The year 2015-16 brought in a renewed optimism for the global sugar industry that hadbeen distressed over the past few years on account of surplus production. The diresituation led to the industry players getting overburdened with a debt and some evenclosing down their operations.
However with the recent turn of events globally the industry is set to comeback on track and recover. Firstly in the financial year under review for thefirst time since 2009-10 the sugar consumption exceeded production leading to a rally insugar prices during the latter half of the year contributing to improvedrealisations and a positive outlook for the industry. This trend is expected tocontinue in the current fiscal as well. Secondly the correction in fuel pricingpolicies of the Brazilian and Indian governments has stimulated fuel-ethanol demandand led to increasing share of sugarcane consumption for ethanol production which shallstabilise sugar production. Thirdly the limited availability of land water and nutrientresources is forcing the industry players to regulate excess sugarcane harvesting.Fourthly the depreciation in Brazils currency that further contributed to weakglobal sugar prices has stopped.
While in the Indian context the much delayed and the much needed support from thegovernment has finally provided some relief to the industry players. A series ofinitiatives including grant of soft loans worth Rs. 6000 crore raising ethanol blendingwith petrol from 5% to 10% providing production subsidy to millers for sugarcane crushingand removal of central excise duty on ethanol produced from molasses resulted in a sharpchange in industry fundamentals.
PERFORMANCE DURING THE YEAR
The on-going crises have had a negative impact on our performance. On standalone basisour revenues increased 2% to Rs. 58642 million driven by strong growth in our sugartrading and ethanol business but counter-balanced by lower sugar prices. While EBITDAdeclined 20.5% to Rs. 1432 million with a margin of 2.44% on the revenues. Decliningrealisations and high interest costs continue to drag down our profitability. Thoughduring the current fiscal the Company managed to arrest the net loss to Rs. 2853 millionas compared to Rs. 2951 million in the previous year. The foreign exchange lossduring the year amounted to Rs. 977 million.
The Brazilian operations of the Company witnessed another rough period amidstdepreciating Real and low sugar prices resulting in the revenues declining fromRs. 31344 million in 2014-15 to Rs. 22739 million in 2015-16. The on-going conditionscompelled the Company to run the plants at lower capacity utilisation resulting in risingoperating costs and decline in EBITDA from Rs. 2294 million in 2014-15 to Rs. 2050million in 2015-16. The Company witnessed a net loss of Rs. 14130 million asinterest costs surged to Rs. 6232 million driven by high leverage.
One of the key developments during the year was that the Brazilian subsidiary of theCompany viz. Shree Renuka do Brasil Participaes Ltda (SRDBPL) together with all ofits subsidiaries (collectively Renuka Brazil) on 28th September 2015 filedfor protection under Judicial Recovery (Law 11.101/2005-Recuperao Judicial) in thedesignated court in the capital of the state of So Paulo. The designated court on 26thJuly 2016 approved the Re-organisation Plan of the Companys subsidiary viz. RenukaVale do Ivai S/A (Renuka VDI) resulting in debt declining by Rs. 1680 million. While forthe remaining debts on book the Company received period extension grace (ranging from 9to 15 years) and substantial reduction in interest rates.
The Reorganisation Plan for the other subsidiary Renuka do Brasil S/A is in the finalstages of negotiation.
Sugar industry to revive on sustainability issues
Environment sustainability has always been a key issue in sugarcane plantation giventhe fact that it consumes significant amount of water. In India insuficient irrigationand droughts in the past two years have resulted in water scarcity across major sugarcaneproducing states. Despite this these regions witnessed extensive sugarcane plantationthat led to further deterioration in conditions resulting in scarcity of usable water andground water level depletion. In addition to this excess sugarcane plantation leads todecline in land available for production of other important crops.
Thus it is very important for various government agencies farmers and sugar industryplayers to come together for a more sustainable approach to sugarcane plantation. Adoptionof better crop management practices is another key area that can enhance yield while atthe same time consume less resources. Finally a balanced crop pricing policy by thegovernment is now essential and it is heartening to see that this is already beingarticulated by the policy-makers.
Key priorities - leveraging refining strengths
Going forward our refining business is going to be a key focus area that shallcontribute to growth and business sustainability. We have two port-based refineriesstrategically located in Kandla and Haldia ports providing us access to markets in Asiaand Middle-East. The combined capacity of these refineries is 1.7 million tonnes perannum. These refineries primarily depend on imported raw sugar for operations while theyalso have the option of procuring from domestic markets. It is a great example ofcompetitive global manufacturing out of India without any government incentive orsubsidy.
Further the recent imposition of export tax on sugar going out from India is likely tobenefit us given the fact that we have coastal refineries and these taxes would notbe applicable to us. These taxes are likely to tighten global white sugar supply resultingin rising prices. Thus to take advantage of the situation we are running ourrefineries at full capacity.
Diversification enabled us survive
Our diversification into the businesses of ethanol renewable energy and sugar tradingprovided us buffer by minimising the impact of downturn and losses from thesugar business. These businesses shall continue to drive our growth in the future whilecontributing to the bottomline.
Our ethanol business is all set to grow (both in revenues and margins) with the Indiangovernment raising oil blending target for oil marketing companies from 5% to 10%. InBrazil too the on-going recession and rise in gasoline prices is expected to push vehicleowners opting for ethanol over gasoline.
Our co-generation business is also doing well driven by increasing focus on renewableenergy sector. It enables us to reduce our power costs while at the same time contributingto revenue growth through sales to grid. This business shall continue to remain profitabledue to rising importance of environment protection.
Message to shareholders
I would like to convey my heartiest regards to all the stakeholders for trusting us andbeing with us during the tough times which appear to be ending. The past three years havebeen one of the most challenging times in our existence. I am confident that with theimprovements in fundamentals of sugar industry and current macroeconomic scenario thesugar industry is expected to return to profitability and we are well placed tocapitalise on the opportunity.