Market Research Report :Sugar Industry in India 2012

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Sugar Industry –
Sugar Industry India
June 2012

Executive Summary
 India’s sugar industry has exhibited a rapid growth and development over the past years
Market  Estimated production a5 mn tonnes in 20‐‐ ‐ 20‐‐, growing at a CAGR of y% from a1 mn tonnes in 20‐‐ ‐ 20‐‐
 Consumption volume has grown to b3 mn tonnes in 20‐‐ ‐ 20‐‐

Drivers:
Di Challenges:
Challenges
‐ Growing Population and Rise in Income ‐ Oversupply Situation and Rise in Sugarcane Prices
‐ High Demand from Food and Beverage Industry ‐ Impact of Cyclicality
Drivers &
‐ Opportunity from by‐products ‐ Pricing Challenge
Challenges
‐ Growing Pharmaceutical Market
‐ Untapped Market Potential
 Remove the 10% levy sugar quota
 Implement tax incentives
Implement tax incentives
 Cenvat Credit on Bagasse
Government
 Tax deduction under section 35 AD
Initiatives
 Exemption from service tax
 No VAT on sugar
No VAT on sugar
 Decontrol of the sugar sector

Major Players
Competition Company 1 Company 2 Company 3 Company 4 Company 5 Company 6

SUGAR INDUSTRY IN INDIA 2012.PPT 2

•Market Overview
•Regional Distribution
•Export‐Import
•Drivers & Challenges
e s & a e ges
•Government Initiatives
•Competition
•Strategic Recommendations


Sugar industry in India, exhibiting rapid development with
annual double digit growth through 20‐‐ ‐ ‐‐
Sugar Industry – Overview (1/2) Growth of Sugar Production
• India is the world’s second largest sugar producing
country, representing p% of the total sugar production, mn tonnes y%

after Brazil with q% 30 a4 a5
a3
• Sugar production is expected to grow at a CAGR of y% to a2
20 a1
reach a5 mn tonnes in 20‐‐ ‐ ‐‐
10
• It is also the biggest sugar consumer in the world, with
It is also the biggest sugar consumer in the world, with
consumption growing at CAGR of x% to amount b5 mn 0
20‐‐ ‐ ‐‐ 20‐‐ ‐ ‐‐ 20‐‐ ‐ ‐‐ 20‐‐ ‐ ‐‐e 20‐‐ ‐ ‐‐e
tonnes in 20‐‐ ‐ ‐‐
• India’s sugar consumption is expected to surpass the Growth of Sugar Consumption
total sugar production by 20‐‐ ‐ ‐‐
t t l d ti b 20
 Increasing GDP and changing lifestyle is expected to push up mn tones
the demand for sugar and processed foods 35 x% b5
 However, in the long run, limited land availability for irrigation 30
is expected to hamper the country’s sugar production
i t dt h th t ’ d ti 25 b1 b4
b2 b3
• Indian sugar industry has facilitated the socio‐economic 20
15
growth of the rural areas by mobilizing rural resources,
10
creating employment resulting in higher earnings along 5
with the development of the transportation and 0
communication facilities 20‐‐ ‐ ‐‐ 20‐‐ ‐ ‐‐ 20‐‐ ‐ ‐‐ 20‐‐ ‐ ‐‐e 20‐‐ ‐ ‐‐e


Sugar industry had generated INR t bn in revenue in 20‐‐ ‐ ‐‐

Sugar Industry – Overview (2/2) Growth of Sugar Factories
• India is home to ~x% of the total sugar mills in the
world, contributing y% of the global sugar production Units
800 z%
a3
600 a1 a2
Sugar Industry
400
200
Segment 1 Segment 2
0
20‐‐ ‐ ‐‐ 20‐‐ ‐ ‐‐ 20‐‐ ‐ ‐‐
Example 1 Example 2

