMA has said that the ethanol supplies were severely affected due to the central governments restrictions on sourcing of ethanol from the sugarcane juice and B heavy molasses for ethanol production.

Industry Structure and development

India is the worlds largest producer of sugar, and is also the second- largest exporter and the worlds largest consumer. In the 2023/2024 market year, India is expected to produce about 34 million metric tons of sugar. Some 50 million farmers and millions of more workers, are involved in sugarcane farming. India is the worlds largest consumer of sugar.

The sugarcane and sugar sector in India ranks second in terms of agro-based industries, after cotton. India ranks first globally in sugar production. It produced about 34 million metric tons of sugar in 2023/2024. It is not only responsible for the livelihood of sugarcane farmers in rural areas but also provides employment to about 500 thousand workers in the sugar mills. Additionally, the gross value added from the sugar crop was about 806 billion Indian rupees. Apart from being the leading sugar producer, India was also the third-largest exporter of sugar in the world.

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.

The Ethanol Blending Programme (EBP) is an initiative by the Government of India to promote the use of ethanol, a renewable and environment-friendly fuel, in petrol.

The program aims to reduce the import of fuels from other countries, conserve foreign exchange and increase value addition in the sugar industry. The target of 10% ethanol blending set in the Roadmap for Ethanol Blending in India 2020-25 for Ethanol Supply Year (ESY) 2021-22 has already been achieved and Public Sector Oil Marketing Companies (OMCs) have started selling E20 (20% ethanol blended) petrol across the country. Further, the National Policy on Biofuels - 2018 targets 20% blending of ethanol in petrol by ESY 2025-26.

Ethanol is mainly produced from a by-product of the sugar industry, namely molasses, but other raw materials like sugarcane juice, sugar, sugar syrup and damaged food grains can also be used. The Government has taken various steps to facilitate the procurement and supply of ethanol under the EBP, such as fixing remunerative prices, simplifying the procedure, waiving excise duty and extending financial assistance. Due to effective Government policies, the supply of ethanol to OMCs has increased by more than 13 times in ESY 202223 from ESY 2013-14. The blending percentage has also increased from 1.53% in ESY 2013-14 to targeted 12% in ESY 2022-23.

Risks and Concerns

Allocation of sugarcane farm sufficiently for production capacity, is the most important factor affecting the operations and the performance of the Company. The risk from changes of the amount of planting areas which may cause by the decrease of the sugarcane price affecting to the farmers to grow other agricultural plants that gain the higher price instead or the government supporting policy to appropriately allocate the planting zone, also known as zoning.

The risk from Climate change, rainfall, irrigation, soil fertility, sugarcane varieties and other sugarcane diseases affects to the crop yield of sugarcane. The changes of each factor can cause agricultural output diminution.

The risk from soil fertility: The Company has the policies which focus on soil improvement to recover the soil fertility in sugarcane plantation areas, for example, harvesting freshly sugarcane, preserving organic matter, adjusting pH for fertilizer efficiency and using filter cake-based fertilizer which is a byproduct of the Companys sugar production. Since the policy implementation, the agricultural output of sugarcane has been increased gradually.

The risk from sugarcane varieties: The Company has carefully chosen sugarcane varieties which are appropriate for the plantation areas and also provide the sugarcane varieties testing area for the selection of new sugarcane variety in order to replace deteriorated ones to provide higher crop yield and sugar per ton as well as the higher returns for farmers.

The risk from the purchasing competition of local sugarcane: If other sugar factories in local areas offer higher price of sugarcane than the Company, the farmer may trade their sugarcane to those factories instead therefore the amount of cane crushing will be decreased respectively.

Risk from Fluctuation in Global Sugar Market Prices: Regarding to sugar trading in global market, sugar is one of the agricultural products which have the highly price fluctuation compared to other agricultural products.

