Following prolonged challenges India's sugar sector is gradually moving towards aphase of balanced and sustainable growth. Sugar demand is marginally exceeding supply forthe first time in five years in India. Such a scenario will bolster realisations andbenefit the industry as a whole. Changes in India's sugar industry scenario has a majorimpact on the world as India continues to be one of the largest global producers andconsumers.
Globally the production of sugar is expected to touch 169.371 million tonnes in2015-16 a decline of 1.969 million tonnes or 1.15% from 2014-15. This was primarily dueto reductions in Brazil India the European Union and Ukraine. During the year sugarprices fluctuated in the global market owing to multiple factors. The effect of El Ninocaused inadequate rainfall; and even there was drought in sugar producing countries suchas South Africa India Thailand and Australia. Excessive rain in Brazil caused harvestproblems and reduced sugar content in cane. A change in Brazilian fuel tax policy causedby increased duty to petrol has stimulated greater demand for cheaper bioethanol for thenation's flex-fuel fleet. This in turn averted the supply from sugar exports and increasedthe price.
In India the world's second largest sugar producer sugar production during the yearwas 237 lac tonnes lower by 11 lac tonnes than the previous fiscal. The trend indicates ashorter tail of crushing and lower sugar production this year vis-a-vis the precedingsugar season. The decline in production was primarily driven by a severe drought in thelargest sugar-producing state Maharashtra which impacted the availability of sugarcane.In Karnataka weaker monsoons are expected to adversely impact sugar production whileproduction is expected to marginally increase in Tamil Nadu.
The Government has supported sugar mills by providing interest-free loans to clear canedues and mandating compulsory exports to tackle the high sugar stocks in the domesticmarket. Besides cash subsidy from UP and Bihar governments have positively impacted theindustry.
Going forward we expect further improvement in domestic sugar realisations. It isencouraging to note that sugar demand is likely to be robust as domestic food andbeverages sector continues to grow in India
Prices also firmed in India where the expectation of sizeable exports and aconsequential drop in domestic sugar stocks lent support to the market. The current levelof sugar pricing is at a balanced position and larger units are expected to do well goingforward.
The prices of by-products such as bagasse and molasses remain remunerative driven byhealthy demand from the consuming sectors such as power paper and alcohol. Moreoverethanol is gaining prominence as fuel substitute with a renewed focus on using bio-fuelsand green energy to reduce emissions. To encourage the use of bio-fuels in India theGovernment has proposed an enhancement of ethanol blending to 10% from the current 5% andfixing more remunerative prices. It is one of the areas which has the potential ofimproving the fundamentals of the sugar sector if pursued seriously by the Government.
After few years of consistent challenges the Company finally witnessed improvementduring the year. Our sugar segment registered a production of 23.78 lac quintals duringthe sugar season 2015- 16 as against 23.04 lac quintals during 2014-15. Our revenue fromoperations (Gross) marginally decreased from 88618.97 lacs and stood at 87697.16 lacs.However the net profit grew to 1119.27 lacs against a loss of (5537.13 lacs) theprevious year.
We are restructuring our two businesses to bring in fiscal flexibility and facilitatethe operational efficiency in order to realign our business whereby businesses of theCompany will be housed geographically in separate new entities for its sugar investmentand tea undertakings. The UP unit will be under Avadh Sugar & Energy Limited and Biharunit will be under Magadh Sugar & Energy Limited. The restructuring process isawaiting regulatory approvals and the entire process is expected to be completed bySeptember-October 2016.
Going forward we expect further improvement in domestic sugar realisations. It isencouraging to note that sugar demand is likely to be robust as domestic food andbeverages sector continues to grow in India. India's rapid economic growth and evolvingconsumer aspirations and spending patterns will drive the sector's next level of growth.
We believe the sugar industry will gradually perform better and we seek the supportof state governments in evolving a balanced and transparent cane pricing mechanism andfree movement of molasses.
We as a company will emphasise on strengthening our internal efficiencies to make themost of the emerging optimism in the sector. I expect the cooperation and support of allour stakeholders to make the journey more rewarding in future.