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Sugar Industry in India    September 2009    This material, prepared contains, general information only. This material is ...
Indian Sugar Industry – Concept & Terminologies•   In India, it is classified under essential commodities which makes it v...
Indian Sugar Industry – An Overview•   India is the second largest producer of sugar cane after Brazil.•   On the domestic...
Raw Material (Sugar cane)•   In India, sugarcane is the key raw material, planted once a year during January    to March. ...
Demand-Supply MismatchDEMAND DRIVERS                                   SUPPLY CONSTRAINTS•  30% of the total consumption i...
Sugar Prices over last 5 yearsThe lack of intervention from government is having potential to push sugar prices to new hig...
Government Policies and Interventions1. Statutory Minimum Price (SMP) and State Administered Price (SAP) – As   sugar fall...
Integrated Sugar Manufacturing Model    • 100 Kgs of Sugarcane gives approx. 10 kgs of Sugar, 5-6 Kgs of Molasses, 33 Kgs ...
Indian Sugar Industry – Five Forces Analysis                                         New entrants – Medium                ...
Indian Sugar Industry – SWOT Analysis                          STRENGTHS                                                  ...
Outlook and Emerging TrendsOUTLOOK  Based on the past ten years growth in consumption and estimates from various  independ...
Major Sugar Players in India                      ¤ Saraswati Sugar Mills                            ¤ Bajaj Hindusthan   ...
Consolidation in Sugar Industry                                                                                       Deal...
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Sugar industry in india

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  1. 1. Sugar Industry in India September 2009 This material, prepared contains, general information only. This material is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your finances or your business. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser. The presenter shall not be responsible for any loss whatsoever sustained by any person who relies on the content of this material.1
  2. 2. Indian Sugar Industry – Concept & Terminologies• In India, it is classified under essential commodities which makes it vulnerable to regulatory policies by the regime.• The quantum of sugar produced by a mill is determined by the factors like daily crushing capacity, duration of crushing season and percentage of sugar recovery. [Tones Crushed per Day (TCD), 180 days and 10-12%]• The Sugar Year (SY) is from October to September• At present, sugar mills are required to provide 10 per cent of their total production as levy sugar (Rs 13 / kg) for the Public Distribution System (PDS)• Sugar is a cyclic industry which follows a three year cycle. SMP is the Govt. determined price at which sugar manufacturers purchase cane from farmers whereas SAP is the price at which sugar manufacturers sell sugar in the free market.2 Source: ISMA, various databases & News article
  3. 3. Indian Sugar Industry – An Overview• India is the second largest producer of sugar cane after Brazil.• On the domestic front, the Indian sugar industry has a turnover of Rs. 700 billion per annum (US $ 14.6 billion)• There are 553 installed sugar mills in the country with a production capacity of 180 lakh MT of sugar.• These mills are located in 18 states of the country, with Maharashtra contributing over one-third of it. About 60% of these mills are in the co-operative sector, 35% of the total are in the private sector and rest in the public sector.• Until the mid 50s, the sugar industry was almost wholly confined to the states of Uttar Pradesh and Bihar. After late fifties or early sixties the industry dispersed into Southern India, Western India and other parts of Northern India.• Almost 75% of the sugar available in the open market is consumed by bulk consumers like bakeries, candy makers, sweet makers and soft drink manufacturers.• The crushing season in the country starts from October and reaches its peak in January before finally ending in March or April of the next year.• Mr. Samir S Somaiya is the current President of Indian Sugar Mills Association (ISMA) and Managing Director of Godavari Sugar Mills Ltd3 Source: ISMA, various databases & News article
