Chairman's Speech - Dwarikesh sugar industries - Dwarikesh Hand Sanitizer - Sugar Mills

Chairman’s Speech

Good morning Ladies and Gentlemen

It is with great pleasure I welcome you to the 29th Annual General Meeting of your Company – the first physical meeting after Covid pandemic.

I will now take you through the company operations and latest sectorial developments which will serve as a pre-cursor of the ensuing year.

The Financial Year 2022-23 was a year of consolidation for your company as we strengthened our efficiencies and transformed into a fully integrated sugar conglomerate. Our distillery capacity has grown from 30 KLPD to 337.5 KLPD in just three years and the time has now come to sweat our assets to enhance our efficiencies and graduate our business to the next level.

We have changed our logo into something that faithfully communicates our evolution from a legacy sugar company into a multi-faceted conglomerate with interests in sugar, green power and green fuel. Our new logo depicts our future-forward thinking and commitment to responsible nation-building.

During the year under review, our shift in the revenue mix gained momentum. The ethanol segment in our total revenue mix increased to more than 25%. Your company clocked the highest ever revenue of Rs. 2117 crores, out of which ethanol sales contribution was Rs. 531 crores. The company clocked EBIDTA of Rs. 229 crores vis-à-vis Rs. 294 crores last year. Your company recorded a PAT of Rs. 105 crores compared to Rs. 155 crores last year. The market capitalization of your company remained in excess of Rs. 1600 crores as on 31 st March, 2023.

The financial performance of the company for FY 2022-23 reflects significant revenue transformation. Though the sugar segment continued to occupy centerstage, its contribution in the total revenue stream has declined. The company now operates with a more remunerative sales mix with ethanol emerging as a major growth contributor with the sugar and power segments offering support.

* Revenue from operations was Rs.2103 crores during FY 2022-23, increasing by 6.28% compared to Rs. 1,979 crores during 2021-22. Increase in revenue was attributed to the higher quantity of ethanol sold as well as better sugar releases ordered under the monthly release mechanism. The company exported 100000 MT of raw sugar during the year. No ‘C’ heavy molasses was used for making ethanol. 4.62 crore litres of ethanol sold was produced from cane juice / syrup directly and the balance 3.80 crore litres of ethanol sold was produced with ‘B’ heavy molasses as the feedstock.

* As mentioned earlier EBIDTA during FY 2022-23 was Rs.229 crores compared to EBIDTA of Rs.294 crores last year. The decline in EBIDTA, both in absolute terms as well as in % terms is on account of increase in cost of goods sold, without corresponding increase in the price of sugar sold. While the sugar prices remained muted throughout FY 2022-23, there was an increase in the cost of goods sold mainly on account of lower sugar recoveries and higher raw material costs.

* As stated hereinbefore profit after tax of Rs. 105 crores, was lower as compared to Rs. 155 crores last year. The lower PAT is on account of lower EBIDTA. Lower PAT is notwithstanding the fact that the company was able to moderate its finance costs.

* Interim dividend of 200% was declared and paid even as the Company set aside adequate funds to reinvest in its growth.

Salient features

* The 162.5 KLPD distillery at the DN unit operated at full capacity and the 175 KLPD distillery at DD unit operated at its rated capacity for a part of the year. The DD distillery was commissioned in June 2022 & commenced commercial production on the 6 th July, 2022 and quickly began operating at its full capacity. The distillery has state-of-the-art technology with a zero liquid discharge facility. The company now has a combined capacity to produce 337.5 KL of ethanol / industrial alcohol per day.

* Your company sold 8.42 crore litres of ethanol and generated a revenue of Rs. 531 crores from the same. During the SS 2022-23 sugarcane juice / syrup was used directly for producing ethanol. The company will replicate this model in the coming years and will use juice / syrup to produce ethanol during the season, while using B heavy molasses to produce ethanol during off-season. This will not only moderate sugar production and inventory but will also catalyse higher ethanol production and optimum distillery plant utilisation. This will help produce and sell around 11 crore litres of ethanol in the coming years.

