dcm shriram industries ltd share price Management discussions


The Companys business comprises of sugar, alcohol, co-generation of power, fine chemicals, industrial fibre and defence related products. Its manufacturing facilities are located at Daurala (U.P.) and Kota (Rajasthan). The Directors Report gives segment-wise/ product-wise performance and outlook of these operations. The Directors Report also deals with internal financial control systems, their adequacy, risks, and concerns.

The industry situation and competitive scenario of different segments of operations of the Company are given below:-

Sugar

Indias sugar export for Sugar Season 2022-23 was set at 6 million tons, from the all-time high of 11 million tons in Sugar Season 2021-22. However, higher domestic and export price of sugar as well ethanol will support revenue growth of the industry over the medium term.

The sugar sector in India is highly regulated, with sugar being an essential commodity and the largest agro-based industry. The Government regulates the quantum of export, as well as monthly sugar quota for domestic sales, besides determining the FRP/SAP of sugarcane.

Still the sugar sector outlook remains stable due to lower working capital requirement following the reduced inventory, higher ethanol volumes, increase in ethanol realizations by 3%. As a result, integrated sugar players are better positioned compared to non-integrated ones, despite the pressure on profitability.

Sugar Industry Strengths, Weaknesses, Opportunities & Threats (SWOT): Strengths

Sugar being an essential commodity will always be in demand.

The industry helps rural communities by providing employment opportunities.

There is availability of abundant arable land in the Country.

Sugarcane crop is one of the most lucrative cash crops in India.

Weaknesses

The Countrys production is highly reliant on monsoon.

Sugar industry is a highly capital-intensive industry.

Highly government regulated Industry.

Opportunities

The scope of producing ethanol is immense in India.

Sugar demand in India is rising because of the growing population and higher downstream demand.

Threats

Increased production without exports may result in oversupply in the domestic sugar market.

Sugarcane prices are affected by the sugar industrys reliance on rainfall, planted acreage and transportation costs.

Import of sugar at cheaper prices might have an impact on the nation.

Considering the above SWOT analysis of sugar Industry over the time, the Unit has strengthened its manufacturing capabilities through upgradation of technology, providing training, and specialization, thereby improving quality, output, efficiency, and environmental compliance.

DSWs Key Areas of Focus & Strategy are highlighted below:

Organic growth by increasing cane acreage.

Cane development for the Company to increase yield and recovery thereby, ensuring optimum Capacity utilization.

Value addition by exporting refined sugar and tapping institutional markets.

Manufacturing country liquor instead of selling molasses.

Continuously optimizing our operations and reducing our energy consumption.

Development of a talented, diverse team.

Ensuring backward and forward integration backed by sustainable practices.

Introducing innovation and new technology.

As part of the above measures in the past, DSW has done major expansions in terms of DRP process in sugar production and distillery capacity enhancement. With refined sugar production, DSW has increased the institutional market share to 30% of total sugar sales.

Rayons

Shriram Rayons manufactures rayon tyre yarn, greige and treated fabric. The products are predominantly used as reinforcement material in high performance tyres. The Unit is exporting the products to major international tyre manufacturers in various countries.

At the beginning of the year, customers indicated good volumes to the Unit, requiring maximum capacity utilisation and the market situation returned to normalcy after 2 years of outbreak of Covid -19. However, with the war in Europe the global recessionary conditions emerged which resulted in the reduction in production by tyre companies. That showed an effect on the Unit due to low offtake during the year, particularly second and third quarter of FY 2022-23. However, the Unit has been continuously working on to improve its market share by seeking approvals from present and prospective customers. Based on the off take in the fourth quarter of FY 2022-23 and market assessment, the sale is expected to increase next year providing an opportunity to increase capacity utilisation.

Keeping in view of market assessment, the Unit has implemented a rayon capacity expansion project. The project has been delayed due to lock down and movement restrictions due to Covid 19. However, the same has now been implemented in a phased manner.

The Unit has capability to supply treated fabric which is a readily usable product and is preferred by the tyre companies. This has been further strengthened with upgradation of the dipping facility. The treated fabric share in its export has been growing and this year it is more than 85% of the exported volume.

There was huge increase in prices of major raw material due to adverse global demand supply situation. The logistic cost which had gone up substantially due to increase in ocean freight arising out of shortage of empty containers, port congestions and cancellation of vessels in FY 2021-22 showed sign of improvement in FY 22-23.

The Unit has been able to obtain adjustment in selling price to offset these escalations. Further, continuous increase in the input prices, due to evolving global situation, is posing a challenge. Shriram Rayons implemented energy related projects in previous years to reduce energy cost, including increase in use of agro-fuel and increase in captive generation capacity. Unit started maximising agro fuel consumption and moved towards zero fossil fuel consumption during the year. The Unit maintains offsite husk storage facilities to procure and store husk during the season for use throughout the year.

The Unit has 2.15 MW Solar Power capacity working satisfactorily, supplementing the grid/ captive power. As a result of the above, the Unit has been able to limit the impact of increase in energy prices up to a certain extent. However, energy cost will continue to be a challenge and the unit is adopting more energy conservation measures to control the cost. Shriram Rayons continued its efforts to reduce, recycle and reuse water and achieved reduction in water consumption. The Unit is continuously upgrading the monitoring and control systems for effluent and gas emissions. The effluent monitoring data is being transmitted online to pollution control agencies of the State and Central Government on real time basis. Effluent treatment and pollution control are key areas of attention for the Unit.