  4. 4. Raw Material (Sugar cane)• In India, sugarcane is the key raw material, planted once a year during January to March. It being an agricultural crop is subject to the unpredictable vagaries of nature, yielding either a bumper crop or a massive shortfall in its cultivation from year to year.• The sugarcane growing areas may be broadly classified into two agro-climatic regions:  Subtropical - UP, Bihar, Punjab, Haryana  Tropical – Maharashtra, AP, Tamil Nadu, Gujarat, Karnataka• Maharashtra and UP are the main cane producing states. # Sugar cane prices comprises more than 70% of the total costs of Sugar production4 Source: ISMA, various databases & News article
  5. 5. Demand-Supply MismatchDEMAND DRIVERS SUPPLY CONSTRAINTS• 30% of the total consumption is used • Reduction in cultivation area by about directly by households, while 70% is used 17% during SY 2008-09, would result in indirectly. reduction in production of sugarcane to• Sugar consumption is expected to grow approx. 280.5 MT. at the rate of 4-4.5% because of • Farmers are shifting to alternate crops • Steady growth in population by 1.3-1.4% p.a. like wheat, jowar, sweetcorn, bajra, etc. • Growth of per capita income by 6.5-7.5% p.a. which are more profitable.Indias sugar scenario(mn tonne)Sugar yr Oct.-Sept. 2006-07 2007-08 2008-09E 2009-10E 2010-11EOpening stock 3.7 9.5 8.9 2.5 2Production 28 26.3 14.5 19 25Imports 0 0 2 4 0Total Availability 31.7 35.8 25.4 25.5 27Domestic Consumption 20.5 21.9 22.8 23.5 24.3Exports 1.7 5 0.1 0 0Total Offtake - Consumption 22.2 26.9 22.9 23.5 24.3Closing Stock 9.5 8.9 2.5 2 2.7Closing Stock/Domesticconsumption (%) 46.3 40.6 11 8.5 11.15 Source: ISMA, various databases & News article
  6. 6. Sugar Prices over last 5 yearsThe lack of intervention from government is having potential to push sugar prices to new high in Indian markets. The market will remain well above Rs.2000/qtl during the sugar year 2009-10 6 Source: ISMA, various databases & News article
  7. 7. Government Policies and Interventions1. Statutory Minimum Price (SMP) and State Administered Price (SAP) – As sugar falls under essential commodities, it is being regulated by the state government in coordination with the Center. For the season 2009-10, the regime is under tremendous pressure for declaring SMP as this crop has fallen from surplus to deficit category.2. Subsidies – The Govt. has given transportation subsidy to sugar exporters in order to release excess stocks piled up at millers end, but this has ended last September.3. Huge Capex - During 2004-05 (Mulayam Singh) government had flooded sops for inviting investments in UP which have seen overwhelming response. The state was able to garner around Rs 30,000 crores in form of various investments. The sugar millers have also undergone huge debt lead expansion based on the investment slabs dictated by regime. It is these debts only which the millers are still tackling.4. Levy sugar – The govt. is planning to increase levy quota (for BPL under PDS) from current 10% to 20-25% due to concern of increasing sugar price.5. Stock limits – Sugar may be subject to stock limits this whole year, which are being imposed in essential commodities in India.7 Source: ISMA, various databases & News article
  8. 8. Integrated Sugar Manufacturing Model • 100 Kgs of Sugarcane gives approx. 10 kgs of Sugar, 5-6 Kgs of Molasses, 33 Kgs of Bagasse and around 4 Kgs of Press mud • 100 Kgs of Molasses gives approx. 22-25 litres of Alcohol • 100 Kgs of Bagasse can generate approx. 35 units of Power8 Source: ISMA, various databases & News article
  9. 9. Indian Sugar Industry – Five Forces Analysis New entrants – Medium Incentives given by the Govt. been withdrawn and new sugar units are required to comply with levy quota regulations from 1st year of operations Competitors – High Bargaining power of Buyers – Bargaining power of Suppliers Limited – High With around 500 units engaged in production of Govt. influences distribution, As Govt. announces the purchase sugar, Industry is highly purchase price of levy sugar price (SMP), it protects the fragmented and the free sale quota releases interest of the sugar cane farmers for sugar Threat of Substitutes – Low Alternate sweeteners to sugar are gur and khandsari, whose use is declining9 Source: ICRA
