It gives me immense pleasure to be amongst you on this
august occasion of the 21st Annual General Meeting of
your company. First, I welcome all of you and then I
would like to share my views.
Globally, few perceptible changes are witnessed.
a. Devaluation of Chinese currency has caused tremors
across the Globe. Most countries displayed panic and
kneejerk reactions. Currencies of most countries had to
navigate, discover and adjust to new exchange rates with
USD and other currencies.
b. Greater volatility and uncertainty prevailed as
changing scenario presented higher peril for the global
economy in 2015.
c. Oil prices have declined and are continuing to fall,
mainly on account of increased production of oil by the
US and also on account lesser off-take, world over.
d. Fate of a few European economies, mainly the Greece
hangs in balance as they have received yet another dose
for survival and rehabilitation
e. Fears of upward revision of Fed rate by the US
unfounded. The same could have resulted in flight of
capital out of many developing nations.
f. USD appreciating and weakening of most other
currencies, notably the euro), and the new quantitative
easing program of the ECB are just a few examples of the
economic factors at play.
g. There is increased geopolitical uncertainty related
to the Russia-Ukraine and Middle East conflicts (mainly
on account of rise in militancy by ISIS), as well as
increased concern about the economic and political
future of the Euro Area and European Union.
While the overall global real GDP growth average is
estimated to be 3.3 percent, the global average reflects
a combination of upsides and downsides. Downward
revision are primarily because of a major GDP decline in
Russia (from +0.8 to −3.5 percent) and moderate declines
in the Euro Area (1.6 to 1.4 percent), Japan (1.1 to 0.6
Brazil (1.5 to 0.5 percent). Upward revisions include
the United States (2.6 to 2.9 percent), Mexico (2.8 to
3.5 percent), and India.
The United States will continue to register stronger
growth than its peers. European economies have more
scope to recover, and the weakened euro could help
offset negative effects from slower exports to emerging
a. India is expected to overtake China as the fastest
growing emerging economy in 2015-16 by clocking a growth
rate of 7.5 per cent. Increased base effect is bound to
pull down the growth rate of China.
b. India's growth is expected to strengthen from 7.2 per
cent in 2014 to 7.5 per cent in 2015. Growth will
benefit from recent policy reforms, consequent pick-up
in investment, and lower oil prices. However the pace of
reforms is rather tardy. Non-promulgation of GST Act and
stiff land acquisition laws are stifling growth.
GLOBAL SUGAR INDUSTRY - A PERSPECTIVE
a. Unprecedented sugar glut sweeps across the globe.
Sugar stockpile biggest ever. Successive 5th year of
b. International raw sugar price is hovering around
11.30 cents per pound, slightly better that the 7 year
lowest raw price of 10.30 cents per pound recorded a
month ago. White sugar price in the band of 340 to 360
c. Thailand, Brazil among others are key exporting
Nations. Many sugar mills in Brazil facing closure owing
uneconomic and unviable operations.
d. South central Brazil, main sugar producing area
initially impacted by dry weather and draught. Rains,
then revived the harvest. Heavy rains thereafter,
however have dragged the production estimate to 29.8 MT.
Further change in climate will however warrant fresh
change in estimates. Ethanol price will play a
e. China, main importing country as the sugar production
is lower on account of reduction in mandated sugarcane
f. Cane harvest area in India & Thailand has expanded.
g. Global sugar stock expected to be more than 18
million tons. Global sugar balance heavily skewed.
SUGAR INDUSTRY IN INDIA:
· Year 2014-15 is third consecutive sugar surplus year.
Production for 2014-15 – 28.3 MT. Maharashtra producing
more than 10 million tons of sugar. In the crushing
season 2015-16, once again production is expected to be
in excess of 28 MT
· In Uttar Pradesh, production > 7 million tons, proving
wrong all estimates of lower production. Recovery
substantially better than last year (Average recovery
9.50% as against 9.25% last year)
· Sugar stockpile increasing – expected closing stock
more than 10 Million Tons. Stock as % of take-off is
alarming at more than 40%
· Sugar prices under intense pressure. From a high of
Rs. 3,100 per quintal at the start of season had dropped
to less than Rs. 2,150 two months ago.
· Government has announced compulsory export of sugar
and is in the process of promulgating order for the
All sugar mills to have export obligations during the
crushing season 2015-16. Mills in the hinterland to pay
arbitrage amount to mills in South & West who will
physically export sugar.
· It is expected that on account of compulsory exports,
domestic prices will perk up and the loss on export will
be significantly less than the benefit that would accrue
to sugar mills on account of better prices in the
· Prices have now revived by Rs. 300 per quintal on the
announcement of compulsory export of 4 MT.
· Whether price rally sustainable? No immediate answers
as much will depend on actual export trades.
· At current sugar prices, mills cannot afford to pay F
& RP, not to speak of SAP. Sugarcane arrears are in
excess of Rs. 10,000 crores
· Central Government export subsidy of Rs. 4,000 PMT has
failed to kick off exports. Given the lower
international price & depreciating Real (Brazilian
currency) vis-à-vis USD, Brazil continues to export in
spite of lower International price
· Central Government has provided impetus to produce
ethanol by announcing an attractive price for ethanol.
Way forward is to increase production of ethanol. Policy
to produce ethanol from ‘B’ heavy molasses necessary
· Central Government mulling barter of sugar with pulses
in the International Market Issues/ challenges faced by
the Indian sugar industry: Indian sugar industry faces
challenges galore. Raw material prices which are either
Central Government regulated or State Government
regulated have increased year after year.