* During FY23, your company exported 100,000 MT of raw sugar and sold more than 320,000 MTs of sugar in the domestic market. Around 36001 MTs of export quota allotted to your company was swapped in favour of domestic quota. The benefits of this swap will be in the form of additional releases for the domestic market which we have started utilising from April, 2023.

* During FY 2022-23, your company crushed 3.82 crore quintals of sugarcane quintals compared to 3.74 crores quintals crushed last year. During SS 2022-23 your company crushed 4.01 crore quintals of sugarcane vis-à-vis 3.78 crore quintals crushed last season, an increase of over 6%. The benefit of higher crushing will transform into higher revenues in the coming fiscal.

* Your company is one of the most respected sugar producers in North India. The sugar recovery reported by the company is among the best in North India. During SS 2022-23, your company crushed 401 lakh quintals of sugarcane at a gross recovery of 11.70 % vis-à-vis 378 lakh quintals crushed in the previous season at a gross recovery of 12.01%, a recovery drop of 31 bps. The decline in recovery is largely attributed to the red-rot infestation which impacted the recovery of the DD sugar unit by 50 bps. There was also a 36 bps drop at the gross recovery at DP unit due to the attack of top-borer pest and non-seasonal rainfall in its command areas. The extension of crushing operations in the hot months of May and June also played a role in the lower gross recovery of both DN and DP units.

* Your company is striving to bring about a major varietal change in the command areas of DD unit where red-rot infestation has affected the recovery and farm yields. Your company is also working on efficient ratoon management. Farmers are encouraged to use effective chemicals and pesticides and change the varietal mix to reduce dependence on CO 0238 variety which is facing existential fatigue in some areas

* During SS 2022-23, sugarcane juice was diverted at both DN and DD units to cater to the requirements of distilleries at both the units. Up to 31/3/2023, 60.69 lakh quintals of sugarcane crushed was diverted for making ethanol. During the full season of 2022-23, 73.26 lakh quintals accounting for 18.3% of the total sugarcane crushed was diverted to produce ethanol. B heavy molasses was generated across all three units. Melange of the aforesaid production modelling resulted in sugar productions sacrifice of over 1.22 lakh MTs during FY 2022-23 and 1.39 lakh MTs of sugar production during SS 2022-23. As at 31/3/2023 your company carried sugar inventory of 10.61 lakhs quintals as compared to 19.63 lakh quintals on same date last year, reducing by 9.02 lakh quintals.

* During FY23, the rating of long-term loans of the company was upgraded from A+ to AA -. The outlook has been revised to ‘stable’ from ‘positive’. The rating upgrade is a significant indicator of our judicious fiscal management and robust cashflows. The commercial paper programme (short term) continued to attract the highest rating of A1+. All long-term loans availed by the Company were at subsidized interest rates. During FY23, the company shrank its working capital cycle and saved on finance cost.

* The net worth your company enhanced to Rs. 739 crores and your company operates at a low gearing of 0.38

* Your company continued to make cane price payment ahead of schedule and has cleared the cane dues of SS 2022-23 in entirety.

Global sugar industry trends

* There was an initial estimation of 4 million tons of global sugar surplus. There were repeated revisions as the season progressed due to the downward revision of production estimates from India and other Asian geographies. Until a couple of months ago it was estimated that the surplus would moderate to a million tons or so. However, it is now has become increasingly clear that eventually there may be a small deficit.

* The experts have once again estimated a surplus of 4 million tons for SS 2023-24. However, these are early estimates and may undergo multiple revisions.

* International raw sugar price of touched an all-time high and remained above 26 cents mark for more than a month before moderating to around 24 to 25 cents per pound, while white sugar traded above US$ 700 PMT for a considerable amount of time.

