The coyness of Saraogis about divesting their holding in the country’s second largest sugar group Balrampur Chini is understandable.

For the Saraogi family, particularly the matriarch Meenakshi Saraogi, has progressively taken the capacity of Balrampur from a negligible 800 tonnes of cane crushed a day (TCD) in 1975 to now a striking distance of 75,000 TCD and also, in the process, created significant revenue streams out of cane byproducts.

Some while ago, the market almost came to accept that the Saraogis were making over their 36.67 per cent ownership of Balrampur to the industry leader Bajaj Hindusthan. Whatever the reasons, the deal did not go through. Now another emerging star on the Indian corporate world, Shree Renuka Sugars, is said to be showing interest in Balrampur. Only the future will tell whether the Saraogis are waiting for the right price for handing over the Balrampur baton to a suitor. What, so far, we have been given to understand is that all the offers fall way short of the expectation of Saraogis. One important thing to be noted here is that all three players named in this unfolding takeover story have written new paradigms for the country’s sugar industry.

If at any point Balrampur comes within the fold of a sugar group of more or less equal stature then that will be an epoch making event for the industry in this country. Whether it is Bajaj Hindusthan, Balrampur or Shree Renuka, they all have gained in stature as much as by way of buying existing factories as by building new cane crushing units. At the same time, all the three groups have proved their mettle in turning around the limping acquired factories by way of capacity expansion and creation of new revenue streams such as power cogeneration and bigger distilleries.

The enfant terrible of the country’s sugar industry Narendra Murkumbi, CEO of Shree Renuka, springs one surprise after another as he seizes business opportunities not thought of earlier by his peers. As Murkumbi has established the merits of combining straight ownership of mills with leased assets, he foresaw ahead of others the need for India to have a sufficiently large capacity to refine raw sugar into white sugar. The rules of global trade in sugar have changed. The perennial importers of the commodity have built large refineries and therefore, they now only buy raw sugar in the world market. In our case too, of the total imports of 2.5 million tonnes in the season ended September 2009, raws constituted as much as 2.3 million tonnes.

Armed with refinery capacity of 4,000 tonnes a day, Murkumbi is in a vantage position to make the best of India’s rising sugar imports. Industry official Om Dhanuka says the country is likely to end up importing as much as 6 million tonnes of sugar, most of that raws this season as opening stocks plus production will fall considerably short of the local demand.

In another trailblazing move, Murkumbi bought Vale do Ivai (VDI), owning two mills at Parana in Brazil with capacity to crush 3.1 million tonnes of cane a year. The Brazilian company with an enterprise value of $240 million owns 72 per cent of the captive cane growing area of 18,000 hectares. Brazil is not only the world’s largest producer and exporter of sugar, but its factories are designed to make ethanol directly from cane. What must have weighed with Murkumbi in buying VDI is its proximity to a port and part ownership of export infrastructure, including a berth.

Commitment to capacity consolidation, which alone allows meaningful wealth generation using byproducts like molasses and bagasse, is what has made the three groups such strong entities. If anyone wants to exit sugar, then no doubt this is the best time to do so. Sugar is commanding prices not seen in the past 28 years. Therefore, the general valuation of sugar factories is high and an integrated group like Balrampur, which is doing good farm extension work, should be commanding a high premium price. Even then when the news of Saraogi stake sell first appeared, it was received with a sense of disbelief.

But why the thought of exiting sugar should be crossing the mind of Saraogi family. Dhanuka says, “You cannot do a better job than the Saraogis. They are among the pacesetters in the industry. Balrampur is in the pink of health. I shall rather not speculate on extra business considerations that might have led the Saraogis to consider exit option.” Are the Saraogis getting tired of putting up with the intense political skulduggery in UP where Balrampur has all its mills? Whatever that may be, India with 635 factories of which about 500 are operational is ripe for intensive capacity consolidation. While factories in government sector are either sick or closed, most cooperative units outside Maharashtra and Karnataka need proper rehabilitation.

source: business-standard


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