Risk from Non-Performing Loans on Sugarcane Advance Payment Loans: The Company supports the sugarcane farmers by providing the sugarcane advance payment loans in individual planting areas according to each step of crop-growth period. This kind of advance payment loan is similar to the reservation of sugarcane in advance which is that the farmers who are provided the advance payment loans have to sell the sugarcanes only to the Company after harvesting, in the period of cane crushing season. Those farmers shall harvest and send to the Company accordingly, after that the Company will pay the returns to the farmers by deducting from the sugarcane advance payment loan. As the result, the Company has the risk from this kind of non-performing loan if the farmers cannot send the crops as engaged which may be caused by the drought or plant diseases and so on.

Risk from Governmental Control: The sugar industry is highly controlled by the Government policies and is sensitive to Government policy.

Outlook

According to the report, Indias centrifugal sugar production in marketing year (MY) 2024-2025 (October-September) is forecast to reach 34.5 million metric tons (MMT), equivalent to 33 MMT of crystal white sugar. The current years sugar production estimate is lowered to 34 MMT, equivalent to 32 MMT of crystal white sugar, due to the late onset of rain in Maharashtra and Karnataka as well as red rot infestation in central Uttar Pradesh. Indias sugar exports in MY 2024-2025 are estimated to be 3.7 MMT as the Indian government is likely to maintain the export cap to meet domestic food consumption and sugar to ethanol diversion for the Ethanol Blending Program. Sugar consumption in the forecast year is expected to reach 32 MMT to meet sugar requirement during festivals, rise in pre-packed food market, sugar and confectioneries, and organized and unorganized catering services.

The report further says that it forecasts Indias sugar planted area for the marketing year (MY) 2024-25 at 5.42 million hectares (MHa) and total sugarcane production at 416 MMT. For the current MY 2023-24, it has revised the planted area to 5.45 MHa, almost three percent lower than the previous estimate, and sugarcane production to 415.5 MMT. The drop in acreage is related to the El Nino weather pattern that included comparatively less rainfall in the onset of the season than in previous years. The late onset stunts the vegetative growth of the canes in Maharashtra, Uttar Pradesh, and Karnataka, three states that account for 80 percent of sugar production in India. According to industry sources, the limited rainfall in Maharashtra favored pulling up the states production number considerably to 1 MMT. There was also a red-rot infestation in Uttar Pradesh which is detrimental to cane growth and resulted in a marginal production drop.

Further, it is anticipated that fewer ratoon crops will be available for MY 2024-25 due to the red-rot infestations in central Uttar Pradesh and water shortages in Karnataka that compelled farmers to uproot the canes for the current MY. However, ratoon crops in Maharashtra and the planting of early-maturing varieties in January 2024 during the limited rainfall should contribute to slightly increasing the sugar output for MY 2024-25.

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 agrobased 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

The Company has a cane crushing capacity of 11000 TCD, ethanol production capacity of 100 Kilo Liters and power generation capacity of 36.40 kWh.

During the year under review, the Company crushed 9,57,644.59 MT of sugarcane and produced 8,70,975 quintals of sugar, produced 29,440.10 kilo liters of ethanol and generated 11,53,87,600 KWh of power. Out of the power generated 7,51,63,350 KWh was exported and the balance was consumed by the Company.

The Company received total income of Rs. 55,220.51 Lakhs for the year ended March 31, 2024 as against Rs. 61,935.49 Lakhs for the previous year. The EBITDA for the year under review stood at Rs. 6,868.51 Lakhs as compared to Rs. 6,906.05 Lakhs for the previous year. The Company has earned a Net profit of Rs. 1,456.95 lakhs after tax expenses as compared to loss of Rs. 2,323.36 Lakhs for the previous year. Analysis of operating performance is covered under Management Discussion and Analysis which forms part of this Report.

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 880. 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, 2024, no treatment different from that prescribed in the Accounting Standards has been followed by the Company.