Sugar Industry Scenario – 2010‐11
Installed Sugar
No. of Sugar Sugarcane
Production Sugar Production Industry Revenue Cane Payment
Mills Crushed
Capacity

q mn
p r mn tonnes s mn tonnes INR t bn INR u bn
tonnes/year


Growing cane production will support the consistent growth
in sugar output, benefiting the Indian sugar industry
Sugarcane – Overview Growth of Sugarcane Production
• Indian sugar industry is dependent on the production of
mn tonnes
sugarcane as it is the most vital raw material required
g q x%
400 a3 a4
for manufacturing sugar a2
a1
300
• Most of the sugar mills are usually located near the
200
important sugarcane production bases in India, such as
100
state 1, state 2, state 3, state 4, state 5 and state 6
0
• Following cotton textile industry, sugar industry ranks 20‐‐ ‐ ‐‐ 20‐‐ ‐ ‐‐ 20‐‐ ‐ ‐‐ 20‐‐ ‐ ‐‐e
second among the agro‐based industries in the country
Growth of Sugarcane Acreage
 Indian sugar industry supports the development of the rural
Indian sugar industry supports the development of the rural
sector by engaging huge number of agricultural laborers in
‘000 hectares
sugarcane cultivation, harvesting, machine manufacturing
6,000 y%
etc., representing ~z% of the rural population b3 b4
5,000 b1
• Some of the primary challenges faced by the sugarcane
Some of the primary challenges faced by the sugarcane b2
4,000
farmers are shortage of land and water required for
3,000
cultivation resulting from soil and ground water
2,000
degradation without any construction of new irrigation
1,000
dams
d
0
20‐‐ ‐ ‐‐ 20‐‐ ‐ ‐‐ 20‐‐ ‐ ‐‐ 20‐‐ ‐ ‐‐e


Sugar – Value Chain (1/2)
COGENERATION

z

b c
x y

S a u
U
G
A
R
Syrup
Step 1 Step 2 Step 3 Step 4 Step 5 Step 6 Step 7
P Boiling
L
A
N
T h D
I
S
d e f T
I
L
i L
E
g R
Y


Sugar – Value Chain (2/2)

Factory Raw Sugar

S
U
G
A
R
Syrup
R Step 8 Step 9 Step 10 Step 11 Step 12 Step 13
Boiling
E
F
I
N
E
R
Y
Imported Raw Sugar


Sugar industry in Maharashtra is one of the major and large‐
scale sugar producing sector in India
Maharashtra – Overview Production Volume*
• Maharashtra is India’s largest sugar producing state with
Avg. Sugarcane
a total sugar output of x mn tonnes as of month x 20‐‐ in No. of Sugar Production
Production
the current sugar year, up by y% y‐o‐y Factories
F i ( mn tonnes)
( )
(mn tonnes)
 The recovery of sugar from cane has been z%
• It had produced x1mn tonnes of sugar in the sugar
season 20‐‐ ‐ ‐‐, up from x2 mn tonnes in 20‐‐ ‐ ‐‐
 However, water scarcity is likely to hit sugar production, u v w
bringing down the state output by t% in 20‐‐ ‐ ‐‐, with a cane
acreage area of d hectares
Major Players Sugarcane – Area and Production
Top Sugar Factories in 20‐‐ ‐ ‐‐
Production Production Area Area
Sugarcane Crushed Sugar Production mn tonnes ‘000 hectares
(mn tonnes) (mn tonnes) 100 c1 c2
c6 1,200
c5
80 c3 1,000
1 000
Company 1 a1 Company 4 c4
b1 800
60
d2 600
40 d1 d5 d6
d3 d4 400
Company 2 a2 Company 5 b2 20 200
0 0
Company 3 a3 Company 6 b3 20‐‐ ‐ ‐‐ 20‐‐ ‐ ‐‐ 20‐‐ ‐ ‐‐ 20‐‐ ‐ ‐‐ 20‐‐ ‐ ‐‐ 20‐‐ ‐ ‐‐e

Note: Sugar Season refers to Oct‐Sep


Increasing sugarcane acreage has resulted in rising sugar
production…
Gujarat – Production Volume* Sugarcane – Area and Production

