The company he promoted has stayed ahead of the curve by cultivating a culture of thinking differently.
In 2006, Bajaj Hindusthan, the country’s biggest sugar producer, toyed with the idea of making an acquisition in Brazil, the world’s largest sugar producer. But the initiative never went beyond the idea stage.
Three years later, Narendra Murkumbi-promoted Shree Renuka Sugars became the Indian company to acquire a Brazilian company VDI. That was in November 2009. Just three months later, it made another acquisition in Sao Paulo-based Equipav SA. Both moves have made Renuka India’s second largest sugar producer and Brazil’s fifth largest. Renuka is investing over Rs 1,900 crore in the two deals.
The market is still digesting these lightning moves by a company that kept itself out of the limelight, though 40-year-old Murkumbi has developed a reputation for thinking very differently from the country’s sugar barons.
In his youth, Murkumbi, who comes from Belgaum in Karnataka, travelled widely in India, accompanying his father who was a distributor for Tata Chemicals and Tata Tea. When he graduated from IIM-Ahmedabad in 1994, he knew he wanted to be in agri-business. After a brief experiment with bio-pesticides, which he closed after deeming a Rs 50 crore company too small, it was sugar that caught his fancy.
To build his sugar business, Murkumbi diverted funds from the existing business, borrowed against it and also touched relatives for funds. Despite this, he found himself short of money to buy an old sugar factory through a tender floated by Andhra Pradesh government.
Taking a cue from the prosperous cooperatives in Maharashtra, Murkumbi persuaded sugarcane farmers to make contributions in lieu of shares in the business. He also received central government support while he was reviving the mill.
All in all, instead of investing Rs 100 crore in a new factory, Murkumbi managed to acquire an old one for Rs 50 crore in 1997.
In three years, the factory crushed more sugarcane than it had done in its 21 years of operation before that. Later, Murkumbi expanded the factory to include a cogeneration unit. In 2002, when sugar prices crashed, Murkumbi ventured into sugar trading in the overseas market. Consequently, in a year when the industry was in the red, Renuka, which is named after the eponymous goddess in Belgaum district, made profits.
The penchant for thinking differently — which he says is ingrained in the company’s culture — informed most of Murkumbi’s business decisions. For instance, in 2007, when the industry was struggling to create capacities in ethanol, Renuka proactively acquired a majority stake in Pune-based KBK Chem Engineering that specialised in ethanol technology.
In 2006 when the industry’s assets idled for most of the year (since sugarcane crushing is a seasonal business), Renuka utilised its assets to covert raw sugar into refined sugar. While the industry took the greenfield route or acquired assets to expand capacity, Renuka preferred to hire assets on lease and saved high acquisition costs. The industry stayed away from making acquisitions during two years of downturn (2006-07 and 2007-08) but Renuka got two units on lease.
According to Murkumbi, around 2,500 farmers remained shareholders. When Renuka listed in 2005, the farmers who had become shareholders reaped a sweet harvest. Renuka listed at a price of Rs 285 while the farmers had bought shares at Rs 10 each.
From one mill in 1997, Renuka is a Rs 2,234 crore company today with a domestic crushing capacity of 35,000 tonnes a day spread over eight units and a refining capacity of 4,000 tonnes a day. In Brazil, the company now has a capacity of over 57,500 tonnes a day.
Asked where he wants to see his company in five years, Murkumbi says, “We never set a target when we started the journey, and we did not have a target three years ago and whatever we do will depend upon the opportunities available.”
As on September 30, 2009, the company had a cash reserve of Rs 491 crore, thanks to the improvement in sugar prices which allowed him the luxury of investing overseas. Industry veteran and managing director of Kolkata-based Balrampur Chini Vivek Saraogi describes Murkumbi as an “astute businessman” adding that “he has come up very well in the last few years”.
But why did Renuka not choose to invest in domestic capacity? “We are not very positive on the domestic sphere. There is lot of competition among crops and sugarcane availability is going to be a major issue,” says Murkumbi. With the government raising support prices of crops like wheat and mills facing payment problems, sugarcane acreage continues to shrink. The Brazilian deals, thus, will help Renuka secure raw sugar supplies for its refineries in India.
As of now, Renuka is not looking for any further overseas acquisitions. “We have a big responsibility to prove ourselves in Brazil and are not thinking of anything beyond this acquisition as of now,” he says.
While Murkumbi has taken the lead in making India’s sugar industry global, he feels India’s import dependence in edible oil and pulses offers businessmen an opportunity to go global in farming pulses and edible oil plantations. That just may be Renuka’s next big idea.
