Sugar projects worth Rs 4,000 cr lined up in UP

The sugar sector in Uttar Pradesh is witnessing an investment boom with over Rs 4,000 crore likely to come in over the next two seasons (i.e. October-September), thereby creating an additional capacity of 1.25 lakh tonne crushing per day.

At a 10 per cent recovery and 150-160 days of crushing, this capacity may lead to a rise in annual production by 20-22 lakh tonne of sugar. The state's current production is 50 lakh tonne.

"Taking advantage of the state government's promotional policy announced last August, almost all leading millers are preparing to expand their capacity. This will push up the state's production to 70 lakh tonne in two seasons," said R K Panpaliya, president - corporate affairs, Bajaj Hindusthan.

Leading the pack is the Shishir Bajaj-promoted company. While a 7,000 tcd plant was initiated at Kinnouni (Meerut) in the current season, three more units of similar capacities are coming up at Bilai (Bijnor), Thanabhawan and Budhana (both in Muzaffarnagar) in the next season (2005-06).The company also plans three more mills in 2006-07 at Saharanpur, Pilibhit and Lakhimpur Kheri districts.

"The whole operation will require an investment of almost Rs 1,500 crore and will push up the total capacity to 95,000 tcd," added Panpaliya.

Siddharath Shriram group-promoted Mawana Sugars announced a Rs 535-crore expansion plan and will invest in a greenfield project in Meerut, set up a new plant (Meerut) and expand capacity and two existing plants (in Mawana and Titawi).

"The company will require Rs 175 crore investment in the first year and the remaining Rs 450 crore in the second year of expansion," chairman Siddharth Shriram said.

With an investment of Rs 500 crore, Balrampur Chini Mills plans to set up a greenfield integrated sugar complex at Datauli apart from expansion at its existing complex (Akbarpur).

The company is also expanding capacities at its four manufacturing locations Balrampur, Babhnan, Tulsipur and Haidergarh.DCM Shriram Consolidated also plans to invest Rs 500 crore to set up two new mills (both at Hardoi), apart from brownfield expansions of its present facilities (Lakhimpur Kheri and Hardoi).

The K K Birla group has also finalised a Rs 700 crore investment towards two new mills (Gorakhpur and Lakhimpur Kheri) and expansion of the existing Sitapur unit by its arm Oudh Sugar Mills.

Around Rs 400 crore investment is likely from Triveni Engineering & Industries towards a greenfield mill (Bulandshahr) and expansion of a facility (Muzaffarnagar). Simbhaoli Sugar Mills Limited is also proposing a Rs 300-crore investment towards a new facility (Ghaziabad).

With such huge investment coming into India's sugar bowl, will the prices crash? Millers and analysts deny this.

"Production from UP this year is around 50 lakh tonne. It is likely to touch 60 lakh tonne in 2005-06 and 70 lakh in the year after. Production is unlikely to rise further else the sugar cycle may become negative. Overall, the output rise of 20 lakh tonne in the next two years will be able to meet most of the domestic demand, leaving a small loop, possibly for imports also," said Panpaliya.

While the prices are already on an upward movement, companies expect prices to remain "firm over the next two years in the price band of 1725 +/-50", said Panpaliya. The sector is hopeful that the upward movement of the cycle will remain for the next two years.

After these two years, the sugar sector is hopeful that India will become an exporter of the commodity also. "This will largely be due to surplus situation going away globally and the fast increasing need of ethanol as an energy source," said Sanjay Tapriya, director - finance, Simbhaoli Sugar.

With the EU sugar subsidies gone, the world sugar trade is likely to see a short supply of 50 lakh tonne over the next four-five years, thereby giving an export potential to domestic millers and traders.

According to a report by Sucden (UK) Ltd, if oil prices remain high, the demand for sugar in the future could start to be predominantly for ethanol instead of as a sweetener, leaving it permanently linked with the price of a barrel of crude oil.

"The demand is not only expected to be higher because of the high oil price, but also because it is renewable and has much better environmental characteristics, of high importance in a time of increased concerns about global warming," the report adds.

But will this expansion lead to millers scrambling for the cane area, say three years down the line? Most companies while find it difficult to deny. Shriram says, "We cannot deny that but as the demand for sugar is on a rise, (now 4 per cent from the stagnant 3 per cent for over half a decade) things will be simpler".