On April 11, Vivek Saragi, managing director of the sugar manufacturing company Balrampur Chini, signed a memorandum of understanding (MoU) with Nirmal K Dabirwala, chairman of Tulsipur Sugar Company.
According to the MoU, Balrampur Chini Mills of the Calcutta-based Saraogis, along with two trading companies within the group, Pampa and Kaveri, will acquire a 51 per cent stake in Tulsipur Sugar Company in a composite structured deal worth Rs 13.5 crore.
The acquisition price of Tulsipur Sugar works to be Rs 50 per share against the recent market price of Rs 11. As per the Securities and Exchange Board of India (Sebi) guidelines, Balrampur Chini has decided to make an open offer to purchase an additional 20 per cent stake in Tulsipur Sugar from ordinary shareholders.
Sebi guidelines indicate that in negotiated takeovers, the acquirer cannot have more than 10 per cent share in a company unless he makes a public offer for another 20 per cent at a price not lower than the highest open market price paid by him or average price of previous six months.
This move comes after the unsuccessful takeover bid for about 10 per cent of Tulsipur Sugar Company by Calcutta-based industrialist S S Bagaria.
According to corporate watchers, the takeover is not surprising as Balarampur Chini is always keen to takeover any sugar unit with an installed capacity of 2500 trunk crushed per day (tcd) in close proximity to its existing factories in eastern Uttar Pradesh.
Few months ago, Manish Garg, accounts manager of the company, said, "We are actively considering taking over a sick or weak sugar company or acquisition of units on block basis." It is quite obvious that takeover of small sugar units is very much part of Balrampur Chini's strategic planning.
In 1990, Balrampur acquired a controlling stake in Babhnan Sugar when it was sick with a small capacity of 800 tcd. Within 1994, Balrampur turned around Babhan unit and subsequently merged it with the parent firm and raised capacity up to 5500 tcd in stages.
Balrampur Chini Sugar Mills was originally incorporated by British India Corporation in 1933 with the registered office at Calcutta. The Saraogi family had acquired a controlling interest from managing agent Begg Sutterland in 1975.
At present, it has two units located at Balrampur and Babhnan in eastern Uttar Pradesh with a combined capacity of 16000 tcd. After the acquisition of Tulsipur Sugar, aggregate capacity of the company will increase to 18,500 tcd. This will help the company to maintain better economies of scale owing to logistical advantage and make it one of the largest players in the industry.
The performance of Balrampur in the year ended March 31, 1997, was quite impressive. In spite of a drop in sales growth from 34 per cent in 1995-96 to 27 per cent in 1996-97, net profit increased from 0.36 per cent to nearly 21 per cent during the same period.
Though the company achieved better production in 1996-97, it recorded only a net profit of Rs 16.21 lakh. This was mainly due to heavy interest burden which grew by 101 per cent in the same period. The cash generation also suffered a setback in 1996-97, which kept the operating profit of the company at the previous year's level.
Meanwhile, the Mahajan Committee on sugar policy has presented its report to the food minister S S Barnala on April 15. The panel has recommended that sugar prices should be decontrolled in phases within two years and sugar should be taken out of the ambit of public distribution system.
Industry circle feels that the recommendations are likely to be accepted by the ministry. They also feels that the sugar industry in general will be benefited from the price decontrol.
According to corporate watchers, now big sugar units will try to acquire small units to get the benefit of economies of scale.
