Q&A with THE


Gross revenue for the year stood at ₹ 4,436.6 crore and Profit after Tax at ₹ 335.1 crore on a consolidated basis. These numbers reflect the overall positivity in the business, across segments, amid the challenging macro environment.

It has been a year of remarkable performance for the Company, with some record-breaking numbers, notwithstanding the challenging and uncertain situation triggered by COVID-19 towards the end of
FY 20. Gross revenue for the year stood at ₹ 4,436.6 crore and Profit after Tax at ₹ 335.1 crore on a consolidated basis. These numbers reflect the overall positivity in the business, across segments, amid the challenging macro environment.

In the Sugar business, we have further improved operational efficiencies, notably with respect to sugarcane crush and recovery. In the Sugar Season 2019-20, we achieved 10% increase in sugarcane crush and our recovery improved by 18 basis points on comparable basis, excluding the impact of B-heavy molasses, as compared to the previous sugar season. Additionally, the series of interventions by the Government of India (GoI) over the past few seasons has infused substantial positive sentiment, helping in the stabilisation of the industry, particularly on the pricing front.

The Company’s performance in the Co-product businesses of Power and Alcohol also continued to push the overall numbers during the year, as we moved aggressively forward to seize opportunities in the Distillery segment. The Ethanol business, in particular, is benefiting immensely from the Government of India’s growing thrust on ethanol blending programme, which has been further strengthened by the National Biofuel Policy of 2018. With the commissioning of a new 160 KLPD distillery, our volumes have increased substantially and 33.7% of the ethanol production was met through B-heavy molasses. Our Co-generation Power plants also performed well during the year, even though the business was impacted because of the substantial downward revision of the tariff effective from April 1, 2019.

I am also happy to share that we have remained firmly on track with our growth plans in the Gears segment, which showed a healthy order booking of ₹ 156.8 crore, with excellent performance in OEM sales, as well as in refurbishment business. Our Water business further contributed to driving growth for the Company with promising results, at the back of our streamlined operations and our SPV operations in the Mathura Wastewater project.

As I mentioned, we did well across all the business segments, which is the result of our persistent efforts, focussed approach and strategic decisions.

While it was encouraging to witness ~70,000 tonnes higher sugar production in SS 2019-20 as compared to SS 2018-19, it posed enormous working capital and stocking challenges. As amitigation measure, the Company embarked upon its export programme in an accelerated manner. This resulted in 26% exports of the total despatches during the year. Further, the production of B-heavy molasses helped the Company meet the captive requirements of the raw material for the new distillery, as well as to divert 30,209 tonnes of sugar for ethanol production. Both exports and B-Heavy molasses production helped the Company receive higher allocation for domestic despatches and, consequently, the sugar inventories held at the year-end were 15% lower than the previous year. As of March 31, 2020, the Company is entitled to receive ₹ 235.14 crore against various subsidies. It is a large amount and the Company, along with the help of industry associations, will strive to take it up with the Government of India (GoI) for early realisation.

The Gears business is actively exploring and collaborating with the Defence sector under the ‘Make in India’ initiative of GoI in the hope of generating substantial business. It requires persistent efforts, development of products as per the customised requirements, as well as considerable commitment and investment of time. Further, we are in active dialogue with leading global gear manufacturers to supply critical hi-tech components to create another revenue stream, in addition to OEM and retrofitting. We are also focussing on indigenous R&D to diversify our product range and be self-sufficient in technology. It is our constant endeavour to align our strategy in this segment to the Government of India’s policy initiatives in terms of sectoral thrust, and we continue to diversify our presence and build our capabilities in new and emerging sectors of growth, in order to stave off all sector-specific challenges.

The Water business is another area where the Government of India’s proactive measures remain a source of positivity, notwithstanding the slow pace of order finalisation during the year. We continued to harness the new opportunities to our strategic advantage in this segment.

It is a source of great satisfaction that we continue to report excellent performance in terms of sugar recoveries and production. In terms of production, we have achieved a CAGR of 15.5% in the last 5 years through better sugarcane yields, recoveries and plant utilisation, without undertaking any significant capital expenditure. There exists significant potential to achieve much more and we will now focus on high potential areas.

We achieved a historic high of sugar production of over one million tonnes during the year. Further, Khatauli Sugar Mill, our largest sugar mill, recorded the highest sugarcane crush and sugar production in the country. Three sugar mills (out of seven) of the Company recorded a recovery of 12% or more during the current sugar season.

Our excellent numbers in sugar recovery and crushing stand testimony to the success of our overall approach, and we shall continue to sharpen our focus on our sugarcane cultivation programme to further boost efficiencies and productivity, going forward.

Our extensive sugarcane development programme remains a strong pillar of our sustained growth, year on year, and we shall continue to invest in it as we scale up our collaborative engagement with the farmers in the spirit of mutual interest. It is our focussed endeavour to facilitate the farmers to shift more proactively towards new varieties of sugarcane, higher recoveries and more efficient operations, to enable increased productivity and incomes. Further, we have identified sugarcane centre operational efficiency and logistics for the transportation of sugarcane as our next focus areas, with the intent of reducing the cut-to-crush time and bring about greater cost efficiency.

Our Distillery business is further powering our growth strategy through enhanced capacities and improved efficiencies year on year. We have adequate captive molasses for our distilleries and during the year, ~33.7% of ethanol production was by using B-Heavy molasses. Subject to proper pricing, we may consider adding distillation capacity to produce ethanol directly from sugarcane juice.

