Managing Director''s Address

 

 

MD’s Speech at 22nd Annual General Meeting

 

Ladies and Gentlemen,

 

It gives me immense pleasure to welcome you all to the 22nd Annual General Meeting of your Company. AGM offers a unique opportunity to share my thoughts with you, to take you through the operations of the company in the year gone by and from the prism of present provide you with a perspective of near foreseeable future.  With your kind permission, I take it that you have read the audited financial statements and the Directors' report for the year ended on the 31st March 2016.

 

Glimpses:

 

After several years of turmoil, the sugar industry in India and particularly in Uttar Pradesh witnessed some positive changes. The gloom that had pervaded the industry showed signs of being dispelled. After many years of global & domestic surplus situation, sugar balance seemed to align with the market. The tightening sugar balance globally was on account of deficit production of nearly 7 to 8 million tons in the sugar season 2015-16.  The domestic sugar production was also in sync with the domestic consumption. Sugar production during the season 2015-16 in India is pegged at 25.1 million tons. Lower production along with exports is expected to bring down the closing stocks to around 7 million MT in SY2016 from around 9.3 million MT in SY2015. The estimated decline in sugar stocks has resulted in improvement in domestic sugar realizations since August 2015. The decline in production is mainly caused by cruel drought in the sugar producing States like Maharashtra and Karnataka, which impacted sugar cane availability. The production in Maharashtra is estimated to decline by nearly 20% to around 8.4 million MT.  In UP, production during SY2016 is at around 6.9 million tons.

 

Sugar industry in India – policy initiatives

 

The season 2015-16 will prove to be a defining season in the history of Indian sugar industry. Concerned at the mounting cane arrears year after year, the Central Government introduced a slew of measures to nurse the Indian sugar industry back to good health.

 

 

 

 

·         Central Government announced grant of loan of Rs. 6,000 crores to the cash-starved industry. The scheme was to help the industry clear the sugarcane dues of 2014-15. One year interest subvention of interest @ 10% is being provided through SDF  

 ·         It was further assessed that skewed sugar balance had created an unprecedented glut in the market resulting in a free fall in domestic sugar prices, so much so, that sugar was sold in the price band of Rs. 2,200 per quintal to Rs. 2,300 per quintal (ex-sugar mill) during August 2015, an incredible loss of more than Rs. 1,000 per quintal to the sugar manufacturers

·        The Central Government therefore ordered export of 4 million tons of sugar from the country. A compulsory 80% obligation was cast on all sugar mills in proportion to the ratio of their respective sugar production in the earlier years.  Mills in the hinterland were provided window for trading their obligation of export on payment of charges to mills in the proximity of coastal area, who would physically export. Out of the 3.2 million tons of obligation cast on the sugar mills, nearly 1.55 million tons has already been shipped out of the country. Myanmar has been the major destination for the exported sugar

·        The Government has announced that those sugar mills fulfilling their export obligation and also obligation to supply ethanol will be given a subsidy of Rs. 4.50 per quintal of sugarcane crushed during the season 2015-16 and that the said subsidy will be directly transferred to the account of farmers affiliated and supplying sugarcane to the concerned sugar mills in discharge of the sugar mills obligation to pay the sugarcane dues.  

 

These measures proved to be crucial as they not only improved the market sentiments but also resulted in much needed resurrection of sugar prices.  

 


 

Ethanol & Co-generation:

 

Ethanol:

 

Activities over the last few years in sugar industry is focused on integration. There has been hardly capacity addition in the sugar space.  Lately ethanol blending program (EBP) has been identified by the Government as a means to bail the sugar industry out of trouble and also to address the energy needs of the Nation. During 2015 Oil Marketing Companies invited bids of supply of ethanol for 10% blending. Against the 10% blending target, 5% blending has already been achieved and industry is gearing for supplying ethanol required for 10% blending. To motivate the industry to participate in the EBP Government has waived off excise duty of 12.50% on ethanol for 2015-16 which will result in an additional realization of approximately Rs. 5 per liter.

 

While the first target is 10% blending, it is to be progressively increased to 20% and in order to do so the industry could divert B-heavy molasses to produce ethanol which will help enable industry to limit sugar production in a year of sugar surplus.

 

Cogeneration:

 

Presently only half of the sugar mills in India have infrastructure for cogeneration with a capacity in excess of 5,500 MW of power. Many sugar mills have added high pressure boilers which has resulted in better combustion of bagasse. Rates offered by State Government Electricity Boards range between Rs. 4 to Rs. 6.50 per unit. Though sugar mills have an option to sell sugar in open market, most sugar mills have entered long standing power purchase agreements with their respective State Electricity Boards, although a challenge generally faced by sugar mills in evacuating power to the State grids is the delay in receiving the payment.

 

State Government policy initiatives

 

The season 2015-16 has been a year of turnaround for the sugar industry in the State.

·          For the 4th year in succession, sugarcane price (SAP) announced by the State Government remained unchanged at Rs. 280 per quintal for the general variety.

 

 

 

·         The State Government also announced waiver of post-procurement levies such as entry tax, society commission & purchase tax. The State Government also announced subsidies of Rs. 23.30 per quintal which is linked to the threshold average price of sugar & by-products.

·        The State Government of Uttar Pradesh had paid subsidy of Rs. 28.60 per quintal of sugarcane purchased for the earlier crushing season 2014-15. The amount was disbursed by way of direct transfer to the account of farmers against sugarcane price dues of respective sugar mill.  As on date there are hardly any arrears pertaining to season 2014-15

·          For the season 2015-16 the State Government also introduced two tier payment. While payment equal to FRP of Rs. 230 per quintal was mandated payable within the statutory 14 days’ time, the balance is payable within 90 days of the close of crushing season of the respective sugar mill.

 

Sugar mills in Uttar Pradesh – Season 2015-16 recoveries – a feat hitherto unparalleled

 

Extra-ordinary recoveries clocked by sugar mills in Uttar Pradesh: As against average recovery in the range of 9.25% to 9.50% normally recorded by sugar mills in Uttar Pradesh, average recovery in excess of 10.50% was clocked by sugar mills. This was mainly on account of revolutionary sugarcane variety Co 0238. The said variety is an early maturing variety has high yield properties. The phenomenal rise in the recovery is on account of focused & dedicated cane development efforts planned and executed by sugar mills. A couple of mills have closed their crushing season with a recovery in excess of 12%. The cane development efforts are continuing on sustained basis and sugar mills are not only helping farmers procure seeds of good variety but are also educating farmers on regular basis to maximize their yields. Sugar mills have also minimized their harvest to crush time so that sucrose content in sugarcane is not lost. The higher recovery is also attributable to excellent climatic conditions. Uttar Pradesh witnessed frost free winter, huge swings in day & night temperature. The climate was conducive for optimized maturity of sugarcane.

 

Various measures of Central Government & State Government coupled with realignment of market dynamics on account of global as well domestic contraction in sugar production has breathed a new life in the industry which was on the way of being vanquished in the wilderness.

 

Dwarikesh – HIGHLIGHTS: 2015-16 

 

Your company continued with its excellence performance and clocked high recoveries. Table below is illustrative of the improvement in recoveries

 

Season 2015-16 vs Season 2014-15 (completed season)

 

Particulars

2015-16

2014-15

% Change

Crushing (Lac/Quintals)

DN (Upto 12.04.16 - season 2015-16)

DP

DD

Total

78.21

72.81

59.47

210.49

82.89

81.53

68.65

233.06

 

-5.64

-10.70

-13.37

      -9.68

Recovery %

DN

DP

DD

Combined

12.12

11.77

11.16

11.73

11.11

10.98

10.14

10.78

9.09

7.19

10.06

         8.81

Production (Lac/Quintals) *

DN

DP

DD

Total

9.49

8.57

6.65

24.71

9.21

8.95

6.96

25.12

3.04

-4.25

-4.45

       -1.63

* Including small quantity of non-marketable (brown) sugar

 

 

·         Significant drop in cane availability & cane crushed. Drop more pronounced in DD unit – in excess 13%. In case of DP unit nearly 11% fall in cane crushed. Lesser cane availability was a common phenomenon across all parts of Uttar Pradesh. 

·        However increase in recovery was heart cockling. DN unit recorded recovery of more than 12%, a hitherto unknown occurrence in Uttar Pradesh

·         Higher recovery on account of proportionately higher mix of early variety in the total varietal composition. Early variety Co 238 has transformed the dynamics of sugar industry in Uttar Pradesh. 

·         Group recovery of 11.73%, among the highest in North India. Record sugar production in DN unit 

·         Higher recovery also on account of lowest cut - crush (sugarcane) time and increasing awareness among farmers to supply fresh cane.

·         Climatic conditions played a weighty role in improvement of recoveries.

 

Profitability:

 

On account of excellent all round performance and on account of favorable market conditions. Our financial score card is reproduced below:

 

Dwarikesh - Financial scorecard:

Lac `

Particulars

2015-16

%

2013-15         

 (18 months)

%

Net Sales

79,434

100.00

112,839

100.00

EBIDTA

*12,175

15.33

9,587

8.50

EBDTA

*7,016

8.83

2,066

1.83

EBT

3,939

4.96

(2,659)

(2.36)

EAT

3,897

4.91

(1,675)

(1.48)

*Exceptional income of Rs. 492 Lacs is added to EBIDTA and EBDTA

 

 

Futuristic Vision of the Sugar Sector 2016-17

 

·        Promising sugar production season is forecasted in Brazil. Excessive rainfall during the harvest season can dampen the production estimates in Brazil.

  

·       Unfortunate drought in Maharashtra and Karnataka, is expected to drag the production by 3 million tons, However, surge in production in Uttar Pradesh and Tamil Nadu, can propel the production by 1 million tons. Overall production to be lower by 2 million tons. As per ISMA the production estimate is at 23.2 million tons.  At the end of season 2016-17 the country is estimated to have closing balance of 4.3 million tons as against 7.1 million tons estimated for season 2015-16.

·       Production in Thailand is also expected to be lower. Lesser production outlook in India, China and Thailand will result in continuance of tight sugar balance, globally

·        Sugar prices have shown signs of resurgence and presently around Rs. 3,400 to Rs. 3,500 per quintal. Sugar prices expected to sustain at present levels.

·       Critical to the future of the sugar industry in Uttar Pradesh is the announcement of SAP for the season 2016-17. While a reasonable increase of around Rs. 20 per quintal can be absorbed by the industry at the present levels of sugar price, any abnormal increase can distort the economics of sugar industry

·         In the present context import of sugar not viable.  

 

Dwarikesh – quest for excellence continues: Your Company is constantly striving to enhance efficiencies and improve productivity,

 

Cane Development: At Dwarikesh the credo that is followed is ‘farmers prosperity is company’s prosperity’. Interest of the company is perfectly aligned with the interests of the farmers.

 

a.       We constantly engage with farmers to encourage them to grow sugarcane & grow sugarcane of better variety which on the one hand will give better yield to farmers and on other hand helps mills to derive better recoveries.

  

b.      We also help farmers in sourcing better quality of pesticides, fertilizers etc. Often, we subsidize a portion of the cost of the same. Use of good quality of pesticides makes the crop pest resistant.

 

c.        Farmers are educated & encouraged to do trench farming, autumn planting & intercropping such that their revenues are maximized.

 

d.       Demonstration plots: We often identify certain plots of farmers as demonstration plots where best agricultural practices are followed. The results seen at such plots act as an inducement to other farmers to replicate these practices in their fields. Data in respect of such plots is meticulously compiled so that the same can be gainfully used.   

 

e.        Cane development initiatives are customized according to the requirement of farmers, prevalent agro-climatic condition and other relevant factors.   Nukkad Nataks & Kisan Goshtis are held to educate farmers to follow better agricultural practices so that their yields & productivity is maximized. 

 

Zero liquid discharge:

 

Pollution Control Boards have set formidable norms to reduce the liquid discharge. Efforts are now directed to not only recycle and reuse the process water, but to draw minimum ground water. Your company has taken many small steps with a view to optimize the use of process water, adequately treat the water to be discharged and make it suitable for irrigation.  The avowed objective of the Company is to achieve zero liquid discharge in the near foreseeable future. The company has also set up online monitoring systems to monitor the quality of liquid and air discharge.  The company is committed to play the role of a responsible corporate citizen.

 

 

 

Efficiency enhancement

 

Within the permissible resources, your Company is ceaselessly working to enhance efficiencies at its plants.  Incredibly low process losses recorded by Company over the years bears adequate testimony to spirit inculcated by your Company. Dedicated personnel of the Company are always looking to make subtle improvisation at the plant & equipment so as to save water, steam & power so that power generation & export can be maximized. Your Company is always scouting for new technologies so as to improve productivity of its plants.  

 

Distillery:

 

During the year, Bio-methanated spent wash plant involving an outlay of nearly Rs. 10 crores was commissioned. The plant will de-bottleneck ethanol manufacturing capabilities. It will also aid the uninterrupted working of distillery for most part of the year. The plant will also enable the company to be compliant in fulling norms of effluent treatment.  While expenditure in creating the infrastructure has been incurred during the year, benefit will be reaped in the coming years.

 

SUMMING UP

 

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 for their tireless efforts in braving adversities, our farming brethren who are our backbone and who have reposed immense confidence in us by growing & supplying sugarcane to us, our Banks and Financial Institutions 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.

 

Gautam R. Morarka

(Managing Director)

 

August 05, 2016