Sugar breakeven helps DCM Shriram turnaround

The company has posted a turnaround with its net profit of Rs 51 crore for the quarter ended March 31, 2016

DCM Shriram Ltd, a leading business conglomerate with a group turnover of Rs 5,700 crore with interest in sugar, chemical and agri solutions, has posted a turnaround with its net profit of Rs 51 crore for the quarter ended March 31, 2016 due to strong recovery in sugar price.The company had posed a net loss of Rs 40 crore during the same quarter last year.

The company's net revenue was reported at Rs 1,333 crore for the January - March quarter of 2016 as against Rs 1,309 crore for the corresponding quarter last year.Its profit before interest and tax jumped over 15 times to Rs 107 crore during the quarter under consideration.

 

Sugar business turned breakeven from significant losses last year, led by lower cost of production and better prices in the fourth quarter of 2016. Sugar prices have steadily firmed up since the third quarter.

"Sugar industry's viability improved during the second half of FY16 with increase in sugar prices and lower cost of production, a result of high sugar recovery.The central and state governments have evolved more rational policy frameworks in respect of cane pricing, ethanol, exports etc which contributed to the turnaround. It is desirable that the same rational approach continues for restoring health of the industry over medium term," Ajay Shriram, chairman and senior managing director, DCM Shriram.

Sugar production was up by 3 per cent in the current season at 0.31 million tonnes despite 7 per cent decline in cane crushed due to better recoveries at 11.1 per cent from 9.9 per cent in FY 15. Last year, negative margins led to inventory write-down of Rs 98 crore.

The company has witnessed encouraging performance for the year driven by improvement in the sugar business fundamentals and stable performance of the Chloro Vinyl business. However agri-input businesses faced challenges on account of adverse weather conditions during the year.

"We are enthused by the performance of Chemical business.The commissioning of expanded capacity at Bharuch in the current year is expected to significantly improve the cost structure and provide volume growth," said Vikram Shriram, vice-chairman and managing director of the company.

Performance of bioseed and farm solutions businesses was impacted due to a weak demand scenario in the backdrop of a second consecutive year of drought and distressed farmer economics. Positive monsoon forecast for the coming season is encouraging for these businesses in India as well as International, he added.

Fertiliser business during the year was impacted by the tightening in energy norms and higher level of subsidy outstanding. We are undertaking measures to improve efficiency to support business' earnings.

"Our borrowings are at comfortable levels despite undertaking projects worth Rs 725 crore over FY16 and 17. These projects will add significant value to the company from FY17 onwards. Together with these we continue to spend on cost saving measures to optimise the cost structures, which are critical for long term sustainability of our businesses," said Vikram.