The sugar export programme was continued by GoI in the sugar year 2019-20 through Maximum Admissible Export Quantity (MAEQ) programme. The GoI incentivised the same by providing a lump-sum Export subsidy of ₹ 10,448 per tonne for exports up to 6 million tonnes. Subsequently, the Government also announced reallocation procedure for MAEQ for those mills that had not exported or did not wish to export sugar, which led to creation of more potential for export for others. The export programme was reasonably successful and it is expected that the exports may reach 5+ million tonnes. Apart from the initial quota of 1,79,183 tonnes, we were granted additional quota of 94,210 tonnes in two tranches.

In view of the expected production of ~31 million tonnes in the next sugar season, exports would need to be carried on unabated, and we feel that the GoI, as in the past, will support such export programme.

As expected, post the turnaround in FY 19, the Water business has continued to post remarkable growth, and recorded the historical highest annual turnover of ₹ 306 crore with PBIT of ₹ 24 crore during the year under review. Our operational efficiencies showed considerable improvement in view of better project management, and as a result of concerted initiatives to improve and streamline the systems and processes. Unfortunately, the order booking is becoming lumpy due to uneven finalisation of tenders and thus, the order booking during the year has been nominal. We have tendered for much larger projects and we believe the order booking for FY 21 from this business should be back on track.

Increased Government spending on water infrastructure under various key and flagship schemes has been a key factor propelling growth in this business, and we see the focus on this area continuing. The urban demand for water and wastewater treatment plants is not likely to diminish and we shall continue to pursue opportunities with National Mission for Clean Ganga (NMCG), UP Jal Nigam, Delhi Jal Board, Bangalore Water Supply and Sewage Board (BWSSB) and various other clients in EPC and HAM / PPP projects. We are also exploring PPP opportunities for STP recycling on PPP format.

Our Gears business had an excellent year, with revenues higher at ₹ 154.2 crore and PBIT of ₹ 48.5 crore. Our outstanding order book in this business is ₹ 152.0 crore. As I pointed out earlier, OEM sales, refurbishment, spares and service were the areas that saw significant growth, particularly in the global market. Further, our foray into the Built to Print segment, wherein the Company has tied up with large OEMs globally, will help the business to expand its activities to mitigate the slowdown in economic activities.

Here again, the Government policies have played a critical role in encouraging business sentiment and the ‘Make in India’ initiative, in particular, has created a multitude of opportunities for diverse engineered products. We continue to leverage our capabilities to actively participate in many of these indigenous development projects. In particular, we saw significant opportunities for growth in the Defence sector, where new projects are being customised for critical equipment. This offers substantial value to the existing portfolio of rotating equipment. We have already gained some foothold in the critical turbo pumps space in the Naval Defence segment, on which we are initially focussing.

With the Prime Minister’s clarion call for ‘Atma Nirbhar Bharat’ (Self-Reliant India), the focus on indigenous production is likely to actually get galvanised into significant new opportunities in the medium term, translating into new avenues of growth going forward.

The lockdown in the country was declared from March 25, 2020, but our sugar factories, including distilleries and generation of power, continued to operate uninterruptedly in view of sugar being an essential commodity. There were acute supply chain challenges but with the cooperation of the State and Central Governments, these were effectively managed. Both the Engineering businesses closed down for a period of 3-5 weeks but attained normal operations by the middle of May 2020.

Due to the lockdown and closure of user factories, sugar demand was impacted but it is returning to normalcy as the lockdown restrictions are being relaxed. It is expected that sugar consumption for SS 2019-20 may decline by around 0.5 million tonnes. Further, the ethanol offtake was also impacted but with the help of Oil Marketing Companies, we were allotted new depots for supply and hence, the distilleries continued to operate at full capacity without any interruption.

At present, in respect of our Engineering businesses, there is no feedback of our customers significantly cancelling or deferring the orders, but in view of the various complexities involved, including the financial health of our customers, we need to be cautious, vigilant and in a state of preparedness to deal with the emerging situation. The return of normalcy will depend on how soon the pandemic is brought under control and the financial capacity of our customers to resume normal industrial activities.

As I mentioned earlier, we are open to enhancement in distillation capacity subject to viable prices being prescribed for ethanol produced from B-heavy molasses and sugarcane juice. The GoI is committed on higher EBP, and we feel that rationalisation in the policy and pricing will afford us an opportunity to participate in this programme.

In view of acute shortage of hand sanitizers in the aftermath of COVID-19, we have set up a sanitizer manufacturing facility in a short span to meet the demand in the state of UP. We have ramped up our production and currently we are producing 10,000 litres per day under the brand name “GermCare’, which we are marketing in various sizes. We also intend to manufacture premium quality hand sanitizers and, in view of its long-term demand, we will harness and invest in the segment as a value-added business proposition, rooted in our sustained efforts to diversify our product portfolio as a risk mitigation measure.

We are looking at even smaller projects, such as ash granulation and capturing of CO2, to cover all possible values in our business chain.

The Company believes in adequately rewarding the shareholders. The Company had come out with Buyback of shares to the extent of ₹ 100 crore in FY 20, and in the same year, in March 2020, we paid interim dividend of ₹ 1.1 per equity share (110%). Going forward, the Board will evaluate the position at an appropriate time.

I am also happy to share that we have remained firmly on track with our growth plans in the Gears segment, which showed a healthy order booking of ₹ 156.8 crore, with excellent performance in OEM sales, as well as in refurbishment business.

With best regards,

Mr. Tarun Sawhney Q&A With Vice Chairman & MD