Project Finance Of A Sugar Manufacturing Facility

INDEX

Sr. No. Topic Name Page No.

1. About the Company 3

2. Industry overview 3

3. Project Details 7

4. Distribution Network 10

5. Cash Flow Statement 12

6. Project Profitability 14

7. Conclusion 15

1. About the company

"The only way to manage change is to create it", At Simsurya sugar Ltd; this simple line is the driver of our business strategy. So over the last year when profits of sugar companies touched record numbers and one could be excused for attending only to the business of the moment, we embarked on creating aggressive change. Yet again. By extending beyond our traditional geographical presence. By making significant investments in downstream businesses. Not just thinking beyond the boundary, but outside the cube as well.

Simsurya sugar ltd has grown consistently over the years through unfailing commitment to widen product portfolio and increase capacities through difficult as well as bountiful years. Simsurya sugar ltd is located at taluka Sinnar, Nasik; Maharashtra, has an existing capacity of 2500 TCD (tones crushed per day). To meet the increasing demand and to make the company more viable, management is planning to go for expansion. Management is planning to increase our plant capacity to 7500 TCD.

Simsurya Sugar Ltd has progressively de-risked business model through an increase in scale and a wider product mix; more importantly, over the last few years, company has extended business from a singular dependence on sugar to a broader dependence on less cyclical products. To make use of byproduct Molasses, plant will be having spirit distillery.

The blending of ethanol with petrol has been permitted in India to the extent of 5 per cent across India. This single decision has created an annual ethanol market for around 600 million liters.

The warehouse is located 20 km from the plant with storage capacity of 1000 MT. With increased capacity the storage capacity will be increased to 3000 MT.

2. Industry Overview

Sugarcane is primarily grown in nine states of India: Andhra Pradesh, Bihar, Gujarat, Haryana, Karnataka, Maharashtra, Punjab, Uttar Pradesh and Tamil Nadu. In 2006, the six states of Andhra Pradesh, Gujarat, Karnataka, Maharashtra, Uttar Pradesh and Tamil Nadu produced more than 1 million MT of sugar per annum each, with the three states of Bihar, Punjab and Haryana producing less than 1 million MT of sugar. In 2006, these states accounted for 94 percent of the total sugar production in India with Maharashtra and Uttar Pradesh leading with 27 percent and 30 percent of the total production. More than 50 million farmers and their families are dependent on sugarcane for their livelihood. The sugar industry caters to an estimated 12 percent of rural population in these nine states through direct and indirect employment. Effectively, each farmer contributes to the production of 2.9 MT of sugar every year.

In addition to the sugar industry's contribution to the rural economy, it has significant social and economic impact for the nation as well. The sugar industry is a green industry and is largely self sufficient in energy needs through utilization of Bagasse for generating electricity and steam. In fact, the sugar industry generates surplus exportable energy through cogeneration and contributes in reducing the energy deficit that India is currently facing. The sugar industry is also the primary source of raw material for the alcohol industry in India. The annual economic contribution of the sugar industry to the exchequer through principal indirect taxes amounts to more than INR 2800 crores.

The Indian sugar production has grown at a CAGR of 4.9 percent over the last 46 years. Sugar production has been increasing steadily but there have been periods of low production, due to a variety of reasons including pests and drought. Production has been cyclical, with the typical cycle duration ranging between 4 to 6 years. Private Mills have increased their share of production while the share of cooperative mills has reduced

The Indian sugar sector is composed of three distinct categories - public mills, private mills and cooperative mills. Public mills account for around 6 percent of the total mills in operation while the private mills account for approximately 40 percent and the cooperative mills account for approximately 53 percent. In the recent past, the number of operational private mills has been increasing as a percentage of the total number of mills. Also, the share of sugar production by private mills has been increasing. At present, the sugar production from the private mills accounts for more than 54 percent of the total production while the share of production from the cooperative mills has come down to 43 percent from 57 percent in 2001.This is due to the fact that the number of operational private mills has been steadily increasing since 2001, while the number of cooperative mills has remained stagnant. Also, the states of Maharashtra, Karnataka and Tamil Nadu, which have a high concentration of cooperative mills, were affected by woolly aphid pest attacks in 2003-04 apart from the drought that affected almost all cane producing states.

Sector wise number of mills in operation (2001 - 2006)

Source: ISMA, KPMG analysis

2.1. Consumption

The Indian sugar consumption has steadily increased at 3.5 percent since 1996. Typically, sugar consumption is driven by the GDP growth and this has been the case for India as well. The per capita consumption has seen a steady growth of 2.1 percent CAGR over this period, while the population has grown at a CAGR of 1.4 percent.

Sugar consumption and GDP (1996 - 2006) Source: ISMA Hand book of sugar statistics Sep 2006, Reserve Bank of India

Value chain for sugar (Illustrative) Ð'- Production and retail sale in Maharashtra (2007) Source: ISMA, SBI Capital Markets Limited report on sugar sector August 2006, Industry sources, KPMG analysis

Assuming the domestic consumption continues to grow at a CAGR of 4 percent, India will consume 28.5 million MT of sugar