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

Chairman’s Speech

Ladies and Gentlemen, esteemed Shareholders, and valued Stakeholders

With immense pleasure, I extend a warm welcome to each one of you at the 30th Annual General Meeting of our esteemed company.

As we gather here today, it’s imperative that we reflect on the journey we’ve traversed through the turbulent seas of uncertainty. After weathering many a storms we have now prepared ourselves to emerge stronger than ever before. Our ability to navigate through adversity speaks volumes about the resilient character of our company, dedication, tenacity, trust & confidence of all our stakeholders.

Now, let’s delve into our operations and explore the latest developments in our sector that will serve as a compass guiding us through the forthcoming year. In an ever-evolving landscape, it’s crucial for us to stay abreast of the latest trends, innovations, and market dynamics. This past year has witnessed unexpected & not very congenial transformations in our sector, and it’s imperative for us to not only learn lessons from the same but also take adequate corrective measures.

Let me provide you with an overview of our financial performance for the fiscal year 2023-24. Regrettably, we witnessed a decline in revenue from operations, amounting to nearly 19% compared to the previous fiscal year. Several factors contributed to this downturn. Firstly, the decrease in revenue can be attributed to fewer releases under the monthly release mechanism governed by the Central Government. Furthermore, the ban on sugar exports had a significant impact on our revenue streams. In the previous fiscal year, we successfully exported 10 lakh quintals of sugar, a feat that we were unable to replicate this year. Additionally, while revenue from distillery operations experienced an increase, it did not fully offset the overall revenue decline. Despite capacity expansions, regulatory constraints, such as the government’s embargo on using juice for ethanol production and limiting the use of B heavy molasses, hampered potential revenue growth in this segment.

Moving on to our EBIDTA, for the fiscal year 2023-24, it stands at Rs. 217 crores, reflecting a decrease compared to the previous fiscal year’s EBIDTA of Rs. 229 crores, marking a decline of 5.23%. This reduction can be attributed to various factors. Firstly, there was an increase in the cost of goods sold, primarily due to the rise in sugarcane prices announced by the State Government. Additionally, suboptimal utilization of sugar plants due to insufficient availability of sugarcane contributed to the lower EBIDTA, resulting in underutilized capacity and increased per-unit production costs. Adverse regulatory changes in the distillery segment further exacerbated the decline in EBIDTA. However, despite the overall decrease, the EBIDTA % stands higher at 12.67% as against 10.87% last fiscal year. This improvement was bolstered by better realization of sugar sales and increased sales of ethanol produced from B heavy molasses, which is a more remunerative feedstock.

Moving on to earnings before tax, for the fiscal year 2023-24, it amounts to Rs. 144 crores, representing a decrease compared to the previous fiscal year’s figure of Rs. 153 crores.

Lastly, earnings after tax stand at Rs. 84 crores, as compared to the earnings after tax of the previous fiscal year of Rs. 105 crores. This decrease is primarily due to higher provisioning of taxes, resulting in earnings after tax for the year being nearly 20% less than the earnings after tax of the previous year.

In conclusion, while we faced challenges and experienced declines in various financial metrics, we remain committed to addressing these issues strategically and with resilience. Our focus remains on sustainable growth.

Buyback of shares

I’m delighted to share with you a significant milestone achieved by our company. We successfully completed a buyback of 30 lakh equity shares, representing 1.59% of the total shares, at a price of Rs. 105 per share. The overwhelming response to this buyback is a testament to the trust and confidence our shareholders have in us.

This buyback initiative underscores our commitment to enhancing shareholder value and returning capital to our investors. By repurchasing shares at an attractive price, we not only demonstrate our confidence in the company’s intrinsic value but also provide our shareholders with an opportunity to realize returns on their investment.

The successful completion of the buyback program is poised to have a positive impact on our company’s financial health, particularly in bolstering our balance sheet and enhancing key financial ratios.

