Date:30/04/2007 URL: http://www.thehindubusinessline.com/2007/04/30/stories/2007043003550100.htm

Back Sugar companies report lower profits, dip in sales

Harish Damodaran

By-product business helps mills stay afloat

New Delhi April 29 There is no industry today worse than sugar to be in, just as there were few that seemed as good less than a year ago.

With sugar realisations plunging and little leeway to undertake corresponding adjustment in raw material (cane) costs, mills have suffered huge erosion in margins.

All companies that have so far declared results for the quarter ended March 31, 2007 — Bajaj Hindusthan, Balrampur Chini, Sakthi Sugars, Shree Renuka Sugars, Oudh Sugar and Upper Ganges Sugar — have reported much lower profits compared to the same period last year. Sakthi, Oudh and Upper Ganges have further seen a dip in sales, with the latter two even recording losses during the latest quarter.

But within this overall dismal picture, there is one trend worth taking note of. While sugar per se may have turned a bleeding proposition for mills, the losses from this business have been significantly offset by higher earnings from sale of by-products: ethanol (derived from molasses) and cogeneration (from bagasse).

Take, for example, Balrampur Chini. During the just ended quarter, the company's sugar division posted a loss of Rs 0.73 crore, whereas the distillery and cogen businesses registered profits before interest and tax of Rs 17.11 crore and Rs 27.73 crore, respectively.

The same story of by-product business helping mills stay afloat can be seen for Bajaj Hindusthan, Oudh Sugar and Sakthi Sugars. It may be no different for the others that are slated to announce results in the coming days: Triveni Engineering, Dhampur Sugar Mills, Thiru Arooran Sugars, Bannari Amman Sugars and Rajshree Sugars. Many of them have installed ethanol and cogen facilities that may provide some cushion against the current downswing in the sugar cycle.

For every tonne of sugarcane that mills crush, they obtain around 100 kg of sugar, 45 kg of molasses and 300 kg of bagasse. Forty five kg of molasses can, in turn, yield 9.9 litres of alcohol. The steam from burning 300 kg bagasse can similarly generate 125-150 units of electricity, of which 90-110 units is exportable to the grid.