Our Promoters are engaged in the business of distillery and sugar production from sugarcane for more than a decade and have thus established a proven background and rich experience in the sugar and derived product industry. In the year 1999, our Promoters were part of the commencing business of a small distillery unit in Bellad, near Belgaum, Karnataka. With their business acumen and foresight, our Promoters, in the year 2006, undertook backward integration and started the sugar production unit and also a co-generation unit. Today our Company has an integrated manufacturing unit for products ranging from Sugar to electricity generation, rectified spirit, IML, vinegar to compost, thus utilising technically the entire waste from sugar production. For further details of our Promoter’s experience and background, please refer the chapter titled “Our Promoters” on page no. ___ of this Draft Red Herring Prospectus.
Also, our Company and our Promoters are aided by a team of experienced personnel. The team comprises of personnel having technical, operational and business development experience. We believe that our management team’s experience and their understanding of the sugar production & derived product manufacturing business will enable us to continue to take advantage of both current and future market opportunities. It is also expected to help us in addressing and mitigating various risks inherent in our business, including significant competition, reliance on independent agents, and fluctuations in sugarcane prices.
Wide range of products
The process of production of sugar produces various residual materials like Bagasse, Molasses and Mud. These residual materials are used by us as raw materials for manufacturing further products. The Bagasse, which is a dry residue after the sugar production process is used to generate electricity by burning the same in the Boilers. Molasses, is used in the distillery unit to make a range of products like rectified spirit, ENA, IML and Vinegar. Also surplus Molasses is sold directly to other distillery units. Further, the mud generated in the sugar process is used along with certain distillery unit wastes to produce CO2, press mud and compost.
The customers of different products cover a wide range of industrial sectors like FMCG, Government agencies, Food industry and Cold Storage industry to name a few. The above wide range of products gives us a large market for each product. We have made sugar sales to various wholesalers, FMCG companies like PepsiCo, Parle Biscuits, and Britannia among others and also to local and state government agencies. Our distillery products; rectified spirit and ENA are sold to various other standalone distillery units who process it for further industrial use or to make liquor. Though the IML manufactured by us is sold only through KSBCL, our products are supplied to various wholesalers and retailers in the state of Karnataka. The Vinegar manufactured by us is mainly sold as preservatives and also for certain industrial uses. We have entered into a PPA with 5 electricity supply companies for sale of our surplus power generated. Further, other by-product like CO2 is sold as a gas and liquefied CO2 which has different applications in several industries from medicine, food storage, electronics and agriculture.
Once the sugar production is started, we are in a position to always provide the other products in sufficient quantities for captive consumption and also for external sale. We further intend to expand our sugar crushing capacity by setting up another unit for sugar production, which will provide us with higher quantities of residual materials for all our products. For further details, regarding our product portfolio, please refer “Our Business – Our Products” on page no. ___ of this Draft Red Herring Prospectus.
Integrated operations and economies of scale
We have integrated operations enabling us to meet the time, cost efficiency and quality requirements. The waste generated from the production process of one product is used as a raw material for manufacturing another product. Thus our diversified but integrated business model provides most of the necessary raw materials in-house for the various business segment products leading to reduced costs and control over the input material. Our unit has been setup such that the residual materials from one production process are transported to their respective product units either via pipes or conveyor belts or other in-house transport mechanism. This provides us seamless flow of raw material for all our products and also enables us to transport the surplus materials, if, any, for direct sale. This integration allows us not only to save enormous costs and have less dependence on third party for input materials, but also helps us achieve economies of scale by controlling the inputs / production based on each previous process, improving our efficiency and margins.
The main raw material for production of our various segments is sugarcane and our integrated unit processes each component of the sugarcane to manufacture a variety of products relating to the food and beverage industry. Further, with approximately 49 villages from whom we procure our sugarcane produce, we are also able to achieve economies of scale by bulk buying form the farmers.
Strong Technological Capabilities
Our integrated manufacturing unit situated at Bellad-Bagewadi has been installed with various latest machinery and technology. We have installed The Distributed Control System (DCS) at our sugarcane milling and co-generation facilities for precision system management. The DCS is a type of automated control system that is distributed throughout a machine to provide instructions to different parts of the machine. Instead of having a centrally located device controlling all machines each section of a machine has its own computer that controls the operation. DCS is commonly used in manufacturing equipment and utilises input and output protocols to control the machine. The entire system of controllers is connected by networks for communication and monitoring. The successful installation of the DCS which enables us to achieve reduced cost, reduced environmental effect, higher efficiency and reduced response time, reliability of equipment, ease of maintenance and conservation of energy.
We have also installed the latest machineries for our Distillery and Vinegar units. In the financial year 2016-17, we installed a Tetra Packaging machine for our IML products which not only saves our considerable bottling cost but also helps us in our endeavour to protect the environment by reducing glass / plastic bottles being discarded after use. The machinery used for manufacture of Vinegar has been imported from China and we use the latest technology for processing the diluted ethanol into Vinegar.
Strategic location of our manufacturing unit
Sugarcane is the principal raw material used for the production of sugar. Our business depends on the availability of sugarcane and any shortage of sugarcane may adversely affect our results of operations. After de-regulation of the sugar industry, there are no restrictions on the farmers to sell their produce to any particular sugar unit. However, due to our continued relations with the farmers, are regular and advance payments, assistance with high quality seeds and timely aid in harvesting and transportation of the cane, we have ensured a continuous supply of sugarcane from a large number of farmers in the nearby villages in our vicinity and other areas. As per the earlier VSL Order there were 28 villages in Taluka Hukkeri, 12 villages in Taluka Chikkodi and 9 villages in Taluka Gokak in Belgaum District reserved for the supply of sugarcane to our production facility.
Over the period of time, there has been a considerable increase in the acreage of sugarcane cultivation in the nearby villages thus increasing the sugarcane growing areas. To tap this increase, in the F. Y. 2015-16 increased our installed capacity from 5,500 TCD to 8,500 TCD. Though, due to poor rainfall the sugarcane production has been affected, in turn impacting our utilisation, we believe that the larger sugarcane area will provide us with ample supply in seasons of good rain. Also, having a large sugarcane supply base ensures that, in times of cane shortage, our Company gets a considerable share of the cane available in the vicinity of our factory. Also, a simultaneously large sugarcane crushing capacity also ensures a larger stock of Bagasse for the co-generation of power, as also a substantial increase in the Molasses available for our distillation business.
Besides, our factory unit is located approximately 70 kms from the main city of Belagum, which has established road and rail connections to various major cities like Bangalore, Chennai