* Logistic challenges in Brazil, capping of sugar exports from India at 6 million tons and geo-political tensions arising out of Russia-Ukraine war, resulted in the rally in sugar prices. Profit booking by some fund houses and trade houses eventually led to the lowering of prices.

* El-nino in the second half of 2023 could impact the production numbers in the coming season. El- nino could result in drier climate conditions in Asia and wetter climate conditions in Brazil, both of which are not suitable for sugarcane growth in their respective geographies.

The Indian sugar industry review

The Indian sugar season 2022-23 proved was eventful.

India’s sugar production estimation dropped from 36 million tons to 32.8 million tons with most mills having concluded their crushing operations. Sugar sacrifice of 4 million tons in favour ethanol indicates a gross production of 36.8 million tons down from 39.6 million tons last season. India continues to be a surplus sugar-producing nation. Any decline in sugar production will not trigger sugar scarcity but can only reduce sugar availability for exports.

Maharashtra registered a significant decline in sugar productions during SS 2022-23 and so did Karnataka.

Around 6.1 million tons of sugar export is estimated to be clocked. With a view to maintain a closing inventory of around 6 million tons, the government did not announce any further export, suspending the opportunity of sugar companies to capitalize on the higher international sugar prices. Higher international sugar prices did not influence the domestic market, which continued to be flattish. Although post April, the sugar prices have shown signs of rallying.

India’s Sugar Season 2022-23 commenced with an opening stock of 5.7 million tons. However, the Central Government recalibrated the opening stock to 7 million tons based on the inputs received from concerned State Government agencies. As per the latest ISMA estimate, sugar mills are likely to produce 32.8 million tons of sugar, after factoring in a sacrifice of 4 million tons of sugar production in favor of ethanol. As mentioned in the preceding paragraph, exports are likely to touch 6.1 million tons. Consumption is estimated at 27.5 million tons. With no further export quota likely to be announced by the Government, it is expected that India will have closing inventory of more than 6 million tons, which is around three months of consumption.

The Indian sugar industry and Indian domestic sugar prices are seen as influencers of world sugar prices. There is widespread demand for the quality and delivery of Indian raw sugar and white sugar worldwide. This is evident with the surging of international sugar prices to unprecedented levels when it became clear that the government will not allow further exports.

The 10% blending target was achieved in ESY 2021-22, and it is expected that 12% blending will be achieved in ESY 2022-23 and maybe 15% in ESY 2023-24. As on 31 st March, 2023, OMCs have issued LOIs of 502 crore liters and contracts for 499 crore liters against the requirement of 600 crore liters for ESY 2022-23 . However, out of 502 crore liters, the ethanol produced from sugarcane juice/syrup as feedstock was only 142 crore liters or 28% of the total LOIs issued. There is a growing understanding in the industry that for the EBP program to be successful, more procurement contracts will need be signed for cane juice / syrup-based ethanol.

There will be a greater preference for sugar sacrifice in favor of ethanol production if the government prices the procurement at the level which incentivizes sugar companies to produce ethanol over sugar.

In doing so, the Indian sugar industry can moderate sugar production by up to 30%. Representations were made to the government to apprise them of the cost dynamics of producing ethanol from sugarcane juice and it is expected that the Government will respond positively.

The Ethanol Blending Program intends to make India self-reliant for its energy needs, reducing carbon footprint, moderating sugar production, improving the sugar industry’s viability to empower it to pay an economically remunerative price for sugar cane and in line with the global trend of converting surplus food into energy.

The early introduction of flex-fuel vehicles can accommodate higher ethanol proportions, including running these vehicles on pure ethanol, will help achieve the 20% blending target. By 2025, E20 vehicles will constitute around 25% of the fleet and achieving 20% ethanol blending with petrol by then may seem be a tall order marked by multiple challenges. Nearly 1000 dispensing pumps are expected to be opened in the coming year. It is a prognosis of stimulating things to come in the ethanol space.

