Chairman’s Message

Dear Shareholders,

Our strategy is to ‘Go beyond the ordinary’. In all ways. In the way we address the triple bottom line, in the way we meet the needs of our farmers, the way we add value to our feedstock, be it sugarcane, ethanol, molasses, bagasse, or any other feedstock. In the way we sell our products. In the way we create a brand. The company has skill in converting biomass into useful product, be it fuel, energy, chemicals, intermediates or other products, through physical, chemical, or biological means. We also have experience in working with agriculture, and therefore generating biomass.

To move on this strategy, we have been working on conversion of biomass to cellulose, hemicellulose, lignin, and their derivatives. We are adding value to ethanol, and also working on the fermentation of sugar into high value products. Finally, we need to be able to enter successfully the branded foods market. A successful implementation of the same, would lead to a big difference in the sales, value add, and the value derived per ton of sugarcane. Our researchers are working in these areas, either to develop our own knowledge, protect the IP where possible, and license it where we need to.

To achieve this vision, in the last few months we have raised private equity in Godavari Biorefineries. The investor is Mandala Capital. They have understood our vision of making a world class biorefinery, and understand our model of creating more and more value from the biomass (sugarcane, molasses, bagasse, etc) we process. It is all the more relevant in these difficult times, where the price of cane remains high, and the sugar prices are very low. We believe, that with this investment, we can, in spite of difficult times, take the company to new heights, as dreamt of by our founder and my father, Shri K. J. Somaiya and Dr. S. K. Somaiya.

But as we continue on our march forward, we have to live and face the challenges of the present. The sugar industry continues to be reeling under the twin pressures of a falling sugar price and a high floor price for cane as fixed by the Government. The cane price is the single largest issue affecting the Indian sugar industry. We are no different. The industry has conveyed to the Government, that it is extremely difficult to pay the FRP for cane, when the sugar prices are so low. The CACP recommendations on the basis of which the Government announced the FRP, had specified that the FRP needs to be looked at in conjunction with the Rangarajan formula that links cane price to sugar prices. In case the FRP is higher than the Rangarajan formula, then the Government was advised to pay the difference. The Government did not take cognizance of this portion of the recommendation while announcing the FRP.

In fact, the high FRP signals to the farmer to plant more cane. More sugar gets produced than is needed, resulting in a fall in sugar prices, rendering the economics still more unviable. The solution is to either grow less cane (by paying a market price linked to sugar price), export the surplus (this may or may not be compatible with WTO), or increase demand for cane (by way of an ethanol or biochemical programme). Only then, can this mismatch be addressed, and the market be brought back into balance. The Government has to think on how it aims to address this issue.

The Government also did announce some changes in sugar and ethanol policy. They have made changes in the import and re-­export policy of raw and refined sugar, to prevent ‘leakage’ of the same in the local market. They have also increased import duty to 40% (from 25%), and also exempted the levy of excise duty on ethanol supplied to fuel. This 12% benefit is to be passed on by the fuel sellers to the millers to help enable pay cane prices and is applicable from the next season.

As I mentioned earlier, the challenge is also of lower sugar prices. To help maintain our prices, we continue to export refined sugar, and increase our sales to industrial buyers of sugar. We were audited for GFSI compliance (necessary for selling to many industrial buyers), and we passed with flying colours. We cleared the audit with not one non­compliance. Congratulations to the team. Our contracts with industrial customers, are helping us especially in view of the fallen prices.

We launched branded sugar on the auspicious day of Dhanteras (धनतेरस) last year. We have chosen the brand name ‘Jivana’ meaning life. To ensure that we provide the retailer and consumer more than one offering, we have added salt to our product basket.

In spite of the ups and downs of cane and sugar price, this it is necessary for us to work closely with the farmer, for the long term health of both of us. We are inextricably linked together. Our aim is to see that the farmer and the farm are healthy. In the short and long term. To do this, we are working on introducing drip irrigation, intercropping, soil testing, subsequent supply of quality inputs, supply of tissue culture plantlets, and agronomic practices for achieving high yield.

This change in Government policy on ethanol mentioned earlier will have a significant impact on our short term investment strategy, since it it economically allows for substituting the production of sugar with ethanol. To increase our participation in this programme, we have ordered for a larger capacity of dehydrating ethanol (this is an add on to our main distillery) and we are planning the installation of an incinerator boiler at Sameerwadi.

We have also ordered an incineration boiler at Sakarwadi. This will reduce our cost of manufacturing ethanol, and make us more competitive in the production of our ethanol based chemicals such as ethyl acetate and crotonaldehyde.

I am pleased to say, we have commissioned our new MPO plant, and shipments to our customers started in April itself. The plant is working very well. This marks a transformation of the company, and its progression into knowledge based chemistry. In the coming years, will introduce more such chemicals.

We are getting also a good response for our waxes, ethyl lactate, 1,3 butane diol, and our mining frothers overseas. We are hoping for a breakthrough in these markets.

In terms of research for future products, our pilot plant to fractionate cellulose has been installed, and we have also received permission by the Government of India for fermenting sugar to pyruvates and D­lactic acid.

Much of our pipeline has been created by our research. Our Board had in the past approved of the construction of a research lab, for which we had purchased land near Navi Mumbai. The construction has commenced, and the construction is going as per schedule. The same will be ready for use before March 2016.

As we continue on this journey and transformation, we are conscious that as the world changes, we will need to change faster. In our pursuit of our objectives, we will also keep our attention on the triple bottom line. Financial, Social, and Environmental. We are innovating around all our practices, technologies, and processes to make this happen. We will be at the forefront of all we do, building on the foundations of the past, on our present strengths, and importantly, focus our attention towards the future.

Samir Somaiya
Chairman and Managing Director
(2014-2015)