It is the first overseas acquisition by an Indian sugar company.
In the first acquisition of any foreign sugar and ethanol unit by an Indian company, Shree Renuka Sugars Ltd (SRSL), one of the largest producers in the country, has acquired Brazil’s Vale Do Ivaí SA Açúcar e Álcool (VDI) at an enterprise value of $240 million (Rs 1,112 crore).
Sugar companies are looking for opportunities abroad, partly due to restrictions on undertaking farming directly.
SRSL will pay $82 million (Rs 380 crore) now and the balance over eight years. It plans to finance the acquisition by leveraging the $105 million (Rs 506 crore) it raised through a qualified institutional placement (QIP) of shares in July. Narendra Murkumbhi, MD of SRSL, had earlier said the proceeds would be used on refinery and cogeneration plans.
| SWEET PLANS FOR INDIA TOO | ||
| Domestic capacity | 2010 | 2011 |
| Cane crushing (tonnes per day) | 35,000 | 35,000 |
| Ethanol (kilolitres per day) | 930 | 1,200 |
| Sugar refining (tonnes per day) | 6,000 | 9,000 |
| Power (Mw) | 173 | 233 |
| Excess power (Mw) | 95 | 135 |
The company operates eight sugar mills, five owned and three leased, with a cumulative daily crushing capacity of 35,000 tonnes.
The acquisition of VDI includes two sugar and ethanol production facilities in the southern Brazilian state of Parana, with a combined cane crushing capacity of 3.1 million tonnes a year. VDI holds strategic stakes in several logistics assets, including terminals for storage and loading of sugar and ethanol at the port of Paranagua.
The acquisition also includes 18,000 hectares of cultivable land under VDI, through which the company meets the larger part of its sugarcane requirements. The land is on long-term lease and used to cultivate cane with an average yield of 95 tonnes a hectare, with recovery of 13 per cent. In India, the yield (around 60-65 tonnes per hectare) and the recovery (a maximum of 11.5 per cent) are lower.
VDI has a third production facility in state of the Minas Gerais, which will be spun off to its current shareholders as a consideration for the acquisition.
Through this acquisition, SRSL is planning to feed raw sugar demand at its refineries in Gujarat and Haldia, where huge capacity expansion work is under progress.
“To meet our objective to focus on sugar refinery, we imported about 0.7 million tonnes of raw sugar last sugar year (October-September) and plan to import about 1.3 million tonnes next year. Going forward, our refinery will require two million tonnes of imported raw sugar to meet the enhanced refinery capacity of 9,000 tonnes per day by 2011,” said Gautam Watve, SRSL’s head for strategy and planning.
The company is working to meet up to half of its refinery capacity requirements through import of raw sugar, he added.
The acquisition has got the approval of leading creditors of VDI and the other remaining conditions are expected to be completed over the next 45 days. Motilal Oswal Investment Advisors is the strategic advisor to SRSL for this acquisition.
Brazil is the largest producer and exporter of sugar, with India being the largest consumer of the sweetener in the world. With the prevailing shortage of white sugar in India, SRSL’s acquisition of crushing units, along with the plantation area, will provide encouragement to other industry stakeholders for a similar move, which the government has also been advocating.
