Financial Daily from THE HINDU group of publications
Tuesday, Nov 23, 2004

Cross Currency

Group Sites

Corporate - New Projects
Agri-Biz & Commodities - Sugar

To fund capacity expansion — Bajaj Hind mulls Rs 100-cr equity infusion

Shyam G. Menon
Latha Venkatraman

Mumbai, Nov. 22

BAJAJ Hindustan Ltd (BHL), the country's biggest sugar manufacturer, may go in for fresh equity infusion of Rs 100 crore to part finance its ongoing capacity expansion drive.

The company has mandated I-Sec to study the matter. "If required, we will do it," Mr Kushagra Nayan Bajaj, Chief Executive, BHL, said on raising equity funds.

BHL's current capital base is Rs 8.73 crore (60 per cent held by promoters). Its expansion plan, spanning four new plants, each of 7,000 tonnes crushing capacity per day, costs Rs 550 crore. Of this, Rs 200 crore - Rs 250 crore is being met from internal accruals, the rest through debt, foreign and domestic lenders.

"Complete financial closure has been achieved," Mr Bajaj said. The first of these large plants at Kinnouni near Meerut was completed in record time and commissioned recently, making BHL the biggest sugar producer in the country.

The next three plants in Muzzafarnagar and Bijnor, work on which are on, would be ready by October 2005. Already Rs 100 crore has been spent towards the construction. "I feel 7,000 tonnes per day is the ideal industry capacity,'' he said. All of BHL's plants are in Uttar Pradesh.

During the last 10 years, sugar cane cost increased by 111.59 per cent from Rs 406 to Rs 859 per quintal, but sugar prices grew a mere 5.36 per cent, from Rs 1,231 to Rs 1,297 per quintal. Against the twin trends of rising sugar cane price and slower growth rate in sugar prices, the name of the game for the industry is volume.

BHL's cane crushing capacity will rise to 52,000 tonnes per day from 24,000 tonnes, once the quartet of new plants is in place. These 7,000-tonne per day plants compare with a domestic industry average of 1,200-1,250 tonnes per day for the Rs 30,000-crore sugar sector, composed of 540 sugar factories, including 140 that are non-operational.

A vast number of these sugar mills, almost 95 per cent of the domestic industry, are incurring losses. While this generates the likelihood of consolidation and acquisitions by major players like BHL, Mr Bajaj said any such move would need to respect the size and location of a prospective candidate. It is possible to acquire and then enhance the target company's capacity for economies of scale but a steady supply of good quality sugar cane is a must.

As Mr Bajaj put it, "You always fight to buy sugar cane, you never fight to sell sugar."

In BHL's case, its new plants are coming up in regions of Uttar Pradesh's sugar cane belt, where cane availability either held steady or grew amidst the dip in India's cane output. Post-expansion, BHL will be making a million tonnes of sugar per annum (0.27 mt before new plants) at 70 per cent capacity utilisation. At an incremental cost of Rs 150 crore, the company can further add 20,000 tonnes per day at its new plants. The biggest sugar producer in the world today produces 3-3.5 million tonnes.

Despite talk of sugar manufacturing complexes and business promise attributed to by-products such as ethanol and bagasse, Mr Bajaj believes the industry's future lies firmly in sugar. Specific gains from bagasse are diluted by the economics of the power generation business (particularly as power price lowers through onset of big mainstream power projects) while ethanol export is globally a subsidised business.

More Stories on : New Projects | Sugar

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Mukesh clarifies on `ownership issues'

Ranbaxy launches new drug for urological disorder
Deccan Chronicle plans launch in TN by Feb `05
ABB to invest $100 m in India
Reliance keen on bringing gas to Bengal from K-G find
BHEL bags Rs 26-cr orders
ICAI disclosure norms for court-ordered accounts
Ford India sales income up 29 pc; net loss pared
To fund capacity expansion — Bajaj Hind mulls Rs 100-cr equity infusion
Talks on Bajarang Jute mill reopening
Deccan Gold signs exploration pact with De Beers
DS Group plans jt venture with Lotte for confectionery biz
Motherson Sumi to set up second venture with Woco
Eicher eyes Rs 2,000-cr turnover this fiscal
MPI to invest Rs 10 cr to double capacity
The meeting that never was
Rupee options a hit among corporates

The Hindu Group: Home | About Us | Copyright | Archives | Contacts | Subscription
Group Sites: The Hindu | Business Line | Sportstar | Frontline | The Hindu eBooks | The Hindu Images | Home |

Copyright 2004, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line