Uttam Sugar - not a sweet deal

Uttam Sugar Mills is entering the capital market with 40 lakh equity shares to part-finance its expansion plans through a 100 per cent book-building process.

The price band has been fixed between Rs 290 and Rs 340 for a face value of Rs 10 resulting in an issue size of Rs 116-136 crore. The issue will remain open from March 16 to March 21.

The expansion project would involve setting up of two grass-root sugar units for the manufacture of premium quality white sugar with a capacity of 4,500 tonne crushed per day (TCD) along with co-generation facility of 15 MW of power at village Khaikheri in Uttar Pradesh, and 5,000 TCD along with co-generation facility of 30 MW of power at village Shermau in the same state.

The expansion gives a resultant production capacity of 22,750 TCD and co-generation capacity of 81 MW. Of the expansion, 15 MW would be used for captive consumption and the remaining would be exported, says managing director Raj Adlakha.

The units will employ the single sulphation and re-melt clarification process that will enable it to produce better quality sugar compared to sugar produced by using conventional double sulphitation process.

The project would involve investment of Rs 286 crore, which is proposed to be funded through equity by way of the proposed public issue, term loans of Rs 120 crore and internal accruals.

"The company has obtained the licence for the production of ethanol and extra-neutral alchol. It will manufacture whichever turns out to be more profitabile," says Adlakha.

The net profit of the company for the 12 months ended September 2005 was Rs 26.71crore. At the lower band, the multiple is 16.9 and at the higher end it is 19.8 for the year ended September 2005. For the corresponding period, the multiple of Dwarikesh Sugar Industries stands at 9.9, while it is 14.2 for Oudh Sugar Mills.

The company, promoted by the Adlakha familiy, started its sugar manufacturing in January 2001 by setting up 2,500 TCD sugar plant along with co-genertion facility of 6 MW of power in village Libberheri, Uttaranchal.

The sugar mill at Libberheri produces sugar through defeco remelt phospho floatation process that ensures that the sulphur content in the sugar produced is negligible and in line with the global standards.

The Libberheri unit is eligible for income tax deduction under section 80-IC and is also eligible for the exemption from excise duty for 10 years with effect from December 2004. The unit is also eligible for capital subsidy and transport subsidy under New Industrial Policy 2003 of the Uttaranchal government.

The company commissioned the Barkatpur facility for 3,500 TCD and 10 MW of power as their first phase of expansion in December 2005.

The phase II at the same location consisting of additional sugar cane crushing capacity of 3,500 TCD and 10 MW of power is under implementation and is proposed to be commissioned this month.

The sugar comsumption is globally driven by population growth, dietary and cultural habits, supply and availability, income and geographical locations. EU, Europe, Africa, North America, Central America, South America, Asia and Oceania are categorised as sugar markets.

Globally, sugar prices are trading at an all-time high. Factors that have impacted are EU subsidy reduction, rising demand in India and China, and the surging crude prices.

India is the largest consumer of sugar and the second-largest producer in the world. The domestic sugar industry has a turnover of Rs 500 billion a year. There are as many as 566 installed sugar mills in the country with a combined production capacity of 180 lakh million tonne of sugar.