First and foremost, the reduction in the number of outstanding shares will lead to an improvement in earnings per share (EPS). Additionally, the buyback will likely result in an enhancement of return on equity (ROE), a critical metric that measures the efficiency with which a company utilizes shareholder equity to generate profits. By reducing the equity base through the buyback, we can expect ROE to improve, going forward.

HIGHLIGHTS FY 2023-24

Here’s a concise summary of our key operational metrics for the fiscal year 2023-24:

Sugar segment –

Sugarcane crushing witnessed a decline of 4.07% year-on-year.

Net recovery for the fiscal year stood at 9.55%, as compared to the previous fiscal year’s net recovery of 8.63%. This improvement is attributable to the cessation of diverting juice/syrup for ethanol production following the Central Government order and restrictions on ethanol supply from B heavy molasses.

Despite the increase in net recovery, gross-adjusted recovery decreased to 11.63% from 11.83% in the previous fiscal year. This decline is primarily due to extended crushing operations in the previous year and unfavorable weather conditions, resulting in lower sugarcane recovery rates.

Sugar Production: Higher sugar production was achieved despite the lower gross-adjusted recovery. Factors contributing to this include the cessation of diverting sugarcane juice for ethanol production and the generation of B heavy molasses. However, during FY 2023-24, lesser sugar production of 7.62 lakh quintals was sacrificed due to restriction on juice diversions for making ethanol, compared to 12.23 lakh quintals in the previous fiscal year.

Cogeneration Division Performance –

Total power sold amounted to 14 crore units generating Rs. 47 crores, compared to 15 crore units generating Rs. 49 crores in FY 2022-23.

Distillery Performance –

During FY 2023-24, the distillery produced 992 lakh litres of industrial alcohol and sold 944 lakh litres, generating a revenue of Rs. 589 crores, including Rs. 5.56 crores from the sale of by-products. This compares to the previous year’s production of 850 lakh litres, sales of 842 lakh litres, and revenue of Rs. 535 crores, including Rs. 4.17 crores from by-product sales.

These operational insights provide a comprehensive overview of our performance during the fiscal year, highlighting both achievements and areas for potential improvement.

Credit Ratings and Financial Management –

In FY24, the rating of our long-term loans remained unchanged at AA-, with a stable outlook. Additionally, our commercial paper program continued to maintain the highest rating of A1+. All long-term loans availed by the company were secured at subsidized interest rates, leading to savings on finance costs.

Financial Health and Stability –

Our company’s net worth increased to Rs. 821 crores, indicating a strengthening of our financial position.

We operate at a low gearing ratio of 0.26, reflecting a prudent balance between debt and equity financing and ensuring financial stability.

Cane Price Payments –

Despite market challenges, our company continued to prioritize timely payments to sugarcane farmers. We cleared all cane dues for the Sugarcane Season (SS) 2023-24 ahead of schedule, demonstrating our commitment to ethical business practices and supporting our farming brethren

GLOBAL SUGAR SCENARIO –

Production Surplus: S&P Global projects a substantial surplus of 6.01 million metric tons for the 2023-24 sugar season, mainly due to increased production levels, notably in Brazil.

Brazil’s Contribution: Brazil’s record-breaking sugar production, fueled by favorable weather and increased crystallization capacity, has prevented a global shortage. The void caused by India’s non-participation in the global sugar trade was admirably filled by Brazil.

Price and Trade Dynamics: Despite the surplus, logistical challenges in Brazil are affecting trade flows, supporting global sugar prices. Presently raw sugar is quoted in excess of 19 cents and white sugar is quoted around USD 560 per MT

Geopolitical Impact: Geopolitical events like the Russia-Ukraine conflict could affect crude oil prices, influencing sugar production and trade dynamics globally.

Weather will be critical for the upcoming Sugar Season (SS) 2024-25, with forecasts suggesting above-normal monsoon conditions all across. This bodes well for the sugar crop, hinting at the potential for a more favourable harvest.

