The Hindu Business Line : DCM Shriram commissions greenfield sugar unit

Capacity addition
The new greenfield units will increase aggregate crushing capacity to 33,000 tcd, including the 10,500-tcd Ajbapur (Lakhimpur Kheri) and the 6,500-tcd Rupapur (Hardoi) facilities.
Between 2004-05 and 2006-07 seasons, DSCL has invested over Rs 500 crore in trebling its capacity.

New Delhi , Dec. 6

Falling sugar realisations and the end of a robust phase of the commodity cycle have failed to deter DCM Shriram Consolidated Ltd (DSCL), which is setting up two greenfield plants during the 2006-07 crushing season (October-September).

The Rs 2,500-crore company last week commissioned a factory at Hariawan in Hardoi district of Uttar Pradesh with a capacity to crush 8,000 tonnes of cane daily (tcd). Another 8,000 tcd unit would go on steam at Loni, also in Hardoi, next week. That would take DSCL's aggregate crushing capacity to 33,000 tcd, including the 10,500-tcd Ajbapur (Lakhimpur Kheri) and the 6,500-tcd Rupapur (Hardoi) facilities.

Between 2004-05 and 2006-07 seasons, DSCL would have invested over Rs 500 crore in trebling its capacity, which also involves expansion of Ajbapur and Rupapur from 6,500 tcd and 4,500 tcd, respectively. "This season we will produce around 3.3 lakh tonnes (lt) of sugar, against 1.77 lt in 2005-06 and 1.57 lt in 2004-05. In 2007-08, when we will have a full crushing season, production would cross 5 lt," said Mr Ajit S. Shriram, Director (Sugar Business).

The commissioning of new capacities leading to a three-fold increase in output is, however, coming just when the downswing in the sugar cycle has seemingly set in. Over the last week alone, ex-factory prices in western Uttar Pradesh have fallen by Rs 60-70 to Rs 1,650 per quintal. Last year, at this time, realisations touched a peak of nearly Rs 1,850 per quintal. Bumper production, coupled with the Centre's ban on exports since July, has been the main driver of the weak sentiment.

Sugar Prices

"There will, no doubt, be problems, but we have an advantage of being a multi-product company. That gives us better flexibility compared to stand-alone sugar players," claimed Mr Ajay S. Shriram, Chairman, DSCL.

During the year ended March 31, 2005, sugar contributed Rs 350 crore to DSCL's topline, with urea and other fertilisers (Rs 1,150 crore), chlor-alkalis (Rs 400 crore) and PVC resins (Rs 200 crore) generating bulk of the rest.

Mr Shriram was further optimistic about sugar prices being stable, even if not bullish, over a longer period. "The Organisation of the Petroleum Exporting Countries is determined to hold crude prices at $50-60 a barrel. There are moves in the US, Europe and Japan to replace methyl tertiary-butyl ether (MTBE, a petrol additive said to be carcinogenic). Also, only recently Brazil increased the ethanol blending content in petrol from 20 per cent to 23 per cent. All this will keep the demand for bio-fuels high and divert cane away from sugar," he noted.

"It is not sugar but cane prices that is worrying me. In an election year, there is always the temptation for States to hike cane prices without considering the implications for the industry and ultimately the farmers," Mr Shriram added.