india plans to increase ethanol production

India sugar cos focus on by-products to boost income
Wed Jun 18, 2008 4:12pm
By Swati Pandey and Abhishek Shanker

MUMBAI, June 18 (Reuters) - Indian sugar makers are pumping more money into non-sugar segments - ethanol and power - to push profits higher and sidestep the cyclicality of their core business, industry officials said.

Sugar firms, which had reported losses in the financial year ended September 2007 due to a slump in sugar prices, are also shifting focus to take advantage of the demand for ethanol as a result of near record crude prices.

"Sugar industry is cyclical in nature. So, we have to continuously look at ways to tackle that," Gautam Watve, head of planning and strategy at Shree Renuka Sugars (SRES.BO: Quote, Profile, Research) said.

"By making ethanol and generating power we are only adding value to our by-products, which is a very profitable business."

By diversifying into related segments, sugar firms not only insulate themselves from price volatility, but also earn carbon credits and avail income tax benefits from power generation, said R. Sreesankar, head of research, at IL&FS Investmart Ltd.

Ethanol is mixed with gasoline to form automotive fuel.

Last year, the federal government allowed sugar companies to make ethanol directly from sugarcane juice and fixed the price of ethanol at 21.50 rupees a litre.

Oil companies, which were buying through competitive bidding, were this week asked by the government to make 10 percent ethanol blend possible by October 2008.

With this, India will require around 1.13 billion litres of ethanol annually from current requirement of 0.57 billion litres, Deepak Desai, chief consultant at Ethanol India, consultants for setting up ethanol projects, said.

Shree Renuka Sugars, which has a 20 percent market share in ethanol, will invest 1.5 billion rupees to double ethanol capacity by March 2009. GMR Industries (GMRT.BO: Quote, Profile, Research) plans to spend 4.5 billion rupees in a new mill in Karnataka by 2010.

Bajaj Hindusthan (BJHN.BO: Quote, Profile, Research), India's top sugar maker, plans to make speciality chemicals from alcohol, Chief Executive Officer Rakesh Bhartia said.

"We are constantly working at adding value to alcohol and bagasse. Earlier people would just get rid of them but if we can earn out of our waste what's the harm?," he said.

REVENUE SHARE

This will lead to an increase in the revenue share of the non-sugar businesses of these companies, which are currently between 15 percent and 25 percent.

Bajaj Hindusthan, GMR Industries, Bannari Amman Sugars (BANN.BO: Quote, Profile, Research) expect to earn 30-40 percent revenue from non-sugar business while Shree Renuka Sugars expects both sugar and non-sugar to have an equal share in revenues by 2009.

The 120-billion-rupee sugar co-operative sector in Maharashtra will invest 40 billion rupees to generate surplus of 1,000 megawatts power by 2010 from 139 megawatts currently.

The move will help co-operatives improve earnings from non-sugar businesses, which presently contribute 25 percent of total turnover, Prakash Naiknavare, managing director of Maharashtra State Co-op Sugar Factories Federation, said. (Editing by Ramya Venugopal)