However sugar prices are on a downward spiral. Industry
suffers from rank bad economics. Sugarcane prices have
risen so high that the farmers find the crop
commercially attractive vis-à-vis all other crops, so
much so that farmers are encouraged to grow the same
regardless of when they are paid for it.
GLUT LED TO HEAVY LOSSES
Sugar production in the country has been estimated at 29
million tons in the season 2014-15 as against 24.4
million tons in the previous season. Continuous hike in
sugarcane price led to an increase in the cane area,
cane production vis-a-vis sugar production. Besides,
carryover stocks of about 7.5 million tons of sugar from
the previous season created a glut in the domestic sugar
market. Meanwhile, domestic consumption remained at
about 24 million tons. Similar situation prevailed in
the world sugar market due to which India could hardly
export about 0.08 million tons of sugar against 2.12
million tons in the previous season. In the given
scenario, domestic sugar prices fell steeply whereas the
cane price was record high. This resulted into heavy
losses to the sugar industry.
SUGAR INDUSTRY IN UTTAR PRADESH SOME GENERIC ISSUES:
· For season 2014-15, the U.P. Government announced a
SAP of Rs. 280 per quintal, same as last year. It had
also announced benefits of Rs. 40 per quintal linked to
benchmark price of sugar & by-products between 1.10.2014
to 31.5.2015. Reliefs of Rs. 28.60 per quintal
formalized and disbursed recently · In making total
payment of Rs. 280 per quintal, sugar mills are in
arrears > Rs. 5,000 crores.
· Government of India has announced soft loan of Rs.
6,000 crores to help the industry to clear sugarcane
dues. Entitlement of UP State approximately Rs. 1,500
crores. Disbursal of the same will further reduce the
· Financial position of most sugar companies, yet in
dire straits since current level of sugar prices not
good enough to pay even Rs. 200.
· The North – south disparity and the advantage sugar
mills in Maharashtra & south enjoy in terms of lower
sugarcane price and higher recovery continues to hound
sugar mills Uttar Pradesh.
· Recent announcement of compulsory exports have helped
rebound sugar prices.
· Group recovery during season 2014-15, highest in north
India – 10.78%, - higher by more than 0.5% as compared
to previous crushing season
· Losses continue owing to declining sugar prices.
· U.P. Government had disbursed relief of Rs. 28.60 per
quintal on cane purchases during the season 2014-15. The
amount has been directly disbursed into the accounts of
· Company has been sanctioned soft loan of Rs. 56.29
crores and the same is in the process of being
disbursed. It translates to an amount of approximately
Rs. 24 per quintal of sugarcane purchased.
· Impressive recovery recorded at all three units.
Recovery at DN plant was 11.11% (highest ever in North
India) whereas at DP plant, recovery of 10.98% was
· During the season 233 lac quintals of sugarcane was
crushed as against 208 lac quintal crushed in the
previous crushing season. Improved farm yield (on
account of Co 0238)and lesser diversion of cane to
alternative sweeteners contributed to increased
availability of sugarcane.
· Cogenerated power worth Rs. 12,684 lakhs was exported
to the state grid in the accounting period of 18 months
as against Rs. 7,181 lakh in the previous accounting
year. However, multiple barriers on sale of molasses
adversely impacted the top-line and cash-flows of sugar
companies including your company as well.
The overall negative environment prevailing in the
industry impacted the working of your Company as well
during the period under review. Higher sugarcane cost
vis-a-vis lower sugar sales realization together pulled
the performance down.
Financial Score Card (Rs. Lacs)
Sugar production in the country is estimated at 28
million tons against the consumption of about 24 million
tons. However, with more than 11 million ton surplus
sugar from the previous season, the market is currently
facing the bearish trend. Spot prices are hovering
around Rs. 2,450 per quintal. However with the order
promulgating compulsory export of 4 million tons of
sugar, the prices are expected to rev up.
Much will depend on the SAP to be announced by the State
Government. Central Government has already announced FRP
of Rs. 230 per quintal linked to recovery of 9.50%.
We do appreciate the measures taken by the government
which will provide some relief to the crisis ridden
sugar industry. However, linkage of sugarcane and sugar
price will play pivotal role for sustenance of the sugar
sector in the long term.
Few steps that can be taken to help rejuvenate the
a. Linking the sugarcane prices to the revenue from
sugar industry through a value sharing ratio – one of
the important recommendation of Rangarajan Committee
Report. For the long term survival & sustainable growth,
this alone is a rational solution.
b. Abolishing the reservation policy for sugar
by-products like molasses.
c. Allowing direct manufacture of ethanol from Sugarcane
& providing remunerative price for sale of ethanol &
increasing mandatory mixing of ethanol in petrol to 10%
& then gradually to 25% as is being done in Brazil &
other developed Countries
d. Providing subsidies to millers for R&D – especially
in the area of recovery improvement and yield
improvement. Encourage development & propagation of
improved & early varieties.
e. Creation of Sugar equalisation fund to smother the
cyclical effects of Sugar sector & use these funds in
leaner times for survival of Sugar sector.
I would like to take this opportunity to thank you for
all your support. I seek your continued support in our
endeavor to achieve better results in future. I would
also like to use this opportunity to thank all our
business associates, our employees, our farming brethren
who have reposed immense confidence in us, our Banks and
who have proved to be our reliable and trustworthy
friends, various Government agencies and last but not
the least the illustrious members of our Board who have
provided their valuable guidance whenever required.
G. R. MORARKA
19th September 2015