  10. 10. Indian Sugar Industry – SWOT Analysis STRENGTHS WEAKNESSES • Higher End Product Prices:-Sugar is the main product of • Fall in derivatives:- The fall in prices of derivatives like sugar mills, which is most likely to fetch record prices this ethanol, baggase, waste or manure etc. will also have year. The mills that are able to secure cane supply will be the adverse impact on almost all the companies. biggest beneficiaries. In recent past the mills have • Currency risk:- Most of the companies which have exposure undergone capacity expansion, which will increase their in form of overseas loans, imports etc. will be vulnerable to processing capacity leading to higher productivity. the forex losses in advent of rupee depreciation. • Favorable policy:- Like any other industry, sugar companies too have liquidity crunch which can be meet through Sugar Development Fund of the Government of India under special case schemes. OPPORTUNITIES THREATS • Seasonality:- Sugar follows 3-5 years cycle, which is a • Low Cane availability:- Limited or non-availability of cane function of prices. We have already witnessed the bearish will eventually lead to early closure of mills. phase following excess supply. Now the situation is of lower • Unfavorable policy:- The call for change in policy will now production and higher consumption, which calls for higher be via inflation route only, since for securing supplies remuneration to the farmers for attracting higher government has already relaxed norms for imports, which acreage coverage under sugarcane. are acceptable at zero duty. • Crude oil revival:- The revival in crude oil prices will throw • Higher debt:- The fund raising capabilities of most of the this industry into limelight again. The derivative products of existing companies in this sector are under serious threat cane would be in demand and supply constraints are amid ongoing tight liquidity. clearly visible to push prices higher. • Alternate Crops:- Alternate crops to sugarcane are more profitable10 Source: ISMA, various databases & News article
  11. 11. Outlook and Emerging TrendsOUTLOOK Based on the past ten years growth in consumption and estimates from various independent sources, it is expected that in 2017, the domestic sugar consumption would be approximately 28.5 million MT. Given the high cost of imports and the strategic importance of food security, India would need to target its production in excess of domestic consumption. Given the past trend in production cyclicality, sugar equivalent to 1.5 months of consumption i.e. an additional 3.5 million MT of sugar would need to be produced by 2017. Therefore the sector has huge investment potential. In the near term (Sugar Season 2009-10), prices are expected to go up as most mills had reduced their production due to low sugar prices.EMERGING TRENDS The new plants which are being constructed are integrated complexes. This would help in de-risking from sugar downturns and benefit from untapped potential of ethanol and cogeneration. For instance, while sugar capacities are set to grow by 58%, Cogeneration and ethanol capacities are planned to grow by 175% and 217% respectively.11 Source: ISMA, various databases & News article
  12. 12. Major Sugar Players in India ¤ Saraswati Sugar Mills ¤ Bajaj Hindusthan ¤ Balrampur Chini Mills ¤ Dhampur Sugar Mills ¤ Triveni Engineering ¤ Shree Renuka Sugars12
  13. 13. Consolidation in Sugar Industry Deal size Year Acquirer Target Stake (%) (Rs Cr) Motilal Padampat Chini 2010 Jay Shree Tea 100% 154 Industries 2009 EID Parry Sadashiva Sugars * 76% 51 2008 Shree Renuka Sugars Gokak Sugars Ltd 87% 69.3 2008 Shree Renuka Sugars Ratnaprabha Sugars* 100% 23.8 Bajaj Hindusthan Sugar 2008 Phenil Sugars Pvt Ltd - Undisclosed & Industries Rajshree Sugars and 2006 Trident Sugars 62.0 Chemicals Rauzagaon Sugar and Cogen Power Units from 2005 Balrampur Chini Mills 100% 182.0 Dhampur Sugar Mills Limited13 Source: ISMA, various databases & News article

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