The Managing Director's statement
Dear shareholder's
Overview
There are two words that shaped the performance of our business during the last year.
Cane was one and ethanol was the other.
The interplay of these two driving factors - at least for the moment - indicate what we
are, where we are headed and what kind of value we intend to enhance for our shareholders
over the foreseeable future.
Let us start with cane. There is a greater priority on the abundance, quality and
timely availability of cane than ever before.
Cane is used to manufacture sugar; it could be completely diverted to the manufacture
of ethanol; the byproduct generated from cane crushing is utilised to generate clean
power. The result is that the entire operations of our Company are dependent on this
single agricultural resource. Given the improved profitability of the sugar sector and the
increased target for ethanol blending with petrol, there is a greater pressure for the
Country to generate more cane than ever.
Creditable
When seen from the national perspective, India performed creditably in terms of cane
availability. During the sugar season of 2020-21, India produced 31.20 Million Tonnes of
sugar. At the start of the sugar season of 2021-22, India was expected to generate 31
Million Tonnes of sugar but gradually sugar estimates continued to increase and the result
is that India produced 36 Million Tonnes by the end of the season.
We believe that this sharp improvement of 15% over the previous sugar season represents
a growth in systemic confidence that comprises farmers, millers and primary industrial
customers. This increase in output indicates that farmers have brought into the stability
of cane pricing as announced by the government, a responsiveness of the government that
will translate into superior miller cash flows and comes down to lower cane arrears on
their books and the confidence that whatever they grew will be purchased by millers.
At Dhampur Sugar, we see this as a validation of the government's various private
sector reforms and policies of the last few years. We also believe that this appreciable
increase could be the start of a multi-year phenomenon that makes it possible for the
country to maximise cane availability to service its growing ethanol appetite on the one
hand and society's growing sweetener consumption on the other.
Positive
We believe that this reality has various positive spin-offs: one, each time there is a
decline in cane crop across some of the largest cane producing countries (as in Brazil at
this moment), the consequent increase in sugar prices could create an attractive sugar
export market for India. Besides, the faster the country increases its cane throughput,
the quicker its millers will invest in incremental ethanol capacity and the quicker the
government will respond by raising the ethanol blending target - a sequential win-win
proposition for farmer, manufacturer and customer.
The principal message then is that the country has created a robust cane foundation,
the benefits of which will accrue across the eco-system across the foreseeable future. I
have indicated this to assure our stakeholders that the sustainable growth of Dhampur will
not be dependent on carving out a larger share of a static or declining cane market but a
larger share of an enlarging market.
Even as this national cane perspective appears positive, there was a shortterm anomaly
during the 2021-22 sugar season. Cane yields were down in Uttar Pradesh on account of an
extended rainfall and incidence of red rot disease. Dhampur crushed 7% lower cane in FY
2021-22 than in the previous season, restricting the Company from exercising its full
capacity and related utilities. The utilisation reported by the Company's sugar capacity
was 80% during the year under review compared with 78% in the previous financial year; the
utilisation reported by the Company's ethanol capacity was 92% during the year under
review compared with 88% in the previous financial year; the utilisation reported by the
Company's cogen capacity was 75% during the year under review compared with 71% in the
previous financial year.
Now let me come to the ethanol side of the business. At Dhampur, we believe that the
prevailing realisations matrix makes it more profitable to manufacture ethanol. In view of
this, the Company 'sacrificed' 150054 Tonnes of sugar and preferred to manufacture ethanol
instead. The result is that ethanol production was 7.34 Crores litres and sugar production
3.71 Lac Tonnes during 2021-22.
New beginning
I have often been asked: Where does the Company go from here?
There are a number of emerging realities that I would like our shareholders to
consider.
One, the demerger of the erstwhile Company into Dhampur Sugar Mills Limited (name
having been retained) will empower the management of the demerged company to carve out a
new destiny that extends beyond sugar.
Two, the Company is presently engaged in enhancing its ethanol capacity from 250
KLPD to 380 KLPD based on 'C' heavy molasses (effective 500 KLPD approx through 'B' heavy
and syrup route). This capacity, commissioned in the third quarter of the current
financial year, will capitalise on the increased cane that we expect to generate from our
command area during the forthcoming sugar season. We also intend to utilise grain after
the cane deliveries have exhausted, enhancing our ethanol capacity utilisation and our
ability to capitalise on favourable fundamentals.
Three, we believe that there is a large and compelling world beyond commodity sugar
that we need to explore. Dhampur Sugar entered the field of chemicals a few decades ago.
The time has come to take this extension with enhanced seriousness. We intend to explore
the speciality chemicals business over the coming years, an initiative that has commenced
with the appointment of a Chief Executive Officer to graduate the Company into that
direction.
We believe that this extension will empower us to maximise value from a stick of cane,
strengthening our overall sustainability.
The result is that the Company stands at an inflection point - not just on account of a
new beginning with a fresh perspective but also because of the buoyant prospects in its
sector that are expected to sustain.
I welcome our shareholders to of this exciting and rewarding journey.
Gaurav Goel,
Managing Director