INDIAN SUGAR INDUSTRY – NEW CHALLENGES

The sugar industry’s production estimates have been notably volatile. However, the production number for SS 2023-24 is now pegged at 32 million tons, accounting for approximately 2 million tons diverted for ethanol production. Maharashtra has rebounded impressively, with production estimates reaching 10.9 million tons. In contrast, Uttar Pradesh produced 10.3 million tons, lower than earlier projections, while Karnataka produced in excess of 5 million tons. With production of around 32 million tons and consumption of around 29 million tons, reflects an increase of nearly 3 million tons compared to the opening stock of 6 million tons. Consequently, the estimated closing stock is expected to reach about 9 million tons, equivalent to approximately 4 months of consumption

Anticipating nationwide production declines, sugar prices increased notably ahead of SS 2023-24. In response, the government in a knee jerk reaction issued orders to cease the use of cane juice for ethanol production and banned sugar exports. Additionally, limitations were imposed on the quantity of ethanol produced using B-heavy molasses, while the price of ethanol derived from C-heavy molasses and grains was increased. These measures aimed to restrict the sacrifice of sugar production to less than 2 million tons while boosting overall sugar production.

Following the government’s restrictions on ethanol blending, which facilitated heightened sugar production and moderated sugar prices from nearly Rs. 4000 to around Rs. 3800 per quintal. Presently sugar prices are around Rs. 3900 per quintal.

In a regressive move, the government has mandated that sugar mills utilize a minimum of 20% of the sugar produced during SS 2023-24 in jute bags. While this supports the jute industry, it poses challenges due to limited availability and could increase the overall cost of sugar production by Rs. 24 per quintal.

The sugar industry in India is heavily regulated. The Central Government sets the minimum selling price of sugar at Rs. 3,100 per quintal, though the industry has been advocating for an increase. The government also employs a monthly release mechanism to ensure adequate and affordable sugar availability in the open market and announces timely sugar export quotas to enhance sectoral liquidity. However, sugar exports are currently banned.

The government also determines the annual Fair and Remunerative Price (FRP) that sugar mills must pay for sugarcane, with some states setting higher State Advised Prices (SAP) for additional support to farmers. Additionally, the government sets the ethanol procurement price for OMCs. During ESY 2023-24, no increase was given for ethanol made from B-heavy molasses and cane juice to moderate sugar prices while boosting sugar production whereas ethanol made from C heavy molasses & grains saw significant increase in prices.

UTTAR PRADESH SUGAR INDUSTRY –

Production Overview: During the SS 2023-24, the state produced 10.3 million tons of sugar after factoring for a significantly lower diversion of sugar for ethanol production. This suggests a drop in gross sugar production.

Regional Variations: During SS 2023-24 it was a nuanced production landscape across U.P. Eastern U.P. saw an increase in sugar production, while Central U.P. maintained stable production levels. Conversely, Western U.P. experienced a decline in sugar production. Notably, Bijnor district, straddling both Central and Western U.P., faced significant production declines between 20% to 40%, highlighting severe challenges for local farmers and the sugar industry.

Agricultural Challenges: The red rot infestation, previously rampant in Central and Eastern U.P., has now spread to Western U.P. and Bijnor district causing unprecedented drop in yields. Incessant rainfall during August and September further exacerbated problems for sugar mills in Western U.P., even as efforts intensify to replace the Co 0238 variety, which is now suffering from existential fatigue.

Molasses Policy: The Uttar Pradesh State Government has introduced an elevated levy obligation in its molasses policy for the 2023-24 molasses year. Sugar mills are now required to allocate 26% of their C-heavy molasses and 19% of their B-heavy molasses for country liquor production. Despite the higher obligation, this equalized treatment of B and C-heavy molasses is seen positively, recognizing their distinct ethanol outputs.

State Advised Price (SAP): For SS 2023-24, the State Government has announced an SAP increase of Rs. 20 per quintal. The society commission rate remains at Rs. 5.50 per quintal. Additionally, the transportation rebate has been revised to Rs. 9 per quintal from Rs. 8.35 per quintal, with the slab rate adjusted to Rs. 0.45 per quintal per KM from the previous Rs. 0.42 per quintal per KM.

