Dalmia Sugar to scale up production capacity

Dalmia Bharat Sugar & Industries is looking to invest around ₹300-400 crore for scaling up the production capacity, either by way of acquisition or organically. The investment could be partly funded through equity and partly through debt in the ratio of 1:1.

According to BB Mehta, Whole Time Director, Dalmia Bharat Sugar, it is exploring possibilities of acquiring assets which might be referred to the NCLT (National Company Law Tribunal) for resolution. The company is hopeful that something may materialise in the next three-to-four months.

The over ₹2,000-crore Dalmia Bharat Sugar currently has a total installed capacity of 34,000 TCD (tonnes of cane per day) across its five units in Uttar Pradesh and Maharashtra. A typical 5,000 TCD plant with cogeneration and distillery facilities would entail an investment of around ₹300-400 crore.

“We are looking at inorganic opportunities but there are certain challenges that we are facing and till clarity comes on those it will be difficult to take a call. For example, the power tariff in UP is being re-looked into. So unless we know what sort of power tariff will be there and there is clarity on cane pricing, taking a call on these assets becomes difficult,” Mehta told BusinessLine.

While there is no concrete proposal at present, however, the company may look out for acquiring assets in Uttar Pradesh.

Good time for acquisition

While the company also has the option to go for expansion of its existing units in Uttar Pradesh or Maharashtra, but it would prefer going in for acquisition.

“Organic expansion we have the choice to do that at any point in time, so if there is some opportunity (for inorganic growth), we will prefer to go for that,” he said.

And Mehta believes that it is a “good time to find good assets at a right price”, referring to some of the companies in the sector which are likely to land up in NCLT.

“We have looked at some of the assets which are on the verge of being referred to NCLT and also some others which are say single units with no power or cogeneration facility,” he said.

Incidentally, sugar industry is a little peculiar when it comes to going through the process of resolution under IBC (Insolvency and Bankruptcy Code). This is because as per a Supreme Court ruling of October 2014, the dues of cane growers, even though unsecured in nature, would prevail over the rights of secured or financial creditors. This is in contrast with the IBC, which clearly favours secured creditors over operational creditors. Cane farmers, who are the suppliers of cane to sugar mills are usually classified as the operational creditors.

However, Mehta is hopeful that the NCLT would give an opportunity to Dalmia Bharat Sugar to scout for suitable opportunities.

To sustain profitability

Dalmia Bharat Sugar’s presence in both the key sugar producing states – Maharashtra and UP – acts as “a geographical hedge” for the company. A drop in production in one state could be offset by a good production in another.

Talking about profitability, Mehta said, the company ranks amongst the best in the industry in terms of its EBITDA margins. For FY19, the company had reported EBITDA of ₹353 crore, as against ₹271 crore in FY18.

“If these investments fructify, then next year we expect it to be a better year, volume wise. This year, if the government policies on cane prices and export subsidies are favourable, we should be able to maintain our profitability,” he said.

COMMENT NOW