Avg. Sugarcane Production
Production Area
Area
No. of Sugar Production mn tonnes ‘000 hectares
Production
Production *
Factories
F i ( mn tonnes)
( ) a3
(mn tonnes) 20 a1 a2 250
a5 a6
15 a4 200
150
10
b1 b2 b3 b5 100
b4 b6
5 50
u1 v1 w1 0 0
20‐‐ ‐ ‐‐ 20‐‐ ‐ ‐‐ 20‐‐ ‐ ‐‐ 20‐‐ ‐ ‐‐ 20‐‐ ‐ ‐‐ 20‐‐ ‐ ‐‐e

Haryana– Production Volume* Sugarcane – Area and Production

Avg. Sugarcane Production Area
No. of Sugar Production Production Area
Production *
Factories ( mn tonnes) mn tonnes ‘000 hectares
(mn tonnes) c1
10 c2 150
8 c6
c3 c5
c4 100
6
d1 d2
4 d6
d5 50
d3 d4
u2 v2 w2 2
0 0
20‐‐ ‐ ‐‐ 20‐‐ ‐ ‐‐ 20‐‐ ‐ ‐‐ 20‐‐ ‐ ‐‐ 20‐‐ ‐ ‐‐ 20‐‐ ‐ ‐‐e


Indian sugar industry has witnessed inconsistent trade
balance over the past years
Sugar Industry – Exports (Value‐wise)
Country‐wise Exports (20‐‐)
INR bn
x%
80
a2 14.4% Country 1
60 Country 2
a1 a4 3.8%
1.1% Country 3
40 6.2%
Country 4
20 6.3%
6 3%
a3 68.2% Country 5
0 Others
20‐‐ 20‐‐ 20‐‐ 20‐‐

Sugar Industry – Imports (Value‐wise)
g y p ( )
Country‐wise Imports (20‐‐)
INR bn
60 y% 9.6%
Country 1
b3
4.3% Country 2
40 b4 5.2% 3.2%
Country 3
20 9.2% Country 4
b1 b2
68.5% Country 5
0
20‐‐ 20‐‐ 20‐‐ 20‐‐ Others


Drivers & Challenges – Summary

Challenges
Drivers
Oversupply Situation and Rise in
Growing Population and Rise in
Sugarcane Prices
Income
High Demand from Food and Beverage Impact of Cyclicality
Industry
Industry
Pricing Challenge
Opportunity from by‐products

Growing Pharmaceutical Market

Untapped Market Potential


Growing population with increasing income will lead to
higher sugar consumption
Growing Population and Rise in Income Impact
• Finding 1
 Sub‐finding 1

• Finding 2
• Finding 3

Growing Population Rise in Per Capita Income

bn INR
2.0 +1.2% 80,000
a5 b3
1.5 a3 a4 60,000 b2
a1 a2 b1
1.0 40,000

0.5 20,000

0.0 0
20-- 20-- 20--e 20--e 20--e 20-- - -- 20-- - -- 20-- - --e


…rapidly growing confectionary market leads to rise in sugar
demand, boosting the Indian sugar industry
High Demand from Food and Beverage Industry (2/2)
Sugar content in Popular Chocolates Sugar content in Ice‐cream
Chocolate Sugar Content per 100 gm
Mars a1 gm
• Finding 1
Cadbury Dairy Milk a2 gm
• Finding 2
Cadbury 5 Star a3 gm
 Sub‐finding 2
Munch
M h a4 gm
4
Gems a5 gm

Confectionary Market Chocolate Market Ice‐cream Market

INR bn INR bn INR bn
x% a4
80 30 40 z% c4
a3 y% b4
a2 c3
b3 c2
60 a1 b2 30 c1
20
b1
40 20
10
20 10

