The financial year 2014-15 was a year of renewed hopes and expectations in India withthe new majority Government taking on the reins of our nation. To bring back the economyon growth trajectory the Government has worked upon a number of initiatives which willgradually add momentum to the economic growth in India. However there are a number ofpolicy level complex issues in various sectors especially the sugar sector that theGovernment must look into in order to bring about a long term sustainable solution for allstakeholders.
With continuous oversupply of sugar both in the global and domestic market sugarprices during the year have witnessed a steep fall. With the State Advised Price (SAP) forsugarcane remaining high the viability gap has increased leading to increased losses forthe sugar mills in Uttar Pradesh. This has led to a significant increase in cane arrearsto farmers and increasing debt burden for the mills.
Before the start of the crushing season for the year the private sector sugarmanufacturers conveyed to the Uttar Pradesh (UP) Government their inability to startcrushing without the structural issues being resolved. Understanding the dire state of themills the UP Government did not raise the SAP for the year and while announcing the SAPit also announced a number of subsidies to sugar mills. Given the fall in sugar prices andcorrespondingly high cane prices the subsidies envisaged are totally inadequate which isalso demonstrated in the losses incurred by sugar millers and resultant cane arrears whichis estimated at over Rs. 8000 crore for the UP mills. This situation is similar in othersugar producing states in India where the sugar mills despite a much higher recovery thanUP are finding it increasingly difficult to pay even the Fair and Remunerative Price(FRP) and the total cane arrears across all states are estimated to be over Rs. 21000crore. The Central Government has also announced export subsidy but due to the delay inannouncement and fall in global sugar prices exporting from India turned unviable.
Despite the fluid state of the sugar sector we remain steadfast in moving forward witha focus towards raising productivity across the sugar value chain. We continue tostrengthen our ties with our farmers by helping them enhance sugarcane output with betterfarming techniques. We have also augmented our co-generation facility and added a new 6 MWincidental co-generation unit at Sabitgarh. We have leveraged the increased demand forethanol by the Oil Marketing Companies (OMCs) under the ethanol blending scheme bysuccessfully bidding and securing significant contracts for supply of ethanol to OMCs.
With the prevailing sluggish environment of investment in India the growth in thecapital goods sector continued to remain weak. To revive the infrastructure sectorGovernment has taken a number of steps such as enhancing FDI limits in certain sectorsand increasing ease of doing business etc. but the return to double-digit growth will be agradual process.
Your Companys Gears business growth and margin remained stable during the year inspite of tough domestic market. While we could see fresh enquiries being generated in thedomestic market during the year however order finalisation continues to remain sluggish.We believe with a slew of policy announcements during the past twelve months theindustrial and capex climate in the country should see some buoyancy in the comingquarters.
Your Companys increased focus towards exports and aftermarket has paid off well.We have entered into a Strategic Supply Agreement (SSA) with GE (Oil & Gas) for highspeed as well as low speed products with no restrictions on geographies. The initial orderbooking has been good and during the year we have also shipped our first gearbox to USA.We expect that the SSA would contribute a large share in the growth of the business overthe next few years.
In our Water business we continue to remain focused towards rendering world classsolutions in water and waste water treatment to customers in industrial and municipalsegments. The turnover in the water business during the year has been better over theprevious year but the industry continues to witness project delays. Order finalisationboth in the industrial and municipal segment continues to remain subdued. But with anumber of initiatives by the new Government to boost the power sector & otherinitiatives like "Clean Ganga Mission" to clean up rivers and water bodiessetting up of smart cities etc. the growth prospects for the business continues to remainstrong.
I would like to thank all our stakeholders for their continuous support to the Companyand helping in moving forward despite the prevailing challenging business environment. Iwould specially thank all our employees for their dedication and passion towards yourCompany.
With best regards
Dhruv M. Sawhney
Chairman & Managing Director