• Chairman's Speech

Chairman’s Speech

The financial performance of the company during the year was on a roller coaster ride as the industry faced formidable challenges towards the end of financial year. While the company clocked good results in the first 3 quarters, the 4th quarter witnessed a stunning reversal in the fortunes of the sugar industry in India. On the back of significantly higher sugar production estimates in the country (32 million tons), sugar realizations declined the sharpest in recent times. Vis-à-vis the price prevailing in December, 2017 the price in May, 2017 was lesser by nearly Rs. 1,000 per quintal. In view of the net realizable value being lesser than the cost, your Company was compelled to write down the inventory by more than Rs. 90 crores. While the results for the financial year pale in comparison to the results of the previous financial year, they are relatively better than the results of most sugar companies. This is largely due to excellent recovery clocked by your company across all its three plants and its virtually long term debt free status. Consequent upon the announcement and implementation of various initiatives the sugar prices have since recovered but there is looming uncertainty over their sustenance in the long term.

Global Sugar Industry – emerging trends

After two years of deficit, global sugar production has rebounded and the world sugar balance has moved back to surplus in the season 2017-18. It has risen sharply by nearly 10% to a record high of more than 185 million tons. This increase has come from production gains across India, European Union, Thailand and China. India sprung the major surprise registering a near 60% growth over the production figure of previous season. With a surplus of production over consumption of nearly 10.5 million tons, the global sugar prices are unsurprisingly on a southward spiral. ISO has projected a surplus production 6 million tons in the season 2018-19 with India tipped to become the largest producer of sugar in the world marching ahead of Brazil. This projected surplus is notwithstanding the fact that the production estimate in South Central Brazil being less by nearly 7 to 8 million tons.

Indian Sugar Industry – facing daunting challenges

  • From an initial estimate of 25.5 million tons of sugar production and consumption of equal quantity which would have culminated in similar stock levels, the actual production has shot up to an all-time record of 32 million tons. This has unleashed problems galore, with first causality being the sugar prices which crashed by nearly a Rs. 1000 per quintal. The economics of sugar industry has gone abruptly erratic. From a profitable position until the start of crushing season 2017-18, sugar companies suddenly had to face an agonizingly cruel and hostile market conditions. Due to low sugar realizations from domestic sales and a depressed global sugar market, mills were unable to generate funds.
  • The second corollary has been the towering cane arrears which figure shot up to Rs. 22,000 crores across the country and is yet a high of more than Rs. 10,000 crores in the State of Uttar Pradesh

Uttar Pradesh sugar sector highlights, 2017-18

  • Uttar Pradesh produced more than 12 million tons of sugar in SS 2017-18, a record of sorts, vis-à-vis 8.8 million tons of sugar produced during season 2016-17. Average recovery of the State was in excess of 10.80% which used to until few years ago languish at a low of 9.25%. Many sugar mills in Uttar Pradesh had to extend their crushing season in the hot month of June, 2018.
  • Higher sugar production is evidently on account of higher sugarcane availability which is attributable to higher yields recorded by farmers. Co 0238 has proved to magical variety for the farmers who have seen their yields improving by nearly 40% over the last few years. The appeal of sugarcane crop over other cash crops is unquestionable.
  • While the increase in SAP for the season 2017-18 was marginal, successive increase in sugarcane price announced by State Government and reassurance that their entire produce will be bought by the sugar mills and the trust that the State Government will ensure that they are paid their due price has made sugarcane a very attractive crop.
  • Sugar production during SS 2018-19 estimated to be in excess of 13.5 million tons. Increase in acreage, higher cane yields, healthy cane volumes, better cane varieties and higher recoveries have helped increase state production.
  • Molasses disposal and sugar storage proved be extremely frustrating and proved to be the new pain points for the industry as molasses had to be sold at throw away prices. In fact sugar industry had to bear transportation cost of making molasses available at the buyers stock pits. Sugar had to be stored in the open. This problem will further intensify during the ensuing season as there will be more sugar to be stored and more molasses to be disposed off.
  • Cane dues of the State are in excess of Rs. 10,000 crores. The sugar industry has appealed to the State Government grant subsidy which can be directly paid to the farmers in lieu of their cane dues.

Dwarikesh score card, FY 2017-18:

  • During the season 2017-18 all units recorded record crushing and record sugar production numbers.
  • Vis-à-vis 283.40 lakh quintals crushed during SS 2016-17 across all three units 363.40 lakh quintals of sugarcane is crushed during this season, an increase of more than 28%.
  • More than 43 lakh quintals of sugar was produced at a group average recovery of 11.88%. Recovery clocked is the highest all time recovery of the company in its history and highest in North India for SS 2017-18.

Thank You
B. K. Agarwal
(August 31, 2018)