0 0 0
20‐‐ 20‐‐e 20‐‐e 20‐‐e 20‐‐ 20‐‐e 20‐‐e 20‐‐e 20‐‐ 20‐‐e 20‐‐e 20‐‐e

Result 1


…future growth prospects for the Indian sugar industry

Opportunity from by‐products (2/2)
• Finding 1
• Finding 2
Finding 2

Potential Alcohol Demand (2017)

mn lts.
mn lts
x
6,000
x1
5,000
x2
Potable Additional alcohol for E‐10 4,000
x3 y
Industrial Additional alcohol for E‐15 3,000
E ‐ 5 Additional alcohol for E‐20 x4
2,000
x5
1,000
x6
0
Alcohol Required Alcohol Availability


Growing pharmaceutical market and low per capita sugar
consumption provides growth opportunity
Growing Pharmaceutical Market Impact
• Finding 1
Pharmaceutical Market Turnover
 Sub‐finding 1
• Finding 2 INR bn
x%
 Sub‐finding 2 1,500 a3
a2
a1
1,000

500

0
20‐‐ ‐ ‐‐ 20‐‐ ‐ ‐‐ 20‐‐ ‐ ‐‐ e
Untapped Market Potential Impact
• Finding 3
 Sub‐finding 3

Annual Per Capita Sugar Consumption

Kg/year
x Opportunity for the players
60
40 to capitalize upon
y
20
0
Country 1 Country 2


Oversupply situation coupled with higher cane prices will
result in declining profit margin
Oversupply Situation and Rise in Sugarcane Prices Impact

• Finding 1
 Sub‐finding 1
 Sub‐finding 1’

High inventory costs Oversupply Decline in sugar prices

• Finding 2
 Sub‐finding 2

Rise in Minimum State Advised Cane Price
State 1 State 3 State 5

• Finding 3
Finding 3 INR/Qt.
INR/Qt State 2
State 2 State 4
State 4

 Sub‐finding 3 1,500

1,000 x2
x1
y2
y1
500 z1 z2
u1 u2
Result 1 v2
v1
0
20‐‐ ‐ ‐‐ 20‐‐ ‐ ‐‐


Cyclicality is one of the primary reason for the volatility in
sugar production
Impact of Cyclicality Impact
• Finding 1
 Sub‐finding 1
• Finding 2

Natural cyclicality Induced cyclicality

d
a

e
i
b
f

2‐3 years

4‐5 years
4
c j
g

h k
Result 2


Pre‐Budget Memorandum 2012‐13 (1/3)
Sugar Sector’s Budget 2012‐13 wish‐list

• Finding 1
Remove the • Finding 2
10% levy sugar
quota • Finding 3

• Finding 4

• Finding 1

Implement tax • Finding 2
incentives
i i
• Finding 3

• Finding 4


Major Public Companies ‐ Summary
Net Profit/Loss
2,000
Size of the Bubble represents Market
m2 Capitalization in INR mn
1,000
1 000
m3
m9 m1
0 m5
m4
m6 m10
m7
7
‐1,000

‐2,000

‐3,000 m8

‐4,000
0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 100,000
Total income
Company 1 Company 3 Company 5 Company 7 Company 9
Company 2 Company 4 Company 6 Company 8 Company 10


Public: Domestic Company – Company 1 (1/3)
Company Information Offices and Centres – India

Corporate Address Address 400 0‐‐ India

Tel No. 91‐xx‐yyyyyyyy
Fax No. 91‐xx‐yyyyyyyy Noida
Website www.xxx.com Lucknow

Year of Incorporation 19‐‐
Ticker Symbol 5000‐‐
Mumbai
Stock Exchange Bombay Stock Exchange (BSE)
Head Office
Other Offices
Products and Services
Products and Services
Products
Product 1, product 2, product 3, product 4, product 5, Key People
product 6, product 7, product 8, product 9, product 10,
Name
N Designation
D i ti
product 11 and product 12
Person 1 Executive Chairman
Person 2 Vice Chairman
Person 3 President
Person 4 Chief Finance Officer