Outlook for SS 2024-25: Despite the low base of sugar production in SS 2023-24, the outlook for SS 2024-25 appears promising, provided there are no adverse weather conditions. Challenges from the previous season, such as lower yields due to red-rot infestation, have prompted farmers to intensify efforts to safeguard the ratoon crop and replace the susceptible Co 0238 variety with more resilient alternatives.

Cane Price Payments: Cane price payments by sugar mills have generally been prompt, with arrears remaining within manageable levels.

SUGAR SEASON 2023-24: –

The Bijnor district, where two of our three units are located, faced untimely and persistent rainfall that worsened the impact of a widespread red-rot attack. These adverse conditions severely affected sugarcane availability, leading to the most dismal crushing numbers we have experienced in recent times. Consequently, our company managed to crush only 268 lakh quintals of sugarcane as against 401 lakh quintals crushed during SS 2022-23.

Due to these challenging circumstances, operations at our DD plant had to cease earlier than expected, closing on March 11, 2024. Subsequently, crushing operations at the DP plant concluded on March 23, 2024, followed by the DN plant on March 30, 2024.

The area under the DD command has experienced a significant reduction of nearly 4,000 hectares due to pervasive red-rot infection. In response to this crisis, extensive initiatives have been launched to safeguard the ratoon crop and implement varietal replacement measures. Despite these concerted efforts, the unit’s crushing decline reached a staggering 19%. However, transformations are anticipated in the forthcoming seasons, with expectations of improved crushing figures and a more diversified varietal mix.

In addition to grappling with the challenges posed by red-rot disease and unseasonal rainfall, our DN and DP units faced setbacks stemming from increased prices offered by Jaggery and Khandsari manufacturers for sugarcane. This resulted in a notable outward diversion of sugarcane, as farmers opted to sell their produce to these alternative buyers rather than the sugar mills. Furthermore, the establishment of a new sugar mill in the region exacerbated the situation leading to the partial cession of sugarcane area from our units in favor of other sugar mills in the district. This reallocation of resources further strained our operations and exacerbated the decline in crushing numbers. As a result of these combined factors, our DP unit experienced a steep decline of 39% in crushing, while the DN unit saw a decline of over 36%. These significant declines underscore the urgency of addressing the multifaceted challenges facing our operations

GOING FORWARD –

As we look ahead, we acknowledge the multitude of challenges we face and remain resolute in our determination to overcome them. For the Sugar Season (SS) 2024-25, we anticipate improved crushing numbers as efforts have been intensified to adjust the varietal balance of sugarcane grown in our command areas. Additionally, we are working to make the ratoon crop more robust by assisting farmers in the judicious and aggressive use of chemicals and pesticides. Task force teams have been formed across all three units to ensure that farmers adopt the best agricultural practices.

Despite these proactive measures, the repercussions of a one-off bad season will likely be felt in fiscal 2024-25. However, efforts are underway to mitigate the impact. It is also expected that the ethanol blending program, which has been paused, will be restarted with renewed vigor and enthusiasm. This will help improve our utilization of distillery capacities which have been set up entailing huge investments.

The silver lining in this scenario is the stability and remunerative nature of sugar prices, which will help improve the bottom line of the sugar industry. We remain committed to navigating these challenges and leveraging the opportunities ahead to ensure a sustainable and profitable future.

Acknowledgments and Gratitude –

I would like to extend my heartfelt gratitude and seek your continued support as we strive for better results in the future. As we embark on the journey ahead, let us do so with optimism, determination, and a shared sense of purpose. Let’s make this AGM a celebration of resilience and collective success.

Thank you to our dedicated associates and employees for their hard work & commitment and to our farming brethren, who are our backbone. I am also grateful to our banks, financial institutions, and Oil Marketing Companies (OMCs) & all our customers for their trust and support.

A special word of gratitude to the Central and State Governments for their support, which has been instrumental in guiding our industry towards growth and contributing positively to the ecosystem.

Lastly, sincere thanks to our esteemed Board members for their valuable guidance and leadership.

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 29, 2024