MANAGEMENT DISCUSSION AND ANALYSIS REPORT

The Company's business comprises of sugar, alcohol, power, chemicals and rayon, with manufacturing facilities at Daurala (U.P.) and Kota (Rajasthan). The Directors' Report gives segment-wise/ product-wise performance and outlook of these operations. The Directors' Report also deals with internal financial control systems and their adequacy and risk and concerns.

The industry situation and competitive scenarios for the various products are given below:-

Sugar

Sugar is an integral part of rural economy and almost all households in India, affecting a large number of farmers, consumers, transporters, workers etc. This has resulted in India being the largest consumer and second largest producer of sugar in the world. As the sector affects large number of people, its sustainability/ development is the responsibility of all stakeholders. The Sugar Industry has also helped in bridging the energy deficit, wherein it supplies green power to the State Electricity Boards. Further, the Industry is supplying ethanol under the Government's Ethanol Blending Programme (EBP) which helps reduce dependence on imported oil, saves on foreign exchange and is environment friendly.

At the beginning of financial year 2015-16, the Industry was straddled with high sugar stocks due to high production during last 2-3 years and slow progress of export facilitation, which was necessary to enable exports of sugar manufactured from high cost cane. The Industry resorted to distress selling to meet cane dues as well as to save on carrying cost. This resulted in free-fall of sugar prices to below Rs.2300 per qtl. (a six year low). However, from the second half on-wards, the prospects of the Industry improved due to lower global/ domestic production estimates, mainly due to lower anticipated production in Brazil, Thailand and India. Further, the Central/ State Governments announced some measures to provide relief to Sugar Industry and tackle surplus sugar situation, by way of facilitating exports.

Due to positive steps by the Governments/ lower production estimates, sugar prices improved to a level of Rs.3400 per qtl. in March, 2016. At these prices, the sugar situation is expected to ease with Industry able to meet cane dues and other expenses.

Overall, the Season 2015-16 is headed for fall in worldwide production. The decline in Indian output due to severe drought in some regions coincides with a shortfall in sugar production in Thailand and China - possibly leading to first global deficit in 5 years.

Consequent to the drought, the planting of cane in those areas of India is being affected and the production in 2016-17 may come down further. Given the expected closing stock of 7 Million MT this year, there should not be any shortage in the next year in the domestic market. However, if the monsoon is deficient, the Indian Government may resort to import of sugar, which would not be in the interest of cane farmers and domestic industry.

The prices of sugar would be largely dictated by demand and supply situation and Governments' comfort level. In the interest of all stakeholders i.e. cane growers, consumers and Industry etc., it is expedient for the Government to workout a mechanism to establish a linkage between sugar prices and cane prices.

The Unit has been making constant efforts to improve efficiencies and operating parameters. This has resulted in reduction in operating cost. Further, the efforts of the Company in popularizing new cane varieties with high yield and sucrose content resulted in improved sugar recovery (10.44% in financial year 2015-16 as against 9.68% last year). Further improvement in recovery is expected during next year. Supply of power to gird and realization from Renewable Energy Certificates are on expected lines.

The overall operations of the Company's Sugar Unit continues to be satisfactory and continued improvement in efficiency/ operations is a priority.

Alcohol

Higher opening stocks of molasses in U.P. resulted in lower prices of molasses during the year.

While off-take of alcohol from domestic distilleries by the Chemical Sector remained subdued partially due to imports of alcohol, that of the Oil Marketing Companies for the Alcohol / Petrol Blending Programme saw considerable improvement. Demand from Potable Sector also remained low due to decline in liquor sales and gradual shift of demand from Molasses to Grain Based Alcohol.

The Company took some steps for process improvement, resulting in enhanced production efficiencies, and energy saving. Consequently, overall margins were better than in the brvious year.

The Company has always been proactive in adopting various measures for environment protection. To augment its efforts in this direction, a Multi Effect Evaporator for effluent treatment was set up and commissioned. This will reduce the environment load and result in decrease in water usage.

Chemicals

Chinese manufacturers intensified their aggressive policies to push sales, as they faced lower domestic demand.

Though our sales were lower due to low demand of some major products, efforts were made to maintain profitability by improved operations and reducing cost of production.

Products based on chlorinated processes showed good demand. Contract Manufacturing of a new product was started during the year.

Reducing environment load has been a priority area for the Company and significant investments were made in this regard.

Rayon

Shriram Rayons manufactures Rayon tyre cord yarn, grey and treated fabric. The treated product is directly used by Tyre companies as reinforcement material for manufacture of high performance tyres.

The market was adversely affected due to continued recession in Europe coupled with turmoil in Chinese economy and general global economic slowdown.

The Unit is exporting its products to most of the international tyre manufacturers in various countries and has a wide customer base. Capability to supply treated fabric with consistent product quality and on-time delivery has helped the Unit in maintaining its market share although the total sales volume was lower as compared to brvious year.

The margins in export prices continue to be under strain. The production input prices including raw material prices are going down in Europe, where the high performance rayon market is concentrated, whereas they are going up in India. This has posed challenges in maintaining the profitability.

Additionally, the decreasing Euro Dollar parity has adversely affected export realization. The Unit made all efforts to protect the margins by maintaining production at optimum capacity and efforts on cost reduction mainly in energy and wastage.

The Nylon Chafer business continues to be subdued. The Indian tyre producers have been adversely affected by the cheaper imports and they operated at lower production throughout the year.

The Unit optimized its power & steam generation with the operation of Back Pressure Turbines and stopping of condensing turbine. The balance power requirement was met by drawing cheaper open access power. The Unit has been able to meet the reduced steam requirement by operating husk fired boilers except during maintenance and cleaning period. This has eliminated dependency on costly open market coal.

Shriram Rayons continued its efforts to reduce, recycle and reuse water, which is a brcious natural resource.

The Effluent Treatment Plant was further upgraded and online effluent monitoring system was installed. It is linked to Central Pollution Control Board and Rajasthan State Pollution Control Board.

Material Development in human resources/ industrial relations front

The Company's HR philosophy is that a dedicated, enlightened and contented work force is the life line for any business to achieve its goals. Strength of any organization is its employees. The Company continued its focus on development of its human resources to meet the brsent and future challenges with enhanced skills.

Industrial relations remained cordial in all its operations during the year. As on 31.3.2016 the total number of employees on the Company's pay roll was 2341.

The Company undertakes various activities with community participation, keeping the larger interests of the society, in the areas of education, health care, rural development, environmental protection and infrastructure development in the areas where the Company's manufacturing Units are located.

Environment protection

The Company gives utmost importance to environment protection in and around the areas, where its operations are located. Tree plantation is an on-going activity both at Daurala and Kota. This activity not only improves the quality of air in the area, but also mitigates green house emissions, which are the major cause of global warming.

DSW has upgraded its power house and processes and stopped using coal as a fuel. Various agro-fuels, locally available, including bagasse, rice husk, sawdust and wood chips, etc. are being used instead. Continuous efforts are being made to reduce power consumption. Shriram Rayons continued to use agrowaste fuels in place of fossil fuels to a large extent.