Financial Snapshot
i i lS h Key Ratios
K i
y‐o‐y change
Total Income Net Profit/Loss Particulars 2011 2010 2009 2008
INR mn INR mn (2011‐10)
60000 x2 1,000
Profitability Ratios
x3
x4 Operating Margin ‐ ‐ ‐ ‐ ‐
40000 0 Net Margin ‐ ‐ ‐ ‐ ‐
x1 Profit Before Tax Margin ‐ ‐ ‐ ‐ ‐
y4
20000 y3 -1,000 Return on Equity ‐ ‐ ‐ ‐ ‐
y1 y2 Return on Capital Employed ‐ ‐ ‐ ‐ ‐
0 -2,000
Return on Working Capital ‐ ‐ ‐ ‐ ‐
20-- 20-- 20-- 20-- Return on Assets ‐ ‐ ‐ ‐ ‐

Financial Summary Return on Fixed Assets ‐ ‐ ‐ ‐ ‐
Cost Ratios
• The company incurred a net profit of INRx4 mn in FY 20‐‐, as Operating costs (% of Sales) ‐ ‐ ‐ ‐ ‐
compared to net profit of INR x3 mn in FY 20‐‐ Administration costs (% of
‐ ‐ ‐ ‐ ‐
• The company reported total income of INR y4 mn in FY 20‐‐ Sales)
registering an increase of z% over FY 20‐‐
registering an increase of % over FY 20 Interest costs (% of Sales)
Interest costs (% of Sales) ‐ ‐ ‐ ‐ ‐
Liquidity Ratios
• The company earned an operating margin of y% in FY 20‐‐, an
Current Ratio ‐ ‐ ‐ ‐ ‐
increase of z1 percentage points over FY 20‐‐
Cash Ratio ‐ ‐ ‐ ‐ ‐
• The company reported debt to equity ratio of u in FY 2011, a Leverage Ratios ‐ ‐ ‐ ‐ ‐
decrease of v1% over FY 2010 Debt to Equity Ratio ‐ ‐ ‐ ‐ ‐
Debt to Capital Ratio
b i l i ‐ ‐ ‐ ‐ ‐
Key Financial Performance Indicators
Interest Coverage Ratio ‐ ‐ ‐ ‐ ‐
Indicators Value (22/05/2012) Efficiency Ratios
Market Capitalization (INR mn) a Fixed Asset Turnover ‐ ‐ ‐ ‐ ‐
Total Enterprise Value (INR mn) Asset Turnover ‐ ‐ ‐ ‐ ‐
b
Current Asset Turnover ‐ ‐ ‐ ‐ ‐
EPS (INR)
EPS (INR) c Working Capital Turnover ‐ ‐ ‐ ‐ ‐
PE Ratio (Abs) (30/05/2012) d Capital Employed Turnover ‐ ‐ ‐ ‐ ‐
Improved Decline


Key Business Segments Key Geographic Segments
Others Segment 2 Segment 4 Country 1
Segment 1 Segment 3
100%
1% Country 1 is the only
100%
14% 5% 6% 4% 4% 5% 5%
4% 6% 4% 3% geographic segment in which
50% 100% the company has been
50% 87%
80% 86% 86% operating for the last five years

0% 0%
20‐‐ 20‐‐ 20‐‐ 20‐‐ 20‐‐

Business Highlights

Description News
• Company 1 is a flagship of the famous Group 1, engaging primarily in the production of
Overview
sugar and ethanol
• Company 1 owns x sugar plants in different parts of state 1 with an aggregate crushing
Company 1 owns x sugar plants in different parts of state 1 with an aggregate crushing
Crushing Capacity
capacity of z TCD and a distillery capacity to produce y l of alcohol daily
• Company 1 is setting up t new coal based power plants of p MW each in state 1 with a
total investment of INR f bn
Expansion Plans
Expansion Plans
• It is also building u mega thermal power projects in state 1 with a power producing
capacity of g MW within a period of h years


Thank you for the attention
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Market Research Report :Sugar Industry in India 2012

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Market Research Report :Sugar Industry in India 2012