MANAGEMENT DISCUSSION AND ANALYSIS ECONOMY OVERVIEW The macroeconomic environment in India has changed dramatically from FY14 to FY15. The exchange rate during the year remained stable and also the IIP has revived. Backed by RBI's efforts and significant fall in global commodity prices, the Wholesale Price Index (WPI) inflation which stood at close to 6.0% during the start of FY15 has entered negative territory from Jan 2015. With inflation well under control, RBI has initiated repo rate cuts. The RBI governor & finance minister are quite vigilant about the growth progression & further support from monetary policies is expected, depending on the macro indicators. The new government at the centre is working with resolve to bring out a transformational change in India with its developmental policies, easing of FDI norms, Make in India drive, further devolution to states etc. This is a step in direction towards further strengthening the base of economic growth in India leading to higher consumption demand. As per Central Statistics Organization (CSO), India has grown at 7.4% in FY15 and the growth is expected to further gain momentum in FY16. GLOBAL SUGAR INDUSTRY Production and consumption As per November 2014 estimates of International Sugar Organization (ISO), the global sugar production was estimated at 182.9 million tonnes for the season 2014-15 up by 0.03 million tonnes from 182.6 million tonnes in season 2013-14. Though the global sugar consumption is estimated to have reached a record high of 182.4 million tonnes in season 2014-15 & there is still a surplus of 0.5 million tonnes in the current season. The global surplus for the current season has further increased to 3.4 million tones as per the Kingsman May 2015 Report with record production expected in Thailand and India. The surplus may be gradually decreasing, from over 13 million tonnes in 2012 to 6 million tonnes in 2014 and probably 4 million tonnes in 2015, on the back of increase in consumption. The surplus is still persisting mainly because world production has increased between 2013 and 2014 and remained stable in 2015. Prices Sugar prices after hitting a high of close to 35 cents/ lb in 2011 are under continuous brssure and have hit a five year low of close to 13 cents/lb in FY2014-15. The average price for sugar in FY2014-15 was around 16.70 cents/lbs. The key reason for the fall has been the consecutive fourth year of surplus production. World sugar stocks continue to remain high and have reached 76.6 million tonnes at the end of 2014, which is 42.8% of the world annual consumption as per ISO (International Sugar Organization). Decline of Brazil's currency against dollar has further pulled down the sugar prices and still making the Brazilian exports more competitive. INDIAN SUGAR INDUSTRY Production and consumption The Indian sugar industry is witnessing surplus sugar production continuously for last five years. As per Indian Sugar Mills Association (ISMA), total sugar production in SY2014-15 is estimated to be 28.0 million tonnes against the estimated annual domestic consumption of 24.8 million tonnes. This is higher by 3.6 million tonnes as against the production of 24.4 million tonnes during SY2013-14. It is expected that carry forward stock would significantly increase to 10 million tonnes at the end of the current sugar season. Prices The current oversupply scenario has impacted sugar price with the domestic sugar price recording a downward trend in the FY2014-15. India's M sugar price has witnessed a fall from close to Rs. 35/kg during the start of the year to Rs. 27/kg at the end of the year FY2014-15 and which currently is hovering at Rs. 25/ kg. The cost of production for sugar is around Rs. 3234 per kg. The exports in SY2014-15 are estimated to be 0.5 million tonnes due to debrssed international prices. With the onset of summer season and spurt in demand from bulk consumers, including soft drink and ice-cream makers there is a marginal revival in demand Government initiatives to support sugar industry • As a move to support the domestic sugar prices and enable sugar mills to clear cane price arrears of farmers which stand around Rs. 21,000 crores as of 31 March 2015 (as per Press Information Bureau, Government of India release dated 29th April' 2015), the Cabinet Committee on Economic Affairs in February 2015 extended a subsidy for SY2014-15 of Rs. 4,000 per tonne on export of up to 1.4 million tonnes of raw sugar. Rise in India's export of raw sugar is expected due to the increasing sugar refining capacity in Asia and Africa which will help in reducing its bulging stocks. However, the announcement of subsidy did not have much of impact as it came late with very less time left for making raw sugar. Moreover all-time low international prices made the exports unviable. • Govt. has also given interest free loans based on the quantum of excise duty paid for last three years production