Segment-wise or product-wise performance

Particulars	31.03.2024	31.03.2023
1. Segment Revenue
-- Income from Operations
(a) Sugar	30,847.68	37,865.02
(b) Co-generation	4,269.07	4,366.90
(c) Distillery	17,844.45	17,901.03
(d) Vinegar Unit	1,995.23	1,389.37
-- Other operating income
(a) Others	13.87	127.18
(b) Unallocable revenue	-	-
Income from operations (net)	54,970.30	61,649.50
2. Segment Results
(a) Sugar	-9,941.40	-13,007.61
(b) Co-generation	2,095.14	2,298.73
(c) Distillery	12,445.14	15,844.51
(d) IML	112.35	97.52
(e) Vinegar Unit	1,569.50	900.73
(a) Finance Costs	3,049.61	2,753.65
(b) Other expenditure (net of other income)	1,002.75	825.52
Profit before tax	2,228.37	2,554.71
3. Segment Assets
(a Sugar	37,397.20	39,891.71
(b) Co-generation	7,550.28	7,564.92
(c) Distillery	28,931.02	19,853.72
(d) IML	323.56	358.19
(e) Vinegar Unit	2,589.42	2,465.59
(f) Un-allocable	3,125.22	2,482.91
Total Assets	79,916.70	72,617.05
4. Segment Liabilities
(a) Sugar	40,845.43	37,032.29
(b) Co-generation	-	-
(c) Distillery	1,500.00	-
(d) IML	-	-
(e) Vinegar Unit	-	-
(f) Un-allocable	37,571.27	35,584.76
Total Liabilities	79,916.70	72,617.05

Details of Significant Changes in Key Financial Ratios

Ratio	Formula	Values	2023-24	Values	2022-23	% of Change
			Ratio		Ratio
1. Current Ratio	Current Assets	38,319.68	0.92	41,831.29	1.20	-23%
	Current Liabilities	41,624.75		35,003.78		less than 25% change
2. Debt Equity	Short Term Debt + Long Term Debt + Other Fixed Payments	53,087.59	1.98	47,057.12	1.84	7%
	Share Holders Equity	26,829.11		25,559.93		less than 25% change
3. Debt Service Coverage Ratio	Earnings available for debt service	9,593.76	1.66	9,631.30	1.76	-5%
	Debt Service	5,774.86		5,478.90
4. Return on Equity (ROE)	Net Profits after taxes - Preference Dividend (if any)	1,456.95	0.05	-2,323.36	-0.09	-160%
	Average Shareholders Equity	26,829.11		25,559.93

Explanation: There has been an Increase in profitability of the company due to the increase in profit of the company due to increase in price of sugar and distillery products. Hence, resulted in ROE as positive.

5. Inventory to Ratio	Sales	54,970.30	1.90	61,649.49	1.84	3%
	Avg. Inventory	28,979.30		33,492.55
6. Trade Receivables to Ratio	Net Credit Sales	4,063.85	0.97	4,330.24	1.15	-16%
	Avg. Trade Receivables	4,197.05		3,777.37		less than 25% change
7. Trade Payables to Ratio	Net Credit Purchases	9,790.85	1.23	6,137.12	0.79	55%
	Avg. Trade Payables	7,963.99		7,756.40

Explanation: Due to expansion work of Distillery unit, there is increase in due payable to trade creditors. Hence the Trade payable TO has increased.

8. Net Capital Turnover Ratio	Net Sales	54,970.30	31.21	61,649.49	9.95	214%
	Average Working Capital	1,761.22		6,195.27
9. Net Profit Margin	PAT	1,449.77	2.63	-2,344.59	-3.79	-169%
(in %)	Total Revenue	55,220.51		61,935.96

Explanation: There has been increase in the Net profit margin due to increase in profits of the company during the year 2023-24. Due to increase in price of sugar and distillery products and controlled cost, the Net profit has increased.

10. Return on capital	Earnings before interest and taxes	5,277.97	13.78	5,308.36	14.11	-2%
employed (ROCE)	Capital Employed	38,291.95		37,613.27

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. Hence, resulted in reduction in earnings.

Ratio	Formula	Values	2023-24	Values	2022-23	% of Change
			Ratio		Ratio
11. Return on investment	{MV(T1) - MV(T0) - Sum [C(t) ]}	-0.11	-0.01	-5.72	-0.28	-97%
	{MV(T0) + Sum [W(t) * C(t)]}	14.3		20.2
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	14.19			14.48
MV(T0) = Market Value at T0	14.3			20.2
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 an Increase in profitability of the company due to due to increase in profits of the company during the year 2023-24. Due to increase in price of sugar and distillery products and controlled cost, the Net profit has increased. 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.