As you are aware the Indian sugar industry continues to be buffeted by
strong headwinds that are not only stifling its potential but also
putting its very survival at risk. The challenges, in the past two
sugar seasons, have been particularly severe.
The challenges include rising input costs fuelled by surging cane
prices; agricultural practices leading to lower recoveries; below cost
selling prices and a regulatory framework that''s invariably influenced
by political and social compulsions. The challenges have further
multiplied on account of falling Rupee and currency volatility;
escalating interest costs; lack of liquidity; and monsoon concerns.
Unfortunately, we have witnessed a ''surplus period'' in the last two
sugar years due to higher production in India along with many other
nations, and muted growth in consumption because of a sluggish global
economy. This has impacted the basic viability of the business. The
cost of production has shot up, a trend that is expected to persist in
the coming fiscal, which could lead to continuous pressure on the
industry particularly in northern India. The situation has been further
exacerbated by a host of industry-unfriendly policies which has led to
unrealistic retail prices; restricted exports to a trickle and dictated
a hike in cane prices during the last five years, twice that of the
increase in sugar prices.
Although India produced over 26.0 million tonnes of sugar in the
2011-12 sugar season, next year''s output is likely to drop marginally
as key cane growing areas received poor rainfall. If this scenario
persists and drought-hit farmers replace cane with less water-intensive
crops, India, the world''s largest consumer of sugar, might well become
a net importer of this sweetener as early as 2013/14.
However, amidst this rather dismal business environment, there do
appear to be a few reasons for optimism and hope.
The Rangarajan Committee, set up by the prime minister''s office has
recommended de-regulation of the sugar industry by dropping the levy
sugar obligation, disbanding the release mechanism and freeing exports
and imports. While recommending the Central Government''s Fair and
Remunerative Price (FRP) as the base price for sugarcane, the panel has
also suggested a profit-sharing mechanism so that farmers, too, can be
benefitted from higher sugar prices. I am hopeful that the committee''s
recommendations will be accepted and implemented to kick-start the
much-needed and long awaited reform process in the sugar industry.
The new Uttar Pradesh government appears to have made a good beginning
by focusing its attention on issues of critical concern to the
industry. It has agreed to a number of measures to boost sugarcane
production and improve cane quality. It is also considering a new
incentive policy for pushing growth and modernisation of the sugar
industry. These moves, in my view, are important first steps to spur
sugar production and energy generation in the state; and I sincerely
hope these will be implemented at the earliest.
Transforming Simbhaoli to Meet the Challenges of the Future
For our part, all our efforts are directed towards re-gaining
Simbhaoli''s core position and building a future-ready organisation by
offsetting the inherent risks in the sugar business, paring debt and
taking advantage of the emerging opportunities. In this regard, we are
implementing a comprehensive business and financial restructuring plan
whose key components are growth, transformation, consolidation and
I am happy to report that together with ED&F Man, UK, we have
established a joint-venture company, Uniworld Sugars Private Limited.
The joint-venture''s first project is a Rs. 2.15 bn, 1000-tonnes a day
capacity greenfield raw sugar refinery near Kandla Port, Gujarat, which
is expected to be up and running in the next 10 months.
In partnership with Sindicatum Sustainable Resources Group, Singapore
we have set up a Special Purpose Vehicle (SPV), Simbhaoli Power Limited
for implementing a co-generation expansion project. All the existing
power assets of our co-generation plants will be transferred to the
SPV. As a result, the aggregate surplus power generation capacity will
rise to 65 MW, a jump of 100%.
We have also taken concrete steps to strengthen our IMFL brands
portfolio by launching new brands in the semi- premium segment. Most
significantly, we have made a foray in the super-premium segment by
inking an exclusive marketing tie-up with Pravda S.A., Poland, for
promoting their heritage vodka brand, Pravda, for the first time in
As per the order passed by the Hon''ble High Court of Judicature,
Allahabad sanctioning the Scheme of Arrangement, the Simbhaoli
Distillery Division (SDD) alcohol undertaking has been transferred to
Spirits Limited, a subsidiary company.
Our Trust brand continues to hold a pre-eminent position in the
speciality sugar space. Our distribution network is growing at a fast
clip and now spans 15 states across the country. A year earlier, we had
stepped into the value- added space by introducing Trust Sipp, an
instant fruit drink mix, which has found a favourable response with the
consumers in northern India. The challenge will be to increase the
geographical reach of these brands for improving market share and
Your Company is continuing its extensive cane development drive in the
three catchment areas adjoining our plants, which involves educating
farmers about improved agri-practices and replacing old sugarcane
varieties with new ones, which have the potential of increasing yield
and improving sugar recovery.
I am convinced that technology is a key enabler to drive productivity
and change business processes to reduce operational costs. Integrated
Casetech, with its cache of great technical skills, deep plant process
understanding and strong delivery capabilities is helping sugar
enterprises in different part of the world to achieve better and
sustainable business outcomes. Best of all, as a subsidiary, it is
going to become an important revenue stream for your Company in the
To conclude, the vision and management skills of our team and the
commitment and effort of our employees give me the confidence that we
can meet any challenge the future may throw at us; and that we are well
on our way to building a robust and sustainable business. I would like
to thank each one of our stakeholders for their belief and trust in
Simbhaoli in these exceptionally challenging times.
Gurmit Singh Mann
Chairman & Managing Director
September 25, 2012