India. Sugar sector gears for surge as decontrol revs up market; rise in M&A activity likely
2013-04-09 10:30:51
India's sugar sector is gearing for a surge in M&A activity, big investments and exciting retail products as the government's decision to ease controls has revved up the world's biggest market for the sweetener.
Foreign firms have been calling top industry people as they are lured by the size of the Rs 80,000-crore market that is expected to double in five years. Trade sources say potential investors are eyeing opportunities in detail and have a preference for business in top producer Maharashtra although they are suspicious of politically meddlesome Uttar Pradesh.
India, the world's top sugar producer after Brazil and a key mover of global prices, is already on the global radar with top international trading firms such as Czarnikow, Cargill, Sucres et Denrees (Sucden), Louis Dreyfus, Noble, Glencore, Singapore's Wilmar and Thailand's Mitrapol already have thriving Indian operations.
"I keep getting calls from global companies about opportunities in the Indian market. The sugar market will see new domestic and multinational players and there is a huge probability of joint ventures and acquisitions," Abinash Verma, director general, Indian Sugar Mills Association told ET.
The government last week allowed mills to sell their entire sugar production in the open market without any restriction, making a big concession to the industry that has been tightly controlled for decades.
Shares of sugar firms have rallied because of the announcement. Foreign firms would invest in existing as well as new projects, he added. Currently, there are very few joint ventures in the sugar industry and a negligible number with foreign companies. International companies have already started identifying regions where companies would be targeted. "Big fish will eat small fish".
"Consolidation will begin soon. There are huge opportunities to acquire small and medium size mills in Maharashtra, Karnataka and Tamil Nadu. As of now, Uttar Pradesh mills are not a viable option owing to too much political interference and non-supportive government policy," said an official of a leading multinational conglomerate based out of Gurgaon. Some foreign players are already here.
In 2009, Singapore-based Olam International acquired it first sugar mill Girdharilal Sugar & Allied Industries Ltd at Barwani district Madhya Pradesh followed by Hemarus Industries Ltd in Maharashtra (Kolhapur) in 2011. Its current production capacity is 800 tonnes sugar per day.
Karnataka-based Ugar Sugar WorksBSE -4.84 % has a technical tie-up with a German firm Fragies Verwaltung GMBH. Leading specialty sugar manufacturer, Simbhaoli SugarsBSE 0.00 % has a tie up with London-based commodity giant E.D. & F. Man to set up a greenfield sugar refinery at Kandla port in Gujarat.
Chennai-based EID ParryBSE 0.75 % had signed a pact in 2008 with Cargill India, a major player in the commodities and FMCG sector to set up a processing plant at Kakinada, Andhra Pradesh which they bought out in December' 2012. Many in the industry expect Cargill to acquire a sugar company down south.
Sugar production in the country is estimated to touch 24.6 million tonnes in 2012-13 marketing season ending September 30 with the cumulative turnover of Rs 80,000 crore. "The current sugar market has the potential to double up and reach Rs 1.6 lakh in next five years," said Vinay Kumar, managing director, National Federation of Co-operative Sugar Factories.
Currently the major players in the sugar industry are all domestic firms such as Bajaj Hindhusthan, Shree Renuka SugarsBSE -2.73 %, Dhampur SugarBSE 1.12 %, Balrampur Chini, EID Parry, Mawana Sugars etc. "Apart from bringing the much needed technology up-gradation, new investments, it will also flow bring in a competitive streak among millers and companies," said Kishor Shah, chief financial officer, Balrampur Chini MillsBSE -0.20 %.