Power business will make up for fall in sugar profits: Ponty Chadha

THE undisputed king of liquor trade in Uttar Pradesh, Gurdeep Singh Chadha, more popularly known as Ponty Chadha, who heads a $1.5-billion empire out of Lucknow, has bagged two sugar mills in the UP government’s ongoing privatisation bid and has appetite for more. The reclusive Ponty Chadha, in a rare interview, says he is looking at controlling a cluster of six to seven mills in the next couple of years.

In a sense, it is homecoming for Mr Chadha, whose father Kulwant Singh Chadha, started with a sugar crusher in Moradabad in the 60s. He then migrated to liquor trade, which his son, Ponty, along with two brothers, have taken to staggering heights aided by some contentious policies of the state government. While the liquor trade, in which he enjoys total domination in UP, remains the mainstay of the group that is in the throes of a restructuring. Mr Chadha tells ET about his ambitious plans for sugar and power sectors.

What is the existing capacity of your sugar units and how much are you targeting?

We currently have a total cane-crushing capacity of 16,000 tonnes crushed per day (TCD) at our two mills in Punjab and one in Uttar Pradesh at Dhanuara in JP Nagar district. The two UP government mills we won have a capacity of 3,000 TCD each. We will be pumping in around Rs 200 crore into each of these two mills to scale up their capacities to 8,000 TCD each. Together, all these five mills will have a crushing capacity of 32,000 TCD once the expansion is complete. If we manage to win more mills in the ongoing disinvestment programme, the total capacity would go up accordingly. We also plan to set up two new sugar mills in UP in the area where our mills are located.

Do you think this was the right time to enter as the sugar cycle is on the downturn and all indications are that the next couple of years would not be very profitable?

Yes, we understand that. It is quite true the sugar sector will not be very profitable in the next two to three years. But our business model is based on having better sugar recovery than the rest of the players, assured cane supply, reducing costs and most importantly cogeneration power units would compensate the lean cash flow from sugar.

How do you propose to increase sugar recovery and get assured cane supply which can be a tricky task?

We are very clear about having all our sugar mills in the same area i.e., located close to each other. We want to have a cluster, of six to seven sugar mills, which will share the cane area boundaries with each other. This would mean that there would be no other millers in the area and all the cane would naturally come to us. We are working on having a contiguous cane area of two lakh hectares. This massive chunk of cane area would enable us to introduce better-yielding varieties of cane to the farmers for our mutual benefit. Farmers would not travel far from their fields to sell cane and with our mills enveloping the area, the cane would naturally come to us. Also with mills being in close vicinity, transportation cost would go down drastically. We would be able to save about Rs 100 crore a year through such measures alone.

Will cogen power projects be a major focus area for you?

Power would in many ways be the main thrust area. We will have cogen units at all our sugar plants and with the government allowing coal-based generation during the off season, it would be a major flow of cash for us. In fact, the way we have planned things is that the cogeneration units would pay for the cost of acquiring the government mills and paying off the loans. As you said, sugar will not generate much profit in the next two years or so, and we have calculated that the cogeneration power units will help us generate enough profits to meet our liabilities and capital expenditure.

What is the optimum price of cane that you see for the next season? Where do you see ethanol prices headed?

This year, farmers got a high price for cane due to initial estimates of underproduction. The price of cane in the next crushing season cannot be that high due to crash in sugar prices. What should an optimum price of cane be I cannot really say as a host of factors including the market price of sugar decide that.

Do you see consolidation happening in the sugar sector?

Consolidation in the sugar industry is bound to happen at some point. Those millers who have just confined themselves to producing sugar only would eventually lose out. Those who have not been expanding their cogeneration power units would eventually start bleeding and would be forced to sell out to bigger players.

Would you also consider setting up large thermal power projects, independent of the sugar units?

We are definitely considering entering the power sector, but right now our entire focus is on our existing businesses and the expansion into the sugar sector. We are also exploring the possibility of setting up sugar units in Ethiopia. Paper and steel production are also on our radar. But these are still at the initial stage.

source: ET