PONNI SUGARS (ERODE) LIMITED
ANNUAL REPORT 2010-2011
CHAIRMAN'S REPORT
Dear Shareholder,
I am glad to share with you the creditable, performance of your Company in
a difficult year. Its topline has touched yet another two high on the
strength of volume growth, despite deep fall in product prices.
I had voiced my worst fears in my Cast year's communique on the negatives
facing the Company. These were in the form of reduced cane availability,
higher input costs and lower output prices. These factors did hit us hard
during the year. 'But quite unexpectedly, we were hit harder by a steep
fall in sugar recovery as wed. Under adverse climatic conditions, our sugar
recovery dipped to a decade-low figure.
We normally benefit by some buffer in this cyclic industry. It is in the
form of remunerative prices in the market during times of low production or
by way of higher output (through abundant and relatively lower cost cane
availability) during times of sluggish market conditions. It however was a
double whammy this time for our Company to face lower production and lower
prices together during the downturn.
It hence gives me considerable satisfaction to report that our Company has
maintained a healthy topline and commendable bottomline for the year, while
most of our peers have indeed suffered stifling losses in the sugar
segment. 'We have been largely helped in this endeavour by low cost sugar
inventories carried over from last year and the prudent provisioning we had
made in the previous year for the adverse impact of raw sugar import
contract. 'While our operating margin tanked by 75%, we could contain the
fall in PBT and PAT at 50% compared to last year.
Sugar fundamentals have doubtless changed during 2010-11 sugar season with
the re-emergence of surplus after two successive years of significant
deficit. Nevertheless, current stock levels cause no alarm to warrant such
horrendous hammering of sugar prices. Continual clamp on OGL exports when
world prices were high, persistent pursuit of restrictive trade norms on
bulk users of sugar and excessive monthly releases unleashed month after
month have cumulatively contributed to the collapse of market sentiments.
It is imperative that India as the single largest sugar consumer must
remain self-sufficient on sugar-production, if not a regular exporter in
the global market. We have only to look at our immediate past to draw the
lessons when a sudden spurt in Indian demand forced by domestic, production
setback drove world sugar prices to dizzy heights. In that process, the
Indian consumer eventually endedup paying a whopping 100% increase in the
price for sugar in a matter of just couple of months. It is axiomatic that
domestic production stability is sine qua non for domestic price stability
for a large country like ours.
In this content, it would be too naive to forget the fact that the swift
and significant recovery in Indian sugar production recorded in 2010-11 is
undeniably on the strength of remunerative cane price voluntarily paid by
sugar mills in excess of mandatory cane prices. This was possible only by
reason of vibrant sugar market and viable sugar prices strengthening the
cashflows of sugar mitts. This delicate balance is unfortunately disturbed
and destabilized too often, accentuating the volatility in sugar cycles. It
is simple economics that sugar mills cannot for too long operate in a
negative cost-realization structure and their shocks get systemically
passed on to the cane farmer, with only a limited lag.
your Company remains sanguine towards sustaining reasonable volume of cane
crushing during Fy 2011-12. It has taken effective steps to shore up the
cane quality, enhance yield and improve recovery. Sugar prices might only
remain range bound in the near term Interest cost is bound to surge
considerably based on higher level of borrowings and further fuelled by
higher rates of interest. It looks we would be cruising through the bottom
of sugar cycle in 2011-12 with all concomitant challenges. 1 still believe
we should be able to post positive results for they ear.
The Co-generation Project on a capital outlay of Rs.110 crores is
progressing per schedule. We have tied up the debt component through Canara
Bank. We target to commission this before end of March 2012.
I am indeed thankful to you for your unstinted support to the Management in
all its endeavours. While we do foresee a difficult year in FY 2011-12,
your Company Should be able to show resilience in combating the challenges
and strive to meet realistic expectations of stakeholders.
Warm regards
N. Kopala Ratnam
Place: Chennai
Date : 27th May 2011