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Dalmia Bharat Sugar & Industries Ltd.

BSE: 500097 Sector: Agri and agri inputs
NSE: DALMIASUG ISIN Code: INE495A01022
BSE 00:00 | 07 Dec 373.20 10.40
(2.87%)
OPEN

387.70

HIGH

387.70

LOW

364.95

NSE 00:00 | 07 Dec 373.35 10.75
(2.96%)
OPEN

369.70

HIGH

374.75

LOW

364.45

OPEN 387.70
PREVIOUS CLOSE 362.80
VOLUME 6993
52-Week high 516.00
52-Week low 131.00
P/E 11.17
Mkt Cap.(Rs cr) 3,021
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00
OPEN 387.70
CLOSE 362.80
VOLUME 6993
52-Week high 516.00
52-Week low 131.00
P/E 11.17
Mkt Cap.(Rs cr) 3,021
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

Dalmia Bharat Sugar & Industries Ltd. (DALMIASUG) - Chairman Speech

Company chairman speech

I am pleased to present a record performance in the history of our Company. Howeverthe performance would have been better but for a decline in our cogeneration earningsfollowing a directive by the Uttar Pradesh government that moderated our tari_realisations during the year under review.

During the financial year under review Dalmia Bharat Sugar reported an EBITDA of Rs398 crore which is one of the highest in our existence 13% higher than the previousfiscal. The Company reported a 6% improvement in profit after tax which corresponded to apositive increase in earnings per share. The fact that this improvement came followingonly an average 10% increase in the average realisation of our core product (sugar)represents a validation of what we always believed: that a patient accretion inmanufacturing capacity investment in superior technologies (agricultural andmanufacturing) right-sizing our manufacturing facilities around sugar and by products aswell as a sound financial structure would translate into a significant improvement in ouroperating financials the moment the sectoral cycle improves. This turn in the sectorialcycle was evident during the last financial year when India passed through substantialdecline in sugar output: from 322 lakh quintals to 272 lakh quintals in FY2019-20. Thisdecline was on account of an aberration in climatic factors and drought-like conditions inparts of Maharashtra. This sharp decline in cane output moderated the country's sugarinventory from 5 months to 4 months of consumption. This decline in projected inventorystrengthened sugar realisations by 10% during the course of the year. The fact that ourEBITDA growth was sharper indicates the robustness of our business model and ourpreparedness in capitalising on improvements in sectorial realities. The principal messagein this communication is not a review of the Profit & Loss Account of the lastfinancial year. The principal message is that the Company's Balance Sheet has begun toevolve and preparing to create a foundation for sustainable long-term growth. For abusiness that was perpetually vulnerable to cyclical impacts we now believe that wepossess the visibility of multi-year robustness where the sharpness of the growth curveswill be increasingly smoothened with a greater visibility in revenue growth and profitgrowth across the coming years.

Interestingly this visibility has more to do with cash flows – the heart of anysuccessful enterprise – than revenues or profits. We believe that for a business thatwas perpetually engaged in growing its manufacturing assets through long-term debt on theone hand and mobilised adequate pipelines of working capital on the other to sustainoperations we are finally at a point where we have started deleveraging our BalanceSheet.

This deleveraging is the result of a number of developments expected to moderate thecapital intensity in our business. Principally we believe that our business isattractively sized: we possess a prudent balance of cane crushing and downstream byproductprocessing capacities without making it imperative for us to buy raw materials from theoutside or sell a surplus of raw materials to external agencies. On the revenue side ofour story we have a compelling story building up. In our sugar business we expect to dotwo things: we expect to optimise on number of operating days and optimise the operatingcapacities to maximise synergies of integration. Besides we expect to transform a largerproportion of our sugar into the packaged equivalent strengthening our value-addition. Webelieve that the combination of asset-light growth and value-addition should translateinto a higher return on capital employed in our sugar business. On the ethanol side toowe have a compelling case building up. Through the timely switch to the manufacture ofethanol through the B-Heavy route we are generating superior return on capital comparedto what we would have generated if we had selected to manufacture sugar. Our focus on theB-Heavy route resulted in around 10% of our sugar capacity being profitably allocated inthis direction; not only were realisations higher but the B-Heavy route made it possiblefor the Company to generate correspondingly higher and quicker realisations as well ascorresponding liquidity strengthening our overall profitability in a workingcapital-intensive business.

The Company's distillery operations made a profitable diversification during the yearunder review. Following the outbreak of COVID-19 the Company capitalised on theopportunity to manufacture sanitisers. The product derived from extra neutral alcoholwas well received during the first quarter of the current financial year. The product notonly enjoys realisations higher than ethanol but also a higher demand than availablesupply a scenario that is expected to last for the next couple of years. Besides withhygiene becoming an integral part of people's lives we expect our sanitisers business toplay a growing role in our business mix across the foreseeable future.

I am pleased to communicate that one of the decisive initiatives was in right sizingour Balance Sheet. During the year under review the Company replaced Rs 120 crore ofexpensive long-term debt with cheaper alternatives that moderated our cost of funds byaround 160 bps resulting in a potential saving of Rs 8 crore in interest outflow in afull year's working. Besides we repaid Rs 251 crore of debt that strengthened our gearingfrom 0.35 to 0.32. The result is that we moderated our weighted average cost of fundssignificantly during the year under review. By negotiating longer repayment schedules forour subsidised debt provided by the government we have strengthened cash flow visibilitywhile retaining the option to prepay without incurring a penalty.

The sum and substance of my communication is that your Company is entering a virtuouscycle of free cash flows starting from the current financial year. We believe that thisliquidity will be reinforced through the value-added side of our business comprising ourextension into sanitisers B-Heavy route of ethanol manufacture and our prospectivediversification into packaged sugar. This underlines an important transformation in ourexistence: of a Company moving from business-to-business products to an increasingproportion of business-to-consumer products.

This transition will accelerate our evolution from commodity to non-commoditytransforming the DNA of our business that could in turn enhance value for all those whoown shares in our Company.

Gautam Dalmia
Managing Director

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