The Central Government’s encouragement to sugar companies to sacrifice sugar production in favor of ethanol continued during the year under review. The government’s policies enhanced the viability of sugar mills and enabled them to pay farmers on time and make the ethanol blending program a success so that the dependence on imported crude is minimized. The government is also encouraging sugar mills to venture into value added products.

The policy interventions comprise the following:

* Retention of the minimum ex-factory support price of sugar at Rs. 3,100 per quintal and also retention of monthly release mechanism to regulate sugar availability in the open market.

* Ethanol procurement price for Ethanol Season Year 2022-23 (December to October) is fixed at Rs. 49.41 per litre for ethanol made from C-Heavy molasses (increase of Rs. 2.75 per litre over the price of previous period), Rs. 60.73 per litre for ethanol made from B-Heavy molasses (increase of Rs. 1.65 per litre over the price of previous period) and Rs. 65.61 per litre for ethanol produced directly from sugarcane juice (increase of Rs. 2.16 per litre over the price of previous period).

The State Government also continues to play a decisive role in regulating the sugar industry. It announces remunerative and reasonable prices for the sugarcane every season, manages equitable allocation of command area of sugar mills, ensuring fair trade practices by all parties, collaborates with farmers and sugar mills for cane development and making certain that the sugar mills make timely payment to farmers. It also supports the implementation of schemes of Central Government.

The Uttar Pradesh sugar industry

*For SS 2022-23, SAP remained unchanged. Sugar mills paid Rs. 350 per quintal, delivered at gate for the early maturing variety which constitutes the bulk of the sugarcane supplies.

* During SS 2022-23, Uttar Pradesh produced 10.6 million tons of sugar compared to 10.2 million tons produced in SS 2021-22. The production number is commendable considering the fact that sugar mills in Uttar Pradesh are active participants in the ethanol blending programme. Many mills used sugarcane juice / syrup directly for making ethanol. Red rot infestation was rampant in central UP and Eastern UP which resulted in decline in farm yields and lower sugar recoveries.

* UP sugar mills reported moderate sugar stock levels, owing to higher exports, ethanol production using B heavy molasses and sugarcane juice.

* On account of sound industry health, cane price arrears remained manageable and only a few groups delayed in making payments.

* Nearly Rs. 2.25 lakh crores was paid by sugar mills to the farmers across six years for cane, indicating the success of an eco-system comprising State Government, farmers and the sugar mills.

Going forward

The company’s cane management initiatives will result in 70% replacement of the Co 0238 cane variety in the DD unit command area in two to three seasons from now. The command areas of the two other units will focus on improving the Co 0238 variety. Efforts have also been intensified for focused application of chemicals and pesticides to limit the damage caused by top-borer which impacted the recovery at DP unit. We believe that recovery lost in the last two seasons will be regained in the coming seasons.

Summing up

I would like to take this opportunity to thank you and seek your continued support in our endeavor to achieve better results in future. I would like to use this opportunity to thank our associates and employees for their hard work, our farming brethren, who are not only our partners but also our backbone, for their faith in us, our banks and financial institutions for their trust and our customers including OMCs who have been our reliable business associates. A special word of gratitude is due to the Central and State Governments for their unconditional support in taking our industry on a self- growth path that contributes to the overall eco-system. Lastly, I thank our illustrious Board members for their valuable guidance.

