Financial Daily from THE HINDU group of publications
Monday, Oct 28, 2002
Agri-Biz & Commodities
Riga Sugar expansion plan put on freeze
KOLKATA, Oct. 27
THE regular fall in the sugar prices due to the ongoing crisis in this sector has forced the Bihar-based Riga Sugar Co Ltd to temporarily shelve its plans of gradual capacity expansion.
The mill is located at the Sitamarhi district of Bihar. The initial capacity of this unit was 2,500 tonnes crushed per day and it was supposed to have been raised to 5,000 tonnes crushed per day.
In the first phase the capacity of the unit was expanded from 2,500 tonnes crushed per day to 3,500 and subsequently to 3,750 tonnes crushed per day. While the first phase of expansion was completed in 2000 and the second phase was completed during the current year.
However, further expansion in the capacity has been ruled out for the time being, according to Mr O.P. Dhanuka, Chairman and Managing Director of Rigar Sugar Co. Approximately Rs 40 crore has already been invested for the capacity expansion programme.
``The current scenario of the sugar industry is so bad that there is point in increasing the capacity further. On one hand, the prices are falling and on the other hand sugar is imported into India. Exports have not picked to that desired level. As a result of all these factors, the domestic market is suffering from huge supplies and poor demand'', he told Business Line.
Riga Sugar, however, did not hesitate introducing modern farming techniques. It was started in association with Vasantadada Sugar Institute of Maharashtra about a couple of years back and the efforts had started yielding results. Moreover, the average recovery of sugar from the total cane crushed in the unit is approximately nine per cent.
It may be noted that till some time back the general mood among the sugar industry is to go for capacity expansion as larger capacities ensured higher profitability and better financial viability of a company. However, in today's market this equation is not acceptable for the time being.
In the meanwhile, Riga Sugar had increased its turnover regularly. From Rs 44 crore in 1999-200 it went up to Rs 60.16 crore in 2000-01 and the up to Rs 67.87 crore in 2001-02. Profit after tax increased from Rs 1.28 crore in 1999-2000 to Rs 1.62 crore in the next financial year but dropped drastically to Rs 63.45 lakhs in 2001-02.
Industry sources said in the current financial year the results would not be too heartening for the companies. Ex-factory prices in the leading sugar producing states are considerably lower than the production cost.
For example, last week ex-factory prices of sugar in Uttar Pradesh was only Rs 11.75 per kg, in Bihar it was Rs 12.15, in Maharashtra it was Rs 10.50 and Rs 11.50 in Karnataka and Tamil Nadu against the average national production cost of Rs 14.50 per kg.
Riga Sugar has a distillery unit with a capacity of 15 lakh litres per month. The company is not purchasing any power from the state grid. The sugar and distillery units have their bagasse-based captive power plants and its total capacity is 4.5 MW.
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