Bajaj Hindusthan, India’s number one sugar producer, is reportedly inches away from acquiring the promoters’ stake in Kolkata-based Balrampur Chini Mills, the second largest in the pecking order.
Moneycontrol has reported that the promoters of Balrampur Chini could sell their stake for Rs 1,700-2,000 crore and the deal is in final stages of negotiation. Promoters hold nearly a 37% stake in Balrampur Chini, which has a market capitalisation of around Rs 3,850 crore. Others like US-based BUNGE, Singapore-based Olam International and Tata & Lyle are also said to be in the race for the pie.
When contacted by VCCircle, a Bajaj Hindusthan spokesperson declined to comment. The acquisition of promoters’ stake will trigger an open offer for another 20% stake in the firm.
If indeed, a deal between the two takes place, it would create a sugar behemoth completely changing the landscape of the industry.
The possible deal will create clearly the largest sugar maker in the country with Bajaj Hindusthan overtaking close rival Shree Renuka Sugar in terms of both revenues and profits. Currently four sugar makers are close competitors-- Shree Renuka, Bajaj Hindusthan, Triveni Engineering and Balrampur Chini. Out of these, Triveni derives a large part of revenues outside sugar from steam turbines unit and as a result there are essentially three key players in the sugar business.
Last year both Bajaj and Shree Renuka had similar consolidated revenues of around Rs 2,100 crore and sales from sugar business at around Rs 1,800 crore. With a possible acquisition of Balrampur Chini, Bajaj's revenues is likely to shoot up over 70% on an annualised basis. Sugar business of the combined would be 50% more than the number two Shree Renuka. Bajaj had clocked losses last financial year as it had spent a lot of money to expand capacity which is likely to add to revenues and bottomline in the next upward cycle in the sugar industry.
Moreover, the recent changes in sugar pricing policy would also bring parity between sugar producers in the north and south and make the combined entity in north more powerful in profit generation than Shree Renuka which has been reaping the advantage of better margins in South.
The combined entity would create a giant with revenues exceeding Rs 3,000 crore and a capacity of more than 200,000 tcd (tonnes crushed per day). Bajaj Hindusthan reported revenues of Rs 1,917 crore with a gross profit of Rs 79.10 crore for year ending September 2008. Bajaj is expected to announce 2009 results in December this year. Balrampur Chini reported had sales of Rs 1,117 crore with a gross profit of Rs 280 crore for year ending September 2009.
The share price of Balrampur Chini shot up by nearly 10% to Rs 167.3 in the morning before coming down to Rs 155 while the Bajaj Hindusthan scrip was trading at Rs 216, up by 3.4%.
Bajaj Hindusthan (BHL) raised Rs 723 crore through a qualified institutional placement (QIP) in July this year.
Bajaj Hindusthan has a capacity of 96,000 tcd across 10 plants. Its subsidiary, Bajaj Hindusthan Sugar and Industries Ltd, has four sugar plants with a capacity of 40,000 tcd. Balrampur Chini Mills has a capacity of 73,500 tcd across nine sugar factories located in Eastern U.P. It also manages Indo Gulf Industries Ltd, which has a capacity of 3,000 tcd.