Dwarikesh performance

  • The 162.5 KLPD distillery at the DN unit operated at full capacity during the year under review. Your company sold 5.57 crore litres of ethanol, which was completely derived from B heavy molasses.
  • The subsequent waves of the pandemic COVID-19 had an insignificant impact on the business of the company. Sugar, by the virtue of being an essential commodity, was exempted from restrictions and your company took safeguards to protect employees, farmers and other stake holders.
  • During the year, your company exported 25,000 MT of raw sugar and sold more than 4.3 lakh MT of sugar in the domestic market
  • During FY 2021-22, your company crushed 3.74 crore quintals of sugarcane quintals compared to 3.97 crores quintals crushed in FY 2020-21
  • Your company is respected as one of the most efficient producers of sugar in North India. The recovery reported by the company is among the best in North India. During SS 2021-22, your company crushed 378 lakh quintals of sugarcane at a gross recovery of 12.01% vis-à-vis a similar quantity of 378 lakh quintals crushed in the previous season at a gross recovery of 12.32%, a recovery decline of 31 bps. A similar drop was experienced by various sugar companies, largely on account of late unseasonal rain and red-rot disease that was pronounced in Central and Eastern Uttar Pradesh.
  • Your Company generated B heavy molasses across all its units and, as a result of which sugar production of nearly 58,800 MTs was sacrificed.

Operational snapshot

  • The 162.5 KLPD distillery at the DN unit operated at full capacity during the year under review. Your company sold 5.57 crore litres of ethanol, which was completely derived from B heavy molasses.
  • The subsequent waves of the pandemic COVID-19 had an insignificant impact on the business of the company. Sugar, by the virtue of being an essential commodity, was exempted from restrictions and your company took safeguards to protect employees, farmers and other stake holders.
  • During the year, your company exported 25,000 MT of raw sugar and sold more than 4.3 lakh MT of sugar in the domestic market
  • During FY 2021-22, your company crushed 3.74 crore quintals of sugarcane quintals compared to 3.97 crores quintals crushed in FY 2020-21
  • Your company is respected as one of the most efficient producers of sugar in North India. The recovery reported by the company is among the best in North India. During SS 2021-22, your company crushed 378 lakh quintals of sugarcane at a gross recovery of 12.01% vis-à-vis a similar quantity of 378 lakh quintals crushed in the previous season at a gross recovery of 12.32%, a recovery decline of 31 bps. A similar drop was experienced by various sugar companies, largely on account of late unseasonal rain and red-rot disease that was pronounced in Central and Eastern Uttar Pradesh.
  • Your Company generated B heavy molasses across all its units and, as a result of which sugar production of nearly 58,800 MTs was sacrificed.

Going forward – Precursor

It gives me pleasure to inform that the 175 KLPD distillery project at DD unit was commissioned on 24th June, 2022. The commissioning of the project was as per stiff targeted timelines, which speaks volumes about our execution capability. While partial benefits of this project will be visible in FY 2022-23, the full benefits will accrue in succeeding years. The distillery will utilize sugarcane juice / syrup as principal feedstock during the cane crushing season and turn to B Heavy molasses route during the off season for the perennial manufacture of ethanol. The state-of-the-art plant is based on the latest technologies and will utilize distillery waste together with bagasse as fuel to be incinerated in the boilers. It will recycle waste-water in its condensate polishing unit, resulting in zero liquid discharge.

The company has embarked on an extensive initiative, which will result in 70% replacement of the Co 0238 cane variety in the DD unit command area in about three seasons from now. The command area of DD unit was prone to red-rot menace and is getting our focused attention while in the command areas of the two other units, the effort is towards improving the longevity Co 0238 variety. We believe that we will achieve better recoveries in the seasons to come.

Summing up

I would like to take this opportunity to thank you all for your support. I seek your continued support in our endeavor to achieve better results in future. I would like to use this opportunity to thank our associates, rank & file of our personnel for their tireless & dedicated efforts in braving adversities, our farming brethren who are not only our partners but also our backbone for having reposed their confidence by supplying sugarcane to us, and our banks and financial institutions who proved to be trustworthy friends. A special word of gratitude is due to Central & State Governments for their unstinted support for putting our industry on a self-reliant pedestal that contributes to the overall eco-system. Last but not the least, my gratitude is due to the illustrious members of our Board for their valuable guidance.
Thank You
Gautam R. Morarka
Executive Chairman
June 30, 2023