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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
Sugar Industry In India

Saurabh Bhat

Group Executive Vice President

December 18, 2010

industry brief
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.
industry brief contd
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.

repeat of 2007 08 situation unlikely
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.
top sugarcane producing states
Top Sugarcane producing States
  • Top six states contribute ~ 90% of country’s sugarcane production.
  • Up produces more sugarcane but Maharashtra is highest sugar producer.
recent developments
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.
recent developments8
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.
profitability estimates
Profitability Estimates

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

outlook
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
sugar inventory valuation
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
drawing power calculation for sugar business
Drawing Power Calculation for Sugar Business
  • DP = Stock or Cash Deficit for the Next Month, whichever is lower.
  • Margins:
risks in sugar financing
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

global trends
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