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Sugar Industry In India

Sugar Industry In India. Saurabh Bhat Group Executive Vice President. December 18, 2010. Industry Brief. India is the largest consumer (~23 MnT) and second largest producer (~25 MnT) of sugar in the world(~157 MnT).

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Sugar Industry In India

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  1. Sugar Industry In India Saurabh Bhat Group Executive Vice President December 18, 2010

  2. Industry Brief • India is the largest consumer (~23 MnT) and second largest producer (~25 MnT) of sugar in the world(~157 MnT). • Indian Sugar consumption comes from un-organised bulk consumers (50%), industrial consumers as soft drink, biscuit, chocolate and confectionary (20%) and balance from households. • The Indian sugar industry has a turnover of ~Rs. 500 billion per annum and contributes almost INR 22.5 billion in taxes annually. • India has around 500 sugar factories with around 50% in coop sector and rest in private and public sector.

  3. Industry Brief (contd..) Bulk of Indian sugar production is Plantation white sugar using the double sulphitation process International trend is towards refined sugar by phospho floatation process Indian refined sugar capacity is < 200,000 tonnes against a demand of 350-400,000 tpa. Moreover there’s a huge export opportunity Availability of activated carbon from cheaper natural sources (coconut kernel, pinewood as against bone charcoal) makes the process viable. Activated carbon is a imp RM cost for the filtration process in refined sugar.

  4. Demand Supply Scenario

  5. Repeat of 2007-08 Situation unlikely • Estimated that India’s sugar production will increase to ~25 mn MT in SS11. • There will be a closing stock of around 3.3 mn tones which is equal to only 1.6 months’ consumption, much lower than ~ 5 months during SS07 and SS08. • As closing stock is estimated to be only 1.6 months’ consumption, prices of sugar are not expected to fall drastically as it had in 2007-08.

  6. Top Sugarcane producing States • Top six states contribute ~ 90% of country’s sugarcane production. • Up produces more sugarcane but Maharashtra is highest sugar producer.

  7. Recent Developments • Sugarcane Fair and Remunerative Price (FRP-declared by Govt) for 2009-10 season stood at INR 129.84 per quintal. • Sugar companies paid from INR 240-265 per Qtl against the above mentioned FRP. • The govt has revised the FRP for SS 2010-11 to INR 139.12 per quintal from INR 129.84 per quintal in last year • Levy price was INR 14.0 per kg till June 2010 and increased to INR 18.0 per kg June onwards.

  8. Recent Developments • Ethanol prices were INR 21.5/liter in SS 10. Prices have been increased to INR 27.0/liter from August 16, 2010 onwards. • Levy quota has been reduced from 20% to 10% wef Oct 1, 2010. Levy sugar price is INR 18/kg. • Free sugar is selling at around INR 28/kg ex- factory. • Govt has allowed export obligation (1.1 million tones) to be fulfilled by companies. Also companies can buy from third party and meet their obligation. • As of now total 1.45 lakh tones of sugar has been exported. Rest 10.5 lakh tons are to be exported by March 2011.

  9. Profitability Estimates * Surplus power per tonne of sugarcane crushing is ~ 60 units which is assumed to be sold at INR 3 per unit.

  10. Outlook • Current ex-factory prices are around INR 28.0-29.0/kg and it may remain at the same level till new sugar starts arriving in the market. • Price may drop to INR 27.0/kg if current crop arrives as expected and export (other than obligatory export of 1.1 million tonnes)  is not open. • Companies with export obligation will benefit as international prices are ~ INR 31.5/kg . • If the production does not happen as expected (earlier estimate of 25.0 million tones) and export is also allowed, the prices may go up to INR 30.0/kg

  11. Sugar Inventory Valuation • Free Sugar is valued at market price of free sugar or the cost of production whichever is lower. • Levy Sugar is valued at the levy price (i.e. market price of levy sugar) or the cost of production whichever is lower. • Cost of production = Cane Cost + Associated Variable Costs + Associated Fixed Costs – Sale of Molasses & Bagasse + Depreciation

  12. Drawing Power Calculation for Sugar Business • DP = Stock or Cash Deficit for the Next Month, whichever is lower. • Margins:

  13. Cash Budget Method for DP Calculation

  14. Risks in Sugar Financing Availability and Price of Cane Significant political risk in terms of support price High dependence on monsoon Highly cyclical with acreage under cultivation demonstrating yearly swings Cane diversion to other uses (esp in states like UP and Bihar) Recovery Monsoon Time of harvest High degree of regulation - Govt policies including Price and quota of levy sugar Export / import policy – quantity and duties Capital costs International Demand supply and Prices of raw sugar Ethanol, Molasses and Bagasse price and Power Tariff Off season availability of fuel

  15. Viability of Sugar Plant

  16. Parameters

  17. Assumptions

  18. Analysis of a 10,000 tpa sugar refining unit

  19. Global Trends Integrated sugar plants in developing countries Mali: sugar project financed by African Dev Bank comprises 14,000 hectares to produce 1.45 mn tonnes of cane 200,000 tonnes per annum (7500 tcd) of sugar unit 15 mn litres p.a. of Ethanol and 30 MW of cogen Brazil will continue to be dominant supplier , however production in Mexico, China and other South Asian countries like Thailand expected to grow (source: Mott Mcdonald) Prices expected to be in the 25c/lb to 29c/lb band over next year (source: ISO) Greater shift to refined sugar

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