to be repaid in 5 years with first 2 years of moratorium to enable the industry to clear cane arrears to farmers. • Duty Free Import Authorization Scheme was withdrawn and as a result the exporters of sugar will not be allowed to import duty free, permissible quantities of raw sugar for subsequent processing and disposal. The aim here is to brvent the leakage of processed sugar made from such raw sugar imports into domestic markets. • Government has increased the import duty on sugar from 25% to 40%. • Another step taken to brvent leakage in domestic sugar market was the reduction in period for discharging sugar Export Obligations under the Advanced Authorization Scheme to six months. • The excise duty of 12.5%, on ethanol produced from molasses and supplied for blending shall be removed from next season onwards. The removal of excise duty would benefit the mills by around 5 rupees/liter. The above measures have not helped the industry to recover from the current crisis of surplus sugar and falling sugar prices. The Government would have to immediately take some concrete steps. The sugar industry is making a strong plea to the government for: 1) Creation of buffer stock of 10% of sugar production. 2) Financial restructuring of loans to the sugar mills. 3) Rationalisation of cane prices. Sugarcane procurement The constant increase in the Fair and Remunerative Price (FRP) and State Advised Price (SAP) for sugarcane is a major cause of concern for sugar manufacturers. Currently there is no correlation between cane prices and sugar prices leading to significant losses for sugar manufacturers in Uttar Pradesh. The SAP for U.P. sugar mills was fixed as Rs. 280 per quintal for season 2014-15 and mills were asked to pay farmers Rs. 240 per quintal of sugarcane in the first 14 days after procurement and make the rest of the payment of Rs. 40 per quintal within three months of completion of crushing. State government committed support of upto Rs. 40 per quintal based on sugar & byproduct prices but this is yet to be finalized. OUTLOOK FOR SUGAR SEASON (SY) 15-16 GLOBAL In the season 2015-16, as per the Kingsman, there is going to be deficit of 4.66 million tones. This is on account of global increase in consumption and lower sugar production in Brazil due to shift of cane to ethanol. India India is going to be marginally affected by below normal monsoon as forecast by India Meteorological Department. The sugar cane acreage has witnessed marginal decline as farmers still find it a more remunerative crop compared to paddy, cotton etc. Next sugar season is expected to start with a very high carry forward sugar stock and with expected sugar production to go down marginally, the sugar prices in the year FY2016 are expected to remain under brssure company overview Dalmia Bharat Sugar and Industries Ltd. is an integrated leading sugar manufacturer, engaged in manufacturing sugar and downstream products (ethanol, other distillery products and power). Our existing four sugar plants now have cane crushing capacity of 27,500 TCD in Uttar Pradesh and Maharashtra. We now have total cogeneration capacity of 102 MW, out of which 79 MW is in Uttar Pradesh and the rest is in Maharashtra. We also have a distillery at our Jawaharpur plant in Uttar Pradesh with licensed capacity of 120 KLPD and operating capacity of 90 KLPD. Another plant having a capacity of 1750 TCD in Maharashtra has already been acquired and trial runs were carried out last season. After necessary augmentation of Plant & Equipment, it is expected to commission commercial production in the ensuing season. Also, your company is setting-up a distillery plant having capacity of 60 KLPD at Kolhapur District, Maharashtra which will be commissioned by November' 2015. We have operations in sugarcane rich regions of Uttar Pradesh- Ramgarh and Jawaharpur in Eastern Uttar Pradesh and Nigohi in Central Uttar Pradesh. Each of these sugar plants has a capacity of 7,500 TCD. Our existing sugar manufacturing capacity at Maharashtra is 5000 TCD and will rise to 6750 TCD by end of FY16. The Company also owns a 16.5 MW capacity wind farm at Muppandal (Tamil Nadu) for the production of renewable sources of energy. BUSINESS OVERVIEW Sugar Business In terms of operational performance, our sugar production stood at 3.38 lakh tonnes during FY2014-15, an increase of 16% as compared to 2.92 lakh tonnes in the brvious year. This improvement was mainly due to higher cane crushing volumes and improved recoveries. The Company achieved cane crush of 30.9 lakh tonnes during the year as against 27.8 lakh tonnes in FY2013-14, up by 11%. The increase in cane crush is on account of expanded sugar crushing capacity at Maharashtra with benefits of full year of its operations accruing in FY2014-15. The Company recorded an overall average recovery of 10.9%, the highest ever in the history of our Company. This has been possible on account of higher