Simbhaoli Sugar Mills - Rs.81.00

Simbhaoli Sugar Mills Ltd (SSML) was incorporated as a Private Limited Company in 1936 and became a Public Limited Company in 1989. It is one of the oldest and largest integrated sugar manufacturers in North India and produces alcohol and ethanol downstream. Last year, it converted its entire manufacturing capacity at Simbhaoli Sugar Division into a sugar refinery. It basically produces refined sugar and various specialized sugars like pharma grade sugar, confectionery sugar, coffee sugar, sugar cubes, table sugar etc. It has also entered into the branded market under the brand name `TRUST' and has its own 1 kg and 5 kg packs. SSML is the preferred vendor to institutional customers like Coca Cola, Jayco, Pepsi and sweetmeat makers such as Haldiram, Nathu, Bikanerwala etc as it supplies low sulphur content sugar which is perceived to be of superior quality and commands a premium.

SSML operates two mills in Uttar Pradesh at Simbhaoli and Chilwara with a crushing capacity of 7500 TCD and 3800 TCD respectively employing over 1300 people. SSML also has a distillery capacity of 75 KLPD and ethanol production capacity of 30 KLPD. At the Simbhaoli unit, SSML produces refined sugar through the DRPIE process, which is a unique feature in the sugar industry as opposed to the conventional double sulphitation process. The company is now expanding the crushing capacity of its Simbhaoli unit to 9,500 TCD, so that in addition to the 7500 tonnes of refined sugar, 2000 tonnes of raw sugar is produced every day. This will enable the unit to run its refinery for 240 days in a year processing in-house and imported raw sugar for an extended period of 100 days. SSML is also expanding the Chilwaria plant capacity to 6,000 TCD and increasing co-generation of 8 MW/hour to 17 MW/hour and establishing raw sugar processing facility for the off-season. It is also increasing the distillery capacity to 90 KL/day from 75 KL/day. The entire cost of expansion is Rs.50 cr., which will be funded through a rights issue. With this expansion, its total installed capacity will stand increased to 15,500 TCD from the current 11,300 TCD. But with its innovative `model' of extending the running period by using surplus stored baggase to process raw sugar in the off-season, SSML will double its production capacity from the existing 1.8 lakh tonnes to about 3.4 lakh tonnes of sugar, which includes processing of one lakh tonnes of imported raw sugar. Besides, this will also help in the sale of additional power from its co-generation unit to the State grid.

SSML is planning to come up with a rights issue in the ratio of 1:1 at around Rs.60~65 per share. Moreover, SSML has already provided for cane price arrears upto 2003~04 and is also going in for a corporate debt restructuring which will reduce its interest burden and make the balance sheet much stronger. The sugar industry has witnessed a dynamic change from a surplus to near deficit situation due to which sugar prices are estimated to remain firm. In short, all conditions are favourable to SSML and we expect it to report a total turnover of Rs.475 cr. and earn NP of around Rs.38 cr. This works out to an EPS of Rs.17 on its expanded equity of Rs.22 cr. Investors are advised to buy this scrip at sharp declines with a price target of Rs.120 in 12~15 months.