About Us - Chairman's Message  
     
     
 
 
Unprecedented Volatility And Financial Turmoil In The World Markets

The last year has witnessed great volatility, demand contraction and financial crisis in the world markets, not seen since the great depression in 1930. The sub-prime crisis jolted the financial systems of the developed world. This in turn has led to widespread global losses and bankruptcy for companies small and large. Although the Indian financial system has been very prudent and conservative in its practices, India was affected since it is far more integrated into the global market both by the way of trade and institutional investments. Vast majority of companies have seen their sales and profitability plummet as a result of this scenario.

The Indian Sugar scenario has also seen a high degree of volatility. The season 2007 - 08 saw Indian sugar production at 26.22 million tons. The country opened the season with stocks of 9.2 million tons effectively showing consumption of around 4 months. The Industry was burdened with high inventories and low sugar prices were affecting its profitability. To reduce the burden of the Sugar Industry and to enable payment of cane arrears, the Government of India announced scheme of creating buffer stock and incentives for the export of sugar. India exported about 5 million tons of Raw Sugar of extremely
good quality and made its mark in the international trade and substituted Brazil as a supplier in many Asian Markets.

However, the low sugar prices had already caused cane prices to be low or left unpaid until these measures came into effect. The corresponding cane prices affected farmer sentiments and the farmer planted much less cane, the effects of which we saw in the 2008-09 season.

In the season just gone by (season 2008-09) production of sugar is less than 15 million tons, a drop of around 44%. This also had a corresponding effect on the by products such as bagasse and molasses which then affected the production of Alcohol and generation of co-generated power all across the industry.In spite of these difficult circumstances, we are proud to say that as a result of close farmer engagement and extensive cane development program coupled with input supplies and micro finance, your company's production declined by 30% against the national average of 44%. The company also exported 59,000 tons of Raw Sugar and 20,100 tons of white sugar and made its name known in the International Markets.

As the Government saw the production of sugar dropping, it responded by allowing the import of Raw Sugar on a “Ton to Ton” basis so that Indian Sugar Mills could import Raw Sugar, refine the same and sell the same in the domestic market. Your company is well placed to take advantage of this changed policy since the refinery we are in the process of putting up to produce refined sugar for exports will be used for this purpose. The world sugar market is now expected to be in deficit and India has already contracted 2 million tons Raw Sugar for import.

It is anticipated that the production of sugar in the season 2009- 10 will also be much less than Indian demand and Raw Sugar will have to continue to be imported to meet the demand of the largest sugar consuming country in the world. Raw Sugar price in New York is currently trading at 19 cents per pound.

 

 

 

 

 

 
 
 

Ethanol
With a drop in sugar production, availability of Molasses was also correspondingly low, as a result of this the availability of Ethanol for a 10% blending in petrol seems to be difficult. Secondly, with a drop in the Ethanol availability, prices of Ethanol naturally went up and the oil companies were reluctant to pay a price above Rs.21/litre even in new tenders. During this period oil prices have dropped from $150/barrel to around $30/barrel. Meanwhile Oil Marketing Companies have now floated new tenders for buying Ethanol for the year 2010.

India must plan for the future. The recent rise in oil prices to above $ 70/barrel, shows how quickly energy prices can go upwards. India must create sustainable environment as explained in our last annual report and reiterated here.

“Ethanol needs to be classified as “Declared Goods”, so that State Governments do not continue to impose financial disincentive for the program to continue.

The world is recognizing the climate change and the fact that fossil fuels will not be here forever. India has much to learn from Brazil with regards to the concept of fuel less cars and Ethanol as feedstock for fuel and chemicals. The USA Government has also announced great incentives for the production of biofuels such as second-generation renewable feedstock – Ethanol.

It is also our opinion, that the distribution of the Ethanol should not be subject to the monopoly of oil companies and that the sugar companies be free to sell and mix the Ethanol themselves.”

Your company has almost completed the expansion of its alcohol production at Sameerwadi from 60,000 litres/day to 200,000 litres/day. Your company has always believed that Alcohol is a versatile feedstock and sells the same into fuel, energy and industrial markets.

Your company has been selling ENA successfully in the portable markets of Karnataka, Kerala, Andhra Pradesh, Tamil Nadu, Chhattisgarh and Goa. We have also sold ENA in the perfumery markets.

Chemicals

The collapse of the international finance market had its effect on the demand for industrial needs in the developed world. This had a twin effect of increase in the supply in the domestic market and demand contraction in the export market. The Chemical division has therefore, been under financial pressure and for these reasons, there was an increase in the raw materials price and we anticipate the situation to remain difficult this year as well. Improvement can be expected if demand picks up in the global market and the feedstock availability increases in India which we foresee from October 2010 onwards.

To overcome the shortage in feedstock in India, your company has imported large quantity of Ethanol from Brazil. The last 2 years noticed a great increase in Brazilian capacity to produce Ethanol. This increase in capacity was due to increase in fuel prices. As a result of which many Brazilian Sugar Mills are expected to produce Ethanol in the current season.

Your company is expected to purchase further quantities of Ethanol from Brazil to ensure availability of Ethanol.