crush in Maharashtra mill with higher recovery as well as improved recovery in Uttar Pradesh as compared to last year. Initiatives on Cane Development The incremental improvement in recovery is the outcome of varietal replacement and our consistent efforts towards cane development. Our cane development initiatives are focussed at sustainable tie-up with farmers through mutually beneficial propositions. This is achieved by supporting farmers with high yielding variety of seeds and consistently educating them about innovative farming techniques. The results are evident with higher cane crushed, higher sugar recovery and lesser rejected varieties of cane. Our Kisan Sewa Kendras, located in the vicinity of our sugar mills, educate farmers on the best farming practices and techniques. These methods have helped them improve their crop yield over the years. These Kendras distribute fertilizers to farmers, besides pesticides and farm equipment at subsidised prices. Support Services for Cane Growers We continue to focus on the efficiency of farms by application of developed technologies and better farming practices. We also continue to take efforts on research and development at soil testing laboratories to study soil conditions and impart training to farmers. The Company has two well-equipped soil testing laboratories at Jawaharpur and Nigohi Units to improve soil health and provide support to farmers and also to assist them in improving the quality of crop by implementing well tested techniques and processes. Use of IT Services by Cane Department 1) All the cane development related activities are now automated and subsidy distribution is linked with planting area. During the year under review, GPS enabled HHT Machines linked with online survey data have been used for: a) Seed reservation & distribution. b) Better control on the procurement activities like - variety wise purchase. 2) Providing weather forecast to the farmers for the necessary readiness. 3) Providing different types of useful information to the farmers through SMS. Cost Control Measures The Company takes initiatives in optimizing costs through bringing efficiencies in all spheres of business ranging from procurement of raw material to marketing of finished product. The Company has embarked on extensive use of technology in operations to achieve efficiencies. Other Key Strategic Initiatives In FY2015 Sugar sales to Institutional customers has increased by adding more buyers. Institutional Sugar sales volume has increased from 25% to 32% of the total sales resulting into assured volume and rate benefits. Co-generation Business The Company recorded growth in revenue and EBITDA by 48.04% & 51.09% respectively as compared to FY14. The increase is mainly on account of expanded cogen capacity in Maharashtra. We have integrated co-generation plants at our sugar complexes in Uttar Pradesh and Maharashtra. This helps us de-risk ourselves from the inherent cyclicality of the sugar business. Out of total power generated, about 70% is supplied to the distribution companies in U.P. and Maharashtra. Distillery Business The Company recorded growth in distillery sales volume and revenue by 18% & 28% respectively as compared to FY2014. Our Jawaharpur plant has a distillery capacity of 90 KLPD, producing different grades of alcohol like Ethanol, Rectified Spirit, and Extra Natural Alcohol The Market price of ethanol is Rs. 40.20/ litre (ex-mill price) compared to Rs. 36.38/ litre in FY2014 and Rs. 33/ litre in FY2013. Net revenue from distillery sales stood at Rs. 92 crores with a contribution of 8% to overall revenue as compared to Rs. 72 crores in the corresponding brvious year. It is expected that with further impetus by the Government in the ethanol blending with petrol, there will be improvement in realization of distillery products in future. New projects Your Company is setting up a 60 KLPD distillery plant at Kolhapur which would take total distillery capacity to 150 KLPD. The plant is expected to be commissioned by November 2015. Company Outlook The integrated nature of our sugar operations coupled with improved performance in downstream business segments (cogeneration and distillery), is helping us in insulating profitability from the vagaries of sugar cycle. Our Investment in building downstream business would support the Company to improve the bottom line. Going forward, we continue to aim towards maximizing operational efficiencies and improve our recovery further by optimizing existing capacities. We also continue to explore opportunities to procure biomass for electricity generation, which provides us the opportunity to increase the running time for our plants. However, unless cane prices rationalization takes place, brssure on sugar prices due to surplus stock overhang can have significant bearing on the profitability. CORPORATE SOCIAL RESPONSIBILITY Dalmia Bharat Sugar and Industries Limited is a part