THIRU AROORAN SUGARS LIMITED
ANNUAL REPORT 1999-2000
CHAIRMAN'S REPORT
Chairman's Overview
During the period under review, the Government of India finally decided to
act on the vexatious issue of sugar imports by increasing the Customs Duty
from 27.5% to 60%. Besides, the Government also finally accepted the
industry's demand for a level playing field and subjected imported sugar to
the same levy obligation as imposed on domestic sugar producers and further
subjected imported sugar to the same regulations on sale and distribution
as applicable to the domestic producers. With these new regulations in
place, the import of sugar has stopped since April 2000, providing a much
needed boost to market sentiment. Besides, the Government also announced a
change in the levy free ratio from 40 : 60 to 30 : 70, as a first step
towards eventual decontrol.
Both of these initiatives were certainly in the right direction, though
belated, but the industry continued to be plagued by excess stocks due to
the huge carry over from the previous season (69 lakh tonnes), as also from
the huge increase in production during the season to a record level of 183
lakh tonnes. The huge over hang of stocks resulted in un-remunerative
prices in the free sale market as well as severe liquidity problems since
banks were unwilling to increase their working capital exposure to the
sugar industry, which was perceived as a whole, to be not credit worthy.
In addition to the depressed conditions in the sugar market, there was also
a tremendous glut of molasses and alcohol, especially in the State of Tamil
Nadu, as a result of the higher cane crush and this resulted in a steep
fall in the realisation on sale of molasses as well as alcohol. The surplus
of molasses was so large that exports at depressed prices had to be
resorted to so as to clear the storage tanks to receive the next season's
production of molasses. The industry has made a strong pitch to the
Government to promote an Ethanol Programme for blending alcohol with petrol
for transportation as has been in vogue for several years in countries like
Brazil, USA, Sweden etc. The Government has already announced a pilot
programme in this regard and concerted efforts are under way to expand the
scope of this programme so as to ensure sustained off take of Alcohol in
the years to come.
In this context of un-remunerative sugar prices, high stock levels and
steep fall in molasses and alcohol prices, it is only with great difficulty
that your company was able to discharge its liabilities to the farmers as
well as to the Banks and Financial Institutions. On the positive side, the
company was able to realize the cane crush projected in the last Annual
Report and there was also marked improvement in the recovery, pursuant of
the various corrective measures put in place over the last couple of years.
Sugarcane yield have shown considerable improvement with the introduction
of the new varieties and we are hopeful that the ensuing season will see
further improvement in both sugarcane yield and sugar recovery. However,
the increasing competition from paddy, as an alternative to sugarcane,
sustained by copious availability of water in the Cauvery / Mettur Dam, as
well as the ever increasing procurement prices announced by the Government
is a matter of serious concern and the company is exploring various
alternative to cope with this new scenario.
As regards the outlook for the next year, a lot will depend on the extent
to which sugar exports take off, since the industry is expecting another
year of bumper production. Though some exports have already taken place on
the strength of rising international prices and the weakening rupee, it is
too early to make any definite forecast on the likely quantum of exports
during the years ahead. Though domestic consumption is increasing at the
rate of around 10 lakh tonnes per annum, the industry can breathe easy only
if 20-30 lakh tonnes of sugar can be exported out of the country during the
coming year. On the policy front, the Government is expected to further
liberalise the sugar regime with further reduction in the levy free ratio
as well as introduction of futures trading in sugar. While these policy
initiatives certainly bode well for the future of the industry, the
immediate problems of glut and liquidity constraints need to be addressed
before emerging opportunities can be capitalised upon.
The period under review also saw the spinning off of the cogeneration
business into a separate subsidiary company, so as to sharpen the focus on
each of the separate businesses as well as to enable the raising of capital
from investors who are interested in the power business as opposed to the
sugar business. This is expected to start a new trend in he structuring of
sugar mill cogeneration projects in the country.
R V Tyagarajan
Chairman and Managing Director
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