To meet the challenging situation your company is taking following policy initiatives:

  1. In the long run, the company is planning to encourage cultivation of Cassava as a supply source of feedstock for alcohol for its Distillery in Sakarwadi. The Cassava is a well-known feedstock for alcohol and is abundantly used for this purpose in Thailand.
  2. Your company also plans to use Cassava stalk as a feedstock to generate steam and cogenerated power. We also have plans to apply for carbon credits under the gold standard for this project since it will bring in large areas of uncultivated lands owned by farmers into productive use for the benefit of the company and the planet.
  3. We have a good market share for some of our products in Europe. The company is further strengthening its relation with its customers for continuing value added services under these difficult times and is building a name for itself.

The company has been awarded Certificate of Merit for outstanding export performance of Inorganic Chemicals, Organic Chemicals and Agro Chemicals during 2005-06.

 

Power & Climate Change

The power business has continued to provide strong and stable earnings for company by selling of power under the “Open Access”. This has resulted in improvement in export of power by 10,545 units in 2009. However, drop in sugarcane production in 2008-09 and 2009-10 will have an adverse effect on power generation in the financial year ending March 2010.

The Karnataka Government invoked section 11 of the Central Electricity Act 2003 to order power generating companies to supply all the generated power to State Grid. As a result of this, The company was forced to cancel existing contracts of selling power at Rs. 8.74 per unit for the month of February and March 2009. Some companies challenged this order by appealing to the CERC and CERC revoked the said order. However, the Karnataka State Government appealed to the High Court and was granted a stay on the order. I am happy to mention that since June 2009 the Karnataka Government has withdrawn section 11 and “Open Access” has now been restored.

Your company has decided to expand its power generation capacity from 24 MW to 45.56 MW. This will enable export of 85 units /ton of cane crushed from the present 49 units / ton crushed. The company plans to raise the funds through Sugar Development Fund and Indian Renewable Energy Development Agency (IREDA) Ltd. IREDA Ltd. has sanctioned the loan for the same. We expect the project to be commissioned by October 2010.

Your company's 7 years period of registration for the sale of carbon credits, for its 24 MW facility has come to an end in March 2009. Your company is in the process of filing for renewal for a period of another 7 years.

Your company is also in the process for registering two carbon credit projects:

1. The Cassava based steam and power project.
2. Expansion of its power generation capacity from 24 MW to 45.56 MW.

  
     
     
     
     
 

Research

The basic theme of our research is driving from farm to food, pharma and energy. The focus of this segment is to be on more effective utilization of existing agro resources viz. Sugarcane, Sugar, Molasses, Bagasse, Pressmud, Starch and Plantation to manufacture generic products and development of new chemical options for their utilization applying the Biorefinery concept.

We are actively involved with Council of Scientific & Industrial Research (CSIR)in two New Millenium Indian Technology Leadership Initiative of Government of India. The company has signed agreements with National
Chemical Laboratory (NCL) in these projects.

These projects are concerned with the making of chemicals and biopolymers from renewable resources. The company has already successfully installed pilot plants, for these products.

Agri-Research

The K J Somaiya Institute of Applied Agricultural Research (KIAAR) has developed a tissue culture and bio pesticide laboratory. Having access to good quality tissue culture plantlets would improve the biological health and disease resistance of the sugar cane in the area.

KIAAR has currently tested a cane variety that is likely to yield 1% extra recovery.

The Cane department of your company is currently encouraging the plantation of this variety on 5000 acres.

The KIAAR also demonstrated that Cassava is a good source of alcohol and fuel. Further it is more drought resistant than cane. Cassava is therefore being popularized as a source for alcohol and fuel at Sakarwadi, in a project that would also save Carbon emission.

Management

It gives me immense pleasure to inform you that your Jt. Managing Director, Mr Samir Somaiya has been elected as the President of Indian Sugar Mills Association for the Year 2009.

Global Footprint

The company in December 2008 incorporated a wholly owned subsidiary - Cayuga Investments B.V. and a step-down subsidiary in January 2009 - Godavari Biorefineries B.V., both in Netherland, primarily as the chemicals exported to the European Union nations have to be mandatorily registered under Registration, Evaluation, Authorization & Restriction of Chemicals (REACH).

Godavari Biorefineries Inc., subsidiary of Cayuga investments B.V. was incorporated in March, 2009 in USA to expand the company's operations in the western markets.

  
     
     
     
 

Vibrant Gujarat Global Investor's Summit 2009

Your company has signed an MOU with the Gujarat Government during Vibrant Gujarat Global Investor's Summit 2009 for setting up a biorefinery plant based on sugarcane as a feedstock .Your company plans to manufacture Sugar, Ethanol, Bagasse, Chemicals and Cellulose Ethers.

 
 
 

People And Society

The company won an award for Highest Pledge Raising Individual Corporate Challenge Team in the Corporate Challenge Category from Standard Chartered Mumbai, Marathon 2009.

We have always as a part of our responsibility to the society tried to cater to the various sections of the people by providing a lot of opportunities and means of development. We continue to assist Somaiya Vidyavihar in the management of 5 rural schools with over 3,000 students.

We also support 20 Anganwadis, The 'Help a Child' program; also run in partnership with Somaiya Vidyavihar has provided more than 1,000 scholarships. Medical camps in the past year have treated over 5,000 patients.

We are also assisting the NAB (National Association of the Blind), of which I am also the President, in its Ankur Project to prevent blindness.


  
 

Dr. S. K. Somaiya
Then Chairman of the Board of Directors