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Dhampur Sugar Mills Ltd.

BSE: 500119 Sector: Agri and agri inputs
NSE: DHAMPURSUG ISIN Code: INE041A01016
BSE 00:00 | 26 May 245.90 1.55
(0.63%)
OPEN

232.15

HIGH

251.40

LOW

232.15

NSE 00:00 | 26 May 245.80 6.15
(2.57%)
OPEN

227.70

HIGH

249.70

LOW

227.70

OPEN 232.15
PREVIOUS CLOSE 244.35
VOLUME 37355
52-Week high 517.20
52-Week low 229.38
P/E 6.90
Mkt Cap.(Rs cr) 1,633
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00
OPEN 232.15
CLOSE 244.35
VOLUME 37355
52-Week high 517.20
52-Week low 229.38
P/E 6.90
Mkt Cap.(Rs cr) 1,633
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

Dhampur Sugar Mills Ltd. (DHAMPURSUG) - Chairman Speech

Company chairman speech

Managing Directors' review period between 2015 to The recovery during the2017 wasabbreviated sharply with an increase in availability of sugar cane quantity. Cane growingbecame increasingly remunerative even as a number of alternative crops did not registerattractive realizations. The result is that India reported its most significant increasein cane output in its recorded history: a sugar output of 202 lac tonnes in 2016-17 sugarseason increased by 59.41% to an estimated 322 lac tonnes during the sugar season 2017-18.This substantial increase in sugar output during the course of a single season hastransformed sectoral stability into medium-term uncertainty affecting the interests ofall principal players of the sector.

Over the last few years the sugar industry in Uttar Pradesh had played a responsiblecane management role. The industry collaborated with research institutes on the one handand farmers on the other. The result is that the industry played a seminal role in theintroduction of new cane and early-maturing cane varieties. This was done with a dualobjective: enhance yields for farmers that would generate a larger income from a finiteland area which we believe is fundamental to the long-term sustainability of India'sagricultural incomes. Besides this was done to enhance our access to cane which wouldnot only increase our sugar throughput but also provide enhanced raw material for ourdownstream byproduct processing businesses. The sustained increase in cane costs on theone hand and the record cane yields combined to substantially increase farmerremuneration. While the country's sugar industry has always been a strong votary of farmerprosperity (on the grounds that this would generate a sustainable increase in raw materialfor the sugar industry) what now transpired was unprecedented: a larger number of farmerbegan to grow cane the mills were compelled to buy whatever was o3ered the onwardconversion of cane into sugar resulted in an unprecedented increase in sugar output andsugar realisations declined from a stable H36 per kg to H27 per kg within the space of 4months. I mention this with a touch of irony: the sugar industry had keenly invested inenhancing agricultural technology that strengthened farm yields (50-60 per cent in thespace of just four years) which eventually rebounded on them through considerably higherpayments to be made for raw material on the one hand while being squeezed through lowrealisations on the other.

As it turns out India's estimated sugar surplus of 10 mn tonnes as on 1 October 2018translates into 5 months of the country's sugar consumption which is a substantialincrease when compared with the fact that the country nursed only two months of inventoryat the same time in the previous year. The big question is whether there is any lightindeed at the end of this unexpected tunnel. As things stand today farmers stand to losesubstantially if their cane arrears are not liquidated; most millers are unable to covertheir sugar conversion costs and hence unable to liquidate farmer dues; the consumerstands to nominally benefit though the gains could be short-lived and unsustainable. Inour opinion the Indian government needs to do two things with speed to allocate the painof all stakeholders. One the government needs to announce a sizable export target with acorresponding relief for exports that makes it possible to o3set a part of sugar canecost. We believe that this provision by the government would provide millers withreasonable working capital to recharge their businesses and sustain the growth of thecountry's sugar industry.

Two the government needs to proactively revise the export target in 2018 based onsatellite surveys of the extent of cane planted. This would ensure that when the new sugarproduction of 2018-19 season comes into the market realisations do not decline evenfurther affecting the ability of the mills to remunerate farmers for their cane on time.

Three the government needs to be more responsive to real-time developments within theglobal sugar sector. For instance the Pakistan government announced a subsidy of $ 150per tonne to its sugar industry which would encourage it to clear its surplus inventory.Four the country needs a structured ethanol policy that indicates with clarity thequantum need for the next ten years and the price the government would be willing to payfor ethanol (especially B Heavy variety); purchases. Besides the government needs toencourage a shift in manufacturing process from the conventional molasses-to-ethanol tothe sugarcane/sugar to ethanol process economically making it possible to circumventsugar manufacture and potentially reduce the national surplus. Five most importantly webelieve that it is imperative for the various state governments to rationalize sugar canepricing policy and linkage of sugar cane price to sugar price Besides if a part of thesugar realisations could be factored into the cane price it would introduce a moreequitable cost structure and transform vendors (farmers) into partners. This trough withinthe country's sugar industry is unprecedented for its sharpness and there is everypossibility that H22000 cr of cane arrears in 2014 will now be exceeded substantially.The big question: How does Dhampur address this sectoral challenge?

One by the virtue of our operational integration the non-sugar businesses of ourcompany should prove to be an effective hedge. The company is addressing this businessreality through an increase in distillery capacity from 300 KLPD to 400 KLPD effectivefrom October 2018. Besides we expect to produce a larger quantum of co-generated energywhich will be fed to the state electricity grid under long term PPAs Two the Company willcontinue to widen its strengths. It reported one of the highest recovery in Uttar Pradeshduring the sugar season under review (average recovery of 11.36%) which was 35 bps higherthan the regional average. Going ahead the Company has targeted a higher recovery for thenext season. The ability to get more from less will translate into a cost- effective hedgeagainst a decline in sugar realisations strengthening our overall competitiveness.

Three we are Balance Sheet-lighter than we ever were in the last number of years. Thecompany restructured its Balance Sheet during the last sectoral rebound repaying anaggregate H424 cr in long-term debt during the last two years. The result is that even aswe crushed 37% more cane in 2017-18 from 2015-16 we reduced long-term debt from H680.63to H494.35 cr and moderated the average cost of working capital by 100 bps to 8.35%towards the close of the year under review.

While summing up I must indicate that the ability to generate more than 8 lac tonnesof sugar from an aggregate 45500 TCD of installed capacity is one of the higher than thesector average a validation of our competitiveness. Even as sugar realisations could staysubdued across the short-term our objective will be to moderate costs enhance e3cienciesand strengthen our non-sugar business.

We continue to emphasise that the focus of the Company will be to continue wideningstrengths strengthening value in the hands of our stakeholders.

Gaurav Goel and Gautam Goel
Managing Directors
Dhampur Sugar Mills Limited

.