Key takeaways of the chairman's speech

Indian sugar industry went through the cyclical recession. The profitability of most of the sugar mills was worst hit during 2008-09. Overall sugar production in India during 2008-09 was 14.5 million tons as against 21 million tons forecast at the beginning of the year and is 45% less than the last year's production of 26.4 million tons. Maharashtra, Uttar Pradesh, Karnataka and Tamil Nadu which together hold 75% to 80% of the country's sugar production have been greatly affected during the year. Though there are several reasons for this huge drop, the key reasons are significant fall in cane acreage (20% reduction), reduction in agricultural yield (down by 9%) and industrial yield (down by 7%).

Since the production dropped by 45% over last year and consumption increased by 3%, substantial import is required to contain prices and also to avoid drastic reduction in stock. In anticipation of a tight situation, the government has already taken several measures, the most important being total removal of import duties on both raw and white sugar until 31st July. The down trend in sugar production has converted India from "Exporter of sugar" during 2007-08 to "Importer of sugar" in 2008-09.

Steep increase in sugar as well as its by-product prices during the last quarter of the financial year 2008-09 holds promising outlook. Still, cane availability would be the key driver of profit growth. Other than cane availability, Govt./Court action in fixing the Statutory Minimum Price (SMP) in line with sugar price, increased cost of production, increased competition for cane cultivation from other more remunerative crops like rice, wheat etc will also play major role in the coming year. The positive developments like uptrend in the price of by-products, strong demand for electricity are expected to offset the gap created by factors mentioned above.

India will start the sugar year 2009-10 with unusually low stock of sugar (approx.4.7 million MTS) and any production shortage during the next crop season will again require substantial imports since the consumption is expected to grow by 5%(22.5 million MTS to 23.5 million MTS). The price trends in international markets would also be a key determinant for the future profitability of Indian Sugar Industry. The Indian sugar market will also be dependent on Brazilian expansion. India, which has been a strong competitor for Brazilian sugar will ironically become its main dependent. Brazil is on track to register its largest ever increase in sugar production (32.2 million MTS) and should strongly regain its market share due to the exclusion of India. Despite the credit crunch and the financial crisis, the strong rise in Brazilian exports (up 30%) is expected to meet the increased world-wide demand (mainly from India).

Actions have already been initiated to prevent switching from cane to crops like Paddy, sunflower etc by introducing high yield cane varieties, announcing subsidy to farmers for cane cultivation, arranging cane developmental schemes through banks and addressing their basic demands.

However, if there is a drop in sugar production level (below 20 million tones), India again needs to import raw sugar (may be at zero duty and without future export obligations) which will be a positive sign. The company is well equipped to process raw sugar and will take it forward if found viable.

Reduction in Cost of Production is the need of the hour and the company is in the process of "Creative Cost Cutting" without sacrificing quality.

Heavy demand for electricity especially in Tamil Nadu, have resulted in firming up of prices. To capitalize this opportunity, the company has entered into an agreement with Power Trading Corporation (PTC) to supply around 13500000 KWH power per month (i.e.150% more than 2008-09 average supply per month to TNEB) with 50% higher price. With all the above, the management expects 2009-10 to be a good year.

Key takeaways of Chairman's reply to shareholders queries

Currently the company has a sugar stock worth Rs 40 crore compared to Rs 10 crore in the corresponding previous period last year.

Expects to crush about 7.5 lakh tones of cane in 2009-10. In 2008-09 the Kattur plant has crushed 452491 MTs and the Sathamangalam crushed about 593134 MTs.

Aggregate cane crushing capacity of the two plants of the company is 6500 TCD. However the capacity utilization is very low as currently only one of the plant is currently being run due to low cane availability. In-fact both the plant is located not far off. The other plant is run largely as a power plant.

Pandavapura Sugar Factory, a co-operative sugar factory in Mandhya District of Karnataka has been taken on lease by the company for a period of 7 years that is upto March 31, 2013. The factory has installed capacity of 3500 TCD. In view of un-viability, the company has suspended operations in Pandavapura plant and is in dialogue with Government of Karnataka for cancellation of lease. Adjustment of financial implications if any will be carried out on completion of formalities for which steps have been initiated.

Processing imported raw sugar is not profitable at current landed price of imported raw sugar. The ex-factory white sugar prices that moved up above Rs 30/kg has came back to Rs 27/kg recently. Unless there is clear profit and firm upward trend in sugar prices the company would not undertake processing of imported raw sugar.

The company has clocked a net profit of about Rs 8-9 crore in the first five months of the current fiscal. Out of which about Rs 2 crore came from profit on sale of investments.

The company will favourably consider rewarding the shareholders with an interim dividend this fiscal as there is enough distributable profit as this point of time.