of Dalmia Bharat Group which was founded in 1935 and has been following the concept of giving back and sharing with the under privileged sections of the society for more than seven decades. The CSR of the Company is based on the principal of Gandhian Trusteeship. Over seven decades, the Company has been addressing the issues of health and sanitation, education, rural infrastructure, women empowerment and other social development issues. The prime objective of our CSR Policy is to hasten social, economic and environmental progress. We remain focused on generating systematic and sustainable improvement for local communities surrounding our plants and project sites. The approach is to make significant and sustainable difference through our programmes in the lives of beneficiaries by working in partnership with our stakeholders. Stakeholder engagements and baseline studies highlighted the issues of erratic power supply, unemployment amongst rural youths and basic rural infrastructure needs in our neighboring community. Dalmia Bharat Group thus planned their CSR programmes in sectors of Soil & water conservation; Energy conservation and climate change mitigation; Skill development & livelihood Training and Social Development and started aiming at creation of shared values for all stakeholders. CSR Focus Areas 1. Renewable Energy and Climate Change Mitigation: Energy is a major concern in Indian Villages, with majority of the populations dependent on depleting fuel wood and erratic electricity supply. We are thus trying to promote more energy efficient and sustainable solutions in our community. We promote smokeless chulhas (cook stoves), bio gas plants, Solar lighting systems like lanterns, street lights, study lamps and home lighting systems. These solutions also help in reduction of ecological footprints of the community. Impact: 12075 direct and indirect beneficiaries 2. Livelihood & Skill Development Unemployment amongst the youth in the neighboring communities is high. Aiming at long term benefits for the youths and their family, the Company has started many Skill Development programmes and provided training in areas like Mobile Repairing, Bag Making and many others. For women, the Company has enabled formation of many SHGs and helped them get loans and also provided them trainings on many livelihood alternatives. Program activities: 1. Mobile Phone Repair Training Course. 2. Bag Making Training. 3. SHG Formation and Training. Impact: 1105 direct beneficiaries 3. Social Development The stakeholder engagement highlighted the issue of poor basic infrastructure which hinders the daily life as well as development of these villages. The Company is helping in building the basic infrastructure needs of the community like School Sanitation blocks, low cost toilets, school buildings etc. Health is another concern among the community and company has pitched in by arranging General as well as Specialized Health Camps, providing medicines, Immunizations, Maternal and Child health Care, Eye Camps. Program activities: 1. Health Camps: 27 General and specialized health camps like Eye check-up, Maternal and Child, Cataract and Multi-specialty camps were organized across locations. Around 3700 people got access to health facilities and free medicines through these health camps. 2. Children's immunization: Polio Immunization drives were organized all across locations in partnership with the local government and 3846 children were immunized through the program. 3. Low cost toilets: Construction of 90 individual toilets helped 450 beneficiaries for leaving open defection practices. We have constructed 147 Low Cost toilets benefitting more than 735 people, so far. 4. School Sanitation block: Under Swachh Bharat Abhiyan, the construction of 14 toilet unit blocks with bio digester technology has been completed in 4 schools directly impacting 710 children. 5. Artificial Limbs & Aids Distribution Camps: Organized 4 camps during which artificial limbs and aid, wheelchair, tricycles, crutches and hearing aids were distributed among 710 beneficiaries. 6. Social and Cultural Events: Social events on world water day, international women's day, children day, World AIDS day, Independence and Republic Day were observed with over 1200 people across locations. Impact: 15553 direct and indirect beneficiaries. consolidated profit & loss analysis The Company, on a consolidated basis, has a gross revenue of Rs. 1,190 crore in FY2015, as compared to Rs. 1235 crore in FY2014. Operating EBITDA on consolidated basis stood at Rs. 112.87 crore for FY2015 as compared to Rs. 107.80 crore in FY2014. Debrciation and interest for the current year were at Rs. 50.58 crore and Rs. 78.01 crore respectively. The Company has recorded PAT of Rs. 1.49 crores during FY2015 as against the PAT of Rs. 3.05 crore in FY2014. Operating EBITDA Better sugar recovery resulted in reduction of cost of production. Also, stable