The sugar industry is known for its cyclical nature. There are prominent periods ofup-cycles and down-cycles. At Dalmia Bharat Sugar our philosophy is to buildsustainability out of this cyclicality.
The need for counter-cyclicliaty is that when the industry went into a down-trend ourcompany performed better than the sectoral average.
Even as we are among the youngest sugar manufacturing companies in India in amulti-decade organised sector we are pleased to have emerged among the ten largest sugarcompanies in the country (installed capacity of 32500 TCD) and arguably the fastestgrowing large sugar company in India.
We were committed to achieve visible scale in the shortest time after reaching criticalmass based on the conviction that scale would lead to a better presence and sustainableoperations.
We recognised that the danger lay in assuming excessive debt in our desire to expand.We arrived at a balance between our desired risk appetite and need to expand; even duringthe most challenging of markets we leveraged our Group standing to negotiate anattractively low coupon rate that made it possible to generate a reasonable interest covereven during the weakest sectoral phase and a handsome cover during the rebound.
We invested in cutting-edge technologies with the objective that we would be able tobeat the incidence of thin margins during the bottom-end of the sectoral cycle withsuperior efficiencies generated from within; besides we would be able to stagger theimpact of periodic plant maintenance through asset integrity making it possible to recoupthe small premium that we would pay for the plant through increased earnings.
We spread our risks across products and geographies. We recognised that the best way tobeat a slowdown in the sugar sector was through maximising contribution of non-sugarproducts which explains why the Company invested in co-generation and a distillery in ourvarious manufacturing facilities. We derived 21% of our revenues from non-sugar productsin 2016-17. The Company implemented this product diversification in its units across bothStates in which it operates.
When we went into business we were an Uttar Pradesh-focused company and continued toremain singularly for more than 15 years. In 2012-13 the Company extended its footprintto Maharashtra possibly the only time in the last number of decades that an Uttar Pradeshcompany was extending into another State to manufacture sugar. We did so with the soleobjective to spread our risks as the basis of our sustainability: this would make itpossible to counter the various pressures that we may have faced in one State with anupside in the other strengthening our performance curve.
We focused on planting a better cane quality to generate superior results. By the201617 sugar season most of our aggregate command areas had been invested with earlymaturing cane varieties. The result of our focus and efforts towards planting superiorquality cane has led to increase in yields and recoveries over the years.
I am pleased to state that the upside of this long-term strategy was visible during2016-17.
Even as Maharashtra reported its second successive year ofdrought which moderated theState's cane output all our cane payments happened on time translating into higherfarmer satisfaction deepening their relationship with the Company. Our efforts towardscane development activities and farmer engagement continued in Maharashtra.
At Dalmia Bharat Sugar we believe that the prevailing prosperity warrants a capitalallocation responsibility. The Company moderated its debt by C242 crore and closed theyear with a total long-term debt of C505 crore. This helped us improve our long-termdebt-equity ratio from 1.46 in 2015-16 to 0.73 in 2016-17 and total debt to EBITDA from4.58 in 2015-16 to 3.20 in 201617. We utilised a stronger Balance Sheet to source debtcheaper by 200 bps and graduated to the mobilisation of working capital funds throughcommercial paper amongst the few such instances in India's sugar industry.
Besides we selectively reinforced our capacity through de-bottlenecking. We are in theprocess of enhancing our Nigohi and Jawaharpur plant capacity by 1000 TCD and 500 TCDrespectively which will be funded completely through accruals.
I do not wish to give shareholders the impression that we encountered no challenges orreverses during the year under review.
The Company's record revenues and profits were achieved despite the sub-optimaloperating performance of its Maharashtra operations which utilised only about 50% of thecrushing capacities following a lower throughput of cane availability on account of thedrought. Besides the decline in cane availability increased competition for cane in theState. Dalmia distinguished itself on this count on account of timely cane payments andenduring farmer relationships which made it possible for the Company to generate a higherthroughput than competing or peer companies in the State.
At Dalmia Bharat Sugar we are optimistic of the prospects of the country's sugarindustry for some good reasons. We believe that sugar is one of the quickest trickle-downproxies of prosperity in India; any increase in discretionary incomes will translate intoa direct or indirect sugar consumption which indicates that we are at the bottom- end ofa long-term consumption growth for the commodity. Besides we believe that nominalsectoral investment has been made in the last decade which indicates the absence of anyspare capacity or operating leverage within the system. Should demand increasesignificantly and manufacturers be inclined to increase output the increase will not beimmediate as the process of cane development warrants patient investments where returnstake a few years to become visible.
At Dalmia Bharat Sugar we are attractively placed to capitalise on this prospectstarting with the FY 2017-18 sugar season. We believe that India will see an appreciableincrease in sugar production in 2017-18 which would be close to the country'sconsumption. In view of this sugar prices are expected to remain firm through the comingmonths.
Our Maharashtra operations are expected to return to normal in 2017-18 even as ourUttar Pradesh operations continue to capitalise on robust cane management and a highersugar output. Our distillery operations will continue to generate steady revenues andprofits; we believe that a Government emphasis on minimising vehicle emissions willstrengthen ethanol off take.
With a new government in Uttar Pradesh we believe that the scenario will translateinto policy alignment that benefits the farmer miller and consumer reflected in theproposed implementation of the Rangarajan Committee recommendations based on thesuccessful Maharashtra experience.
I would like to conclude on a positive note. Our principal objective in 2017-18 will beto maximise asset sweating invest only selectively in capital expenditure enhanceoperational efficiency and improve our recoveries.
Even as we have reported the best year in our existence until now - highest crushhighest EBITDA margin and highest turnover - the challenge will be to demonstrate that thebest is yet to come.
At Dalmia Bharat Sugar our biggest competitor then is not the market or peer sugarcompanies. It is us.