Chennai: EID Parry (India) Ltd, the country’s oldest sugar company, said it plans to cut down dependence on sugar by two-thirds to around 30% of sales over the next three years, as it tries to stabilize its revenues in a cyclical industry.
It also has to grapple with government regulation which affects sugar prices.
The company, which has been in existence for more than 160 years, plans to increase the share of revenues from cogeneration of power (combined generation of heat and power using a single fuel) and its distillery operations, which both require by-products of sugar production. At present, power, distillery and other products constitute only 12% of sales.
The company will set up cogeneration plants in each of its five sugar factories, and three additional distilleries. This will nearly double the cogeneration power capacity to 127MW by 2009 and increase distillery production by four times to 200kl a day by the same period.
“Unfortunately, we are in a state where the government is oblivious of the requirements of the farmers or the industry in terms of sugar,” said A. Vellayan, chairman of EID Parry. “The expansion plan is part of the de-risking strategy we have put in place.”
Sugar production exceeded demand in the domestic and international markets during 2006-07 due to bumper cane crop in India and Brazil, two major sugar producers. EID Parry’s estimates that sugar production in India was 27 million tonnes (mt) against consumption of 19.5mt in 2006-07. This, coupled with a ban on export by the Union government, caused sugar prices to fall by as much as one-fourth.
However, the government recently lifted the export ban on sugar and has announced subsidies at Rs1,350 per mt for companies in coastal states to encourage exports. It also announced setting up of 2mt of buffer stock to ease the prices.
For EID Parry, part of the Rs8,500 crore Murugappa group, expansion into cogeneration of power and distillery units will help to generate a stable flow of income and also cut its production cost because of captive power generation.
The company is planning to invest Rs300 crore towards expanding its capacity in cogeneration of power and its distillery operations over the next two years. The entire investment would be met through internal accruals, said Vellayan, who is also the vice-chairman of Murugappa group.