The document provides an overview of the sugar industry in India. It discusses that India is the second largest producer of sugarcane globally and the industry has an annual turnover of 700 billion rupees. It also summarizes that the industry is regulated by the government and follows a three year production cycle with the crushing season running from October to April. The key challenges facing the industry are a mismatch between supply and demand of sugar and price volatility.

1. Sugar Industry in India
September 2009
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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. 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 Ltd
3 Source: ISMA, various databases & News article

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 production
4 Source: ISMA, various databases & News article

5. Demand-Supply Mismatch
DEMAND 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.
India's sugar scenario
(mn tonne)
Sugar yr Oct.-Sept. 2006-07 2007-08 2008-09E 2009-10E 2010-11E
Opening stock 3.7 9.5 8.9 2.5 2
Production 28 26.3 14.5 19 25
Imports 0 0 2 4 0
Total Availability 31.7 35.8 25.4 25.5 27
Domestic Consumption 20.5 21.9 22.8 23.5 24.3
Exports 1.7 5 0.1 0 0
Total Offtake - Consumption 22.2 26.9 22.9 23.5 24.3
Closing Stock 9.5 8.9 2.5 2 2.7
Closing Stock/Domestic
consumption (%) 46.3 40.6 11 8.5 11.1
5 Source: ISMA, various databases & News article

6. Sugar Prices over last 5 years
The 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. Government Policies and Interventions
1. 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. 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 Power
8 Source: ISMA, various databases & News article

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 declining
9 Source: ICRA

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
profitable
10 Source: ISMA, various databases & News article

11. Outlook and Emerging Trends
OUTLOOK
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. Major Sugar Players in India
¤ Saraswati Sugar Mills
¤ Bajaj Hindusthan
¤ Balrampur Chini Mills
¤ Dhampur Sugar Mills
¤ Triveni Engineering
¤ Shree Renuka Sugars
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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
Limited
13 Source: ISMA, various databases & News article