Chairman’s Message

Dear Shareholders,

We are pursuing the goal of creating a world class cascading biorefinery. Our strategy is to add value to our feedstock, and its related biomass. To convert biomass into value added product, chemically, physically or biologically. It is to create a brand, offer solutions to our customers, and to do so sustainably. It is to contribute to the community.

We have embarked on the journey to transform ourselves and to cater to diverse markets and industries offering customised products. On this path, we have created many products from ethanol, have commissioned a pilot plant to make products from biomass, have also successfully commissioned a pilot plant to produce sugarcane juice concentrate.

Your company also invested in an Incineration boiler that would help the distillery substitute the existing treatment of waste (ie bio-digestion and bio-composting), allowing for operations of 330 days per year. The year gone by (2017-18) your company was able to achieve higher Alcohol production of 36.4 million litres against 20.7 million litres in 2016-17. In 2018-19, your company targets to make more than 70 million litres of alcohol, and going forward your company plans to augment capacity to produce 90 million litres of Alcohol thereby continuing to be a pioneer in Alcohol production. Your company has recently launched a perfumery grade ethanol. We have got our first customers in the UAE for this grade of ethanol.

The increase in alcohol production will come by converting our B Heavy molasses. This is in line with the Government programme to encourage the same. The Government has done this to respond to the newly emerging production of sugar and sugarcane in the country. The production of sugarcane in the country this past year has been the highest in India, and expected to be higher still in 2018-19. The production of sugar this year was 33 million tons, and is expected to be 35 million tons in the 2018-19 season. With the sugar demand in the country remaining at about 25 million tons, this excess sugar needs an outlet. A short term measure is to export at world market prices, (which would be at a loss). To protect falling sugar prices, and to bring some price stability, the Government has announced a minimum price of sugar and reintroduced a release mechanism. But for the medium to longer term, the Government has announced a programme that will link FRP to ethanol price, so long as this ethanol is converted from B Heavy molasses, thus reducing the sugar output. In essence, the Government is converting this sugarcane surplus to meet the energy needs for transportation of the country. To help make this happen, the Government has announced that it will help the upgradation of distilleries by helping raise money at concessional rates, and announced a higher price of ethanol produced from B Heavy molasses in line with the FRP.

We plan to participate in this programme, and as mentioned earlier, target the production of 90 million litres in 2019-20.

The healthy monsoons also helped the sugarcane crushing and the sugar recovery from cane production in your company to increase as compared to last year. Your company ended the season crushing 1.8 Million tons of cane @ 10.96% recovery for sugar season 2017-18 against 1.2 million tons of cane @10.23 % recovery for sugar season 2016-17. To deal with the higher sugar inventories in the country, in addition to the ethanol programme, the Government has also announced additional steps to provide stability and restore viability to the sector. These are:

1. Fixation of minimum selling price of white sugar and linking it to the FRP of cane and minimum conversion cost of white/refined sugar. Currently this minimum selling price fixed at Rs. 29/Kg.

2. Limits to be imposed on stock holding of sugar by mills.

3. 3 million tons of a national buffer stock of sugar, for which they will provide us with the carrying cost.

4. Allocated mill wise minimum indicative export quotas (MIEQ) of 2 million tons of sugar for export during SS 2017-18. For Company, It will be 12,977 Mt.

5. With export of minimum quota, extended financial assistance to sugar mills @ Rs. 5.50/qtl of cane crushed during season to offset the cost of cane.

The chemical division is performing well and is backed by strong demand from customers. We see many global trends that seem to be favouring this sector. These are:

1. Customers have expressed renewed and strong interest in sourcing products that are renewable, sustainable, and adhering to the ‘green chemistry’ principles.

2. The increase in crude prices to over $ 70, is improving the competitiveness of chemicals made from renewable sources.

3. The renewed growth in Europe, USA, Asia and the rest of the world is helping demand.

Your Company has been a pioneer in the use of Sustainable and Renewable Resources to produce chemicals. Our close cooperation with many of the large companies to develop and produce products for them is helping us sustain and grow our pipeline for new products. We have also received the Responsible Care Certificate from the Indian Chemical Council. We are one the few companies in India to have received this certificate.

Your company is planning to make bagasse based chemicals. To make this happen, the company has invested heavily in energy efficiency and generated surplus bagasse from 40,000 tons in 2016-17 to 1,40,000 tons in 2017-18. Currently, this will be used for added power generation in the coming couple of years, and then as a feedstock for making our cellulose based products. Our aim is to work on conversion of biomass to cellulose, hemicellulose, lignin, and their derivatives. Our surplus bagasse will be used to make these products at an industrial scale. We have been engaging with customers to get product approvals, and we have made progress on this front by receiving customer approvals.

Currently your company manufactures over 20 products from sugarcane, and has many more products in the pipeline.

Your company made a Rights Issue of Rs. 33.25 crores, that was partly subscribed in March 2018, and the balance will be subscribed to this year. The capital raised will be used for augmenting ethanol capacity in Karnataka and for augmenting Working capital needs.

We continue to work closely with the farmer. We are inextricably linked together. Our aim is to see that the farmer and the farm are healthy. To do this, we continue to work on introducing drip irrigation, intercropping, soil testing, subsequent supply of quality inputs, supply of tissue culture plantlets, and agronomic practices for achieving high yield. We collaborate with KIAAR to demonstrate new techniques, that would improve productivity, optimize resource use, and maintain soil fertility. We have also started examining the interface of older and traditional techniques and modern science with KIAAR. In addition we are beginning to study the internet of things in agriculture.

I am delighted to say that your company won FKCCI Award for Best Exporter Bagalkot District” for the year 2018, competing against all industries in the Bagalkot district.

Before I conclude, I would like to pay my respects to Dr Raghavan, who passed away this past year. He was an active member of our Board and was associated with us for over 15 years, and he chaired our Board subcommittee on Research, giving us guidance, direction and assistance.

Samir Somaiya
Chairman and Managing Director