Globally, sugar is made either from sugar beet or sugarcane. In India, sugarcane is that the prime source of sugar, that is cultivated in most components of India thanks to favourable climatic conditions of the country with Uttar Pradesh, geographic area, Karnataka, Tamil Nadu and the geographical area being the main manufacturing states. Industrial Real Estates For Setting Up Sugar Mills
Sugar trade is associate degree agro-based trade that impacts the rural livelihood of regarding 50 million sugarcane farmers and conjointly an oversized variety of employees WHO are either directly used within the sugar mills or in numerous auxiliary activities regarding transport, trade, the coupling of machinery and provide of agriculture inputs.
India is that the second-largest producer of sugar across the world, once Brazil, and also the largest shopper of sugar similarly. The production of sugar is seasonal because it is crushed from November to April; the demand for sugar however lasts through the whole year. The provision of sugar depends on a variety of things including sugarcane production, sugarcane utilization for sugar production, a period of the sugar season, sugar recovery rates and cane rating. Sugar trade is alternate in nature and is susceptible to value fluctuations and it’s conjointly extremely regulated in India starting from allocation of sugarcane to cane rating and by-product rating. The sugarcane costs are regulated by the government whereas sugar costs are market-driven. Within the method of producing sugar, various by-products are derived through1 Press mud, pulp and syrup. Pulp and syrup are the 2 primary by-products of the sugar trade.
Bagasse is that the dry nonfood fibrous residue that is left once sugarcane is crushed to extract its juice. Sugar mills typically use it as a captive staple supply of generating power and steam needed throughout the method of producing sugar. The excess pulp on the market once meeting the captive power and steam demand is either sold to the papermakers as bagasse may also be used for producing paper and particle boards or used for generating electricity. The pulp based mostly co-generation comes helps the sugar mills in impressive the cyclicality of the sugar trade by generating a stable supply of revenue. The sugar trade is alternate in nature. It’s a typical cycle that is full of cane offer and sugar demand although for the most part driven by the provision aspect dynamics. Higher production leads to multiplied availableness of sugar thereby leading to the declined sugar costs. This leads to lower gain for the businesses and consequently delayed payment to the farmers. Thanks to higher sugarcane arrears, the farmers switch to different crops that result in a fall within the space below cultivation for sugar. This then results in lower production and lower sugar availableness, followed by higher sugar costs, higher gain and lower arrears and thus the cycle continues. In India, sugar production typically follows a 3 to 5-year cycle.
The cyclicality of the Indian sugar trade is totally supply-driven, as steady growth is ascertained in sugar consumption. For determinant the sugar offer state of affairs for a given sugar season at the side of the sugar costs, CARE tracks and assesses factors like gap sugar stock levels, expected domestic sugar production for the coming sugar season, the demand-supply situation worldly at the side of the prevailing global sugar costs. Further, the government’s policies on export & import to/from India also are assessed.
Business & operational Risk
Market position & Size
In the extremely fragmented sugar trade with organized and unorganized players, size is an important determinant of a company’s market position. The dimensions of the associate degree entity are measured in terms of its crushing capability & conjointly the amount of forwarding integration. giant corporations if not highly leveraged usually have a bigger ability to face up to external shocks, higher access to capital markets and consequently tend to own sturdy credit risk profile, unorganized players. Entities that have dominant market position & larger capacities are considered favourably by CARE.
Level of forwarding integration
The sugar trade is forward integrated into ethanol/alcohol production from syrup & power co-generation through the pulp. The Integrated sugar mills typically exhibit a higher degree of property in money flows and therefore are viewed a lot of favourably as they are in a very stronger position to handle the volatility of the arena. Optimum utilization of by-products such as syrup and pulp allows corporations to capture worth across the assembly chain. Revenues from by-products on a median range from V-day – twenty-fifth of the whole revenues for the large sugar mills, the share contribution from by-products to total operational profits however is way higher. Fully-integrated players are viewed a lot of favourably from the credit perspective by CARE, as a fully-integrated model helps the mills to get further revenue and to partially mitigate the risk of fall in gain margins arising from the worsening of the sugar business. Further, in cases of integrated mills that sell power to state-owned Discoms, CARE conjointly evaluates timely receipt of assets from them by taking under consideration their past payment journal, the credit rating of the state Discoms, their monetary profile, etc.
The rating method is ultimately associate degree assessment of the basics and also the possibilities of change within the fundamentals. Rating determination may be a matter of full-fledged and holistic judgment supported the relevant quantitative and qualitative factors touching the credit quality of the establishment. Industrial Real Estates For Setting Up Sugar Mills
The overall credit risk profile of corporations in sugar sector is driven by its relative position within the market as mirrored by their scale of operations, level of forward integration, operating efficiencies and also the ability to handle the restrictive challenges and effectively manage their working capital needs. CARE Ratings analyses every higher factor to gain the overall assessment of the credit quality of the establishment. Credit rating may be an art movement assessment and the rating outcome is ultimately associate degree assessment of the basics and also the probabilities of modification within the fundamentals in future.
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