realisations of value added downstream products resulted into operating EBITDA of Rs. 112.87 crores for the year under review, as compared to Rs. 107.80 Crore in the corresponding brvious year. Financial & Interest Expenses Finance cost of Rs. 78.01 crore for the FY2015 as compared to Rs. 75.64 crores in FY2014. Increase is on account of additional working capital loan facility availed during the year. Other Income Other income stood at Rs. 16.00 crore for the current year. Provision for Tax Tax Expense for FY2015 including current and deferred tax amounted to Rs. (1.20) crore. Net Profit Net Profit for the year amounted to Rs. 0.29 crore. CONSOLIDATED BALANCE SHEET ANALYSIS Capital Structure The Company's paid-up equity share capital stood at Rs. 16.19 crore as on March 31, 2015, comprising 8,09,39,303 equity shares of Rs. 2 each (fully paid up). Reserves & Surplus The Company's reserves and surplus stood at Rs. 443.87 crore in FY2015. Of this, surplus in profit and loss account amounted to Rs. 410.15 crore, debenture redemption reserve - Rs. 25.00 crore, Revaluation Reserve - Rs. 3.75 crore, Capital Reserve - Rs. 4.07 crore & other reserves - Rs. 0.90 crore. Loan Profile The total borrowed funds of the Company stood at Rs. 931.47 crore (including current maturities of Long Term Debt classified under the head "Other Current Liabilities" of Rs. 116.06 crore) as on 31 March 2015. Out of this, long term loans was Rs. 576.93 crore and Short term loans was Rs. 354.54 crore. Total Assets Total assets of the Company were Rs. 1834.32 crore as on 31 March 2015. The Company's net fixed assets as proportion of total assets were at 42% at the end of the year. Fixed Assets Fixed assets of Rs. 774.00 crores mainly comprise of the plants and machinery & land and buildings. It also includes a small portion of capital work-in-progress amounting to Rs. 27.78 crore. Investments Out of the total investments of Rs. 84.29 crore, the Company had a major investment of Rs. 68.32 crore in fixed income money market mutual funds. Inventories Total Inventories were Rs. 703.48 crore as on 31 March 2015 comprising of Finished stock of Sugar - Rs. 596.61 crore, Finished stock of other products - Rs. 61.99 crore and Raw Material, Store & Spares and Work in Progress of Rs. 44.88 crore. Sundry Debtors Debtors were Rs. 77.40 crore as on 31 March 2015, of which just Rs. 2.02 crore amounts to receivables which are above six months old. Loans and Advances Loans and advances comprised 7% of the Company's total assets. Loans and advances made by the Company was Rs. 132.24 crore as on 31 March 2015, primarily on account of MAT credit entitlements of Rs. 36.24 crore and advances recoverable amounted to Rs. 43.77 crore. Cash & Bank Balance The Company had cash and bank balance of Rs. 34.82 crores as on 31 March 2015, with Rs. 16.05 crores in current accounts. Current Liabilities & Provisions Current liabilities and provisions stood at Rs. 844.46 crore, wherein Trade Payables stood at Rs. 301.08 crore, Short Term Borrowings Rs. 354.54 crore, Other Current Liabilities of Rs. 186.70 and provisions included Rs. 2.14 crore. INTERNAL CONTROLS The adequacy of internal control systems and processes. The Company's Internal Auditors determine whether adequate controls are in place to mitigate risks. We also conduct Special audits as directed by the Management. Our Audit Committee reviews observations made by internal auditors on the control mechanisms and adequacy of internal control systems. It also suggests recommendations for corrective actions and implementations thereof, compliance-related matters, and adherence to laid down processes and guidelines. We have also put in place an effective IT security and systems, ensuring real-time availability of information at various locations. The Company is also working extensively to make sure that the Internal Financial Control (IFC) reporting framework that is brscribed as per Companies Act 2013 is complied with as per the satisfaction of the certifying authorities Information technology works as a strategic partner for six entities in Dalmia Bharat Group. The group as a whole and Dalmia Bharat Sugar and Industries Limited (DBSIL) in particular, has always been a front runner in early adoption of new technologies & concepts for bringing in efficiency, transparency and competitive advantage. With the steady growth of the group over the last decade and the rapid inorganic additions in the last three years, all information technology initiatives are aligned to quickly integrate new entities with Dalmia's way of working. In line with "One Dalmia "philosophy formulated four years ago, we took a major initiative on operational standardization. "Project Udaan" was started last year where functional templates got created for business management system, in which our processes, codes, controls, KPIs and MIS are standardized on best practices. A functional template was deployed using SAP platform, with a successful go live on May 1, 2015, where in all modules like Financial Accounting, Materials Management, Sales & Distribution, Plant Maintenance, Project Systems & Product Planning ensured tight integration with other key applications like Cane Management, Lab Management and Payroll. Availability of key analytics was ensured by creating dash boards for sugar business in critical area of cane management, where in varietal composition, maturity wise supply planning of sugar cane is available "Anytime Anywhere" to the decision makers in form of Key Process Indicators (KPI). The Management Information System plays a key role in the enhanced profitability of the business. Analytics will be a major thrust area in years to come and will get extended to other areas of Finance, Inventory Management, Plant Operations, Quality Control and Sales in FY2016. To overcome the challenge of reliability of data on availability and quality of raw material, we have deployed a unique solution using hand held device along with GPS technology to capture cane planting area, varietal information, procurement planning, weighment and transportation. The solution is successfully deployed for all manufacturing plants providing online auditable information on sugar cane availability. This has helped the organisation in correct procurement planning, reduced turnaround time and transit losses with improved efficiency in terms of sugar recovery. For FY 2016 efficiency improvement in plant operations will be a focus area. Proof of Concept (POC) is being done for Kolhapur unit by deploying Plant Technical Information Management System (PTIMS). Key operational parameters are captured online and real-time KPI's and alerts are made available to decision makers to ensure brventive measures are taken before it breaks. This will help in enhanced plant efficiency and improved capacity utilization. HUMAN RESOURCES Nalanda - Dalmia School of Leadership, Learning & Change. All our Learning & development initiatives are driven by "Nalanda" - the Dalmia School of leadership, learning & change. HR4U: Your company has been working towards building its own brand called HR4U starting 2014-15. New Think: HR Capability Building Program Workshop: HR in the Company has always taken the strategic business partner role. In order to ensure that the competency for the same is strengthened, a new learning mission in the form of HR Capability Building(HRcB)initiative was launched. The broad objectives were to strengthen the HR competency towards helping the business achieve its goal. The workshops follow a gruelling five month intervention covering 11 HR functional areas identified through Dalmia Functional competency frame work. Total 30 HR Executives of our Company participated in this programme. Lakshya programme Your company launched a STAR leadership development program in 2013 Lakshya - "An exciting journey to become high impact leaders" which entered its final phase. KEY RISKS AND CONCERNS: As an inherent part of any business, risks can be both internal and external, some of which can be anticipated, while others cannot. The risk profile to a great extent depends on economic and business conditions and the markets and customers we serve. The Company has incorporated a strong risk management system framework at the core of its operations. Our risk management policies are based on the philosophy of achieving substantial growth, while mitigating and managing them. Our risk management framework is reviewed on a periodic basis to recognise and reduce the exposure to risks, wherever possible. We identify risks associated with the business and take adequate measures to strike a balance between risks and rewards. Some of the risks associated with our businesses are enumerated below: a. Industry Risk: An adverse industry scenario such as fluctuation in demand and price for finished products of sugar, ethanol and power can impact revenues and profitability. b. Policy Risk: Unfavourable or adverse changes in government policies can affect the sugar industry in India or globally and can impact our performance. Risk Mitigation: Progressive decontrol in the industry, based on findings of Rangarajan Committee, can translate into stronger cash flows for sugar mills. Your Company roducesquality product, has efficient marketing network and overall management bandwidth to capitalise on partial decontrol. c. Raw Material Risk: Not being able to procure adequate raw material to sustain production or lower cane output can translate into lower sugar production and affect our profitability. There is also the risk of fluctuation in the price and availability of key raw materials of sugarcane, raw sugar and energy prices. Risk Mitigation: We work hand-in-hand with a large number of farmers and cane-growers and provide them with adequate training to enhance yield and procure the entire sugarcane crop. |