• Chairman's Speech

Chairman’s Speech

Good morning Ladies and Gentlemen

I welcome you to the 28th Annual General Meeting of your Company through video conferencing. In view of the Covid 19 pandemic, MCA and SEBI through its various circulars have permitted to conduct our AGM through Video Conferencing / Other Audit Visual Means. Your company appointed Central Depository Services (India) Limited (CDSL) to provide the facility of conducting this AGM through video conferencing. On behalf of the Board of Dwarikesh, I thank you for joining. Your presence is a testimony of your support to the Company

With your kind permission, I take the audited financial statements and the Directors' Report for the year ended on the 31st March 2022, as read.

The financial year 2021-22 was a defining year for your company. The revenue mix of the Company underwent a visible transformation with the ethanol segment’s profitability playing centerstage. The Company clocked record revenue of Rs. 1,974 crores and highest EBIDTA of Rs. 294 crores. The Company’s PAT of Rs. 155 crores, was nearly 70% higher than the previous FY. The Company is transforming from commodity company to an energy company. In line with this evolution and optimism, the Company declared and paid an interim dividend of 200% for FY 2021-22. The Company’s market capitalization had touched a 52-week high of around Rs. 2800 crores, before market sentiments in general softened the valuation of most companies on the bourses.

I will now take you through the contemporary sectoral developments and operations of the company.

Sugar Sector – Contemporary developments

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 are customized to empower the sugar industry to moderate sugar production to enhance viability, pay timely sugarcane dues and catalyze realizations.

During the year under review, there was a rerating of the country’s sugar sector from that of a sluggish commodity sector at the mercy of cyclical forces to a vibrant energy sector with the potential to address India’s clean fuel requirements and sustaining its role as a rural economy backbone.

The Central Government continued to script the sector’s turnaround. The Government outlined an ambitious 20 per cent target of blending ethanol by March 2025. The challenges comprise the commissioning of ethanol distilleries across India with a capital expenditure for more than Rs. 100,000 crores and upgrading the infrastructure of Oil Marketing Companies. These OMCs need to enhance blending capabilities and make changes in fuel dispensing stations.

From the perspective of sugar companies, it is important for the Government to revisit the procurement price of ethanol produced directly from sugarcane juice. The tangible sacrifice of sugar in favor of ethanol will happen only when sugar companies utilize sugarcane juice to produce ethanol, a replication of the Brazilian model. In doing so, the Indian sugar industry can moderate sugar production by nearly 30%, which makes it necessary for the procurement price to be at a level that the sugar industry is attractively incentivized to produce ethanol over sugar. 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 Central Government recently introduced a ban on sugar export beyond 10 million tons, fearing that export in excess of 10 million tons would cause inflation within India. This fear appears misplaced as the country’s sugar production is expected to cross 36 million tons. Even if an additional one million tonnes of export is permitted, the closing stock of sugar of more than 6 million tons would translate to nearly 3 months of consumption, adequate to keep sugar price under control. It is necessary that the present sugar realizations of around Rs. 34500 per MT rise to Rs. 36,000 per MT to strengthen cashflows for sugar companies and farmers. The abrupt move to cap exports and regulating the same by allocating quantities to sugar mills and exporters has created confusion as mills are now saddled with raw sugar stocks that they had produced pursuant to the contracts executed by them before the promulgation of the order capping exports

The Uttar Pradesh (SAP) sugar cane price for SS 2021-22 was raised by Rs. 25 per quintal across all varieties. Sugar production in UP though was lower on account of a diversion of sugar in favour of ethanol and a decline in yield at the farm level due to unprecedented unseasonal rain and red-rot disease incidence. This had an impact on sugar recoveries of most UP-Sugar mills. However, sugar cane arrears remained largely under control compared to the earlier seasons although these arrears comprised dues by only a few sugar companies. Sugarcane continued to be the most attractive crop for farmers. Nearly Rs. 1.80 lakh crores have been paid to farmers across five years for cane, indicating the success of an eco-system comprising State Government, farmers and the sugar mills.

Global sugar industry trends in a nutshell

  • The global sugar production bucked the earlier deficit production estimate and is expected to register a small surplus mainly on account of bumper sugar production in India. There was decline in sugar production in Brazil, which was counter-balanced by gains in production mainly from India

  • Production and exports rose to record levels in India. The higher production and exports from India countered lower production and exports from Brazil. A spurt in crude prices strengthened international sugar prices as Brazil produced more ethanol in its production matrix as a result of which India has emerged as a key global sugar trade player.

  • The principal driver of the global sugar market was the geo-political tension following the Russian invasion of Ukraine coupled with lower production in Brazil supporting sugar realizations.
  • Higher international prices aided exports from India, mainly from mills in Maharashtra, notwithstanding the fact that no subsidy was provided.
  • The Indian sugar industry scenario summarized

    The Indian sugar season 2021-22 proved eventful and some commendable numbers are as follows:

  • a. Highest ever sugar production of more than 36 million tons as per the latest estimate.
  • b. Sugar sacrifice in favour ethanol of 3.4 million tons which indicates a gross production of 39 to 40 million tons, reinforcing the premise that India is fundamentally a sugar surplus nation.
  • c. Maharashtra’s output is expected to be its highest ever of close to 14 million tons and for the first time Karnataka produced more than six million tons of sugar.
  • d. Highest sugar exports estimated at around 10 million tons, is a singular accomplishment considering that the entire export is without any export subsidy.
  • India’s Sugar Season 2021-22 commenced with an opening stock of 8.2 million tons. As per the latest ISMA estimate, sugar mills are likely to produce 36 million tons of sugar, after factoring in a sacrifice of 3.4 million tons of sugar production in favor of ethanol. Exports are likely to touch 10 million tons. Consumption is estimated at 27.5 million tons. Clarity regarding estimated closing stock will emerge only after Government of India takes a call on allowability of more exports. The 2022-23 season is also expected to be another bumper production season even after considering a probable sugar sacrifice of 5 million tons of sugar production in favor of ethanol.

    The Indian sugar industry and Indian domestic sugar prices are seen as influencers of world sugar prices. Across the world, there is now an acceptance of the quality and delivery of Indian raw sugar and white sugar. Since sugar mills in Maharashtra and Karnataka are proximate to ports whereas sugar mills of Uttar Pradesh are in the hinterland, most export contracts have been signed by Maharashtra and Karnataka sugar mills.

    In a decisive initiative, the Government of India advanced the target for 20 per cent ethanol blending in petrol (also called E20) from 2030 to 2025. E20 is expected to be rolled out from April 2025. The early introduction of flex-fuel vehicles which can accommodate higher ethanol proportions, including running these vehicles on pure ethanol, will help achieve the 20% blending target. By 2025, it is also expected that E20 vehicles will constitute around 25% of the fleet.

    Country has achieved 10% blending target during ESY 2021-22 on a pro-rata basis. For the full ESY the OMCs estimated a total requirement of 459 crore liter for 10% blending and the country is on course to achieve this target. 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 Indian sugar industry is on the threshold of a paradigm shift. With the ethanol blending program gaining traction, sugar production is expected to moderate. Besides, the Indian sugar industry is now expected to play a decisive role in the international sugar market through consistent exports

    The policy interventions comprise the following
    • Retention of the minimum ex-factory support price of sugar at Rs. 3,100 per quintal.
    • Monthly release mechanism to regulate sugar availability in the open market
    • Ethanol procurement price for Ethanol Season Year 2021-22 (November to October) fixed at Rs. 46.66 per litre for ethanol derived from C-Heavy molasses, Rs. 59.08 per litre for ethanol derived from B-Heavy molasses and Rs. 63.45 for ethanol derived directly from sugarcane juice. The Government announced a mid-term increase in ethanol realisations to ensure that India achieves its maximum blending target in the lean months.
    • The Uttar Pradesh sugar industry

    • During SS 2021-22, Uttar Pradesh produced 10.2 million tons of sugar as compared to 11 million tons produced in SS 2020-21 and 12.6 million tons produced in SS 2019-20. The lower production is attributable to un-seasonal rain in September 2021, water-logging, low farm yields and declined recovery. Increased ethanol production also moderated sugar output. The red rot pest was prominent in Central and Eastern Uttar Pradesh on variety Co 0238 and urgent steps are required to be taken to ensure varietal replacement
    • UP sugar mills reported moderated sugar stock levels, owing to higher exports & ethanol production using B heavy molasses and sugarcane juice.

    Dwarikesh performance

    • Revenue from operations at Rs.1,974 crores during FY 2021-22 was up by 7.35% compared to the revenue of Rs. 1,839 crores during 2020-21. The revenue was the highest in the history of our company. Increase in revenue was attributable to better releases of sugar ordered under the monthly release mechanism and higher ethanol sales. The company exported 25,000 MT of raw sugar during the year. The entire ethanol produced and sold utilised B heavy molasses as feedstock
    • EBIDTA during FY 2021-22 was Rs.294 crores compared to EBIDTA of Rs.208 crores during the previous FY. The EBIDTA reported was again the highest in the history of the company.
    • PAT of Rs. 155 crores was 70% higher than the PAT of the previous financial year. The higher PAT was again attributable to a more remunerative sales mix and controlled finance costs on account of improved cash flows.
    • Interim dividend 200% was declared & paid even as the Company set aside adequate funds to reinvest in its growth.
    • The long-term loans of the company are rated A+ with the outlook revised to ‘positive’ from ‘stable’. 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 the year, the company shrank its working capital cycle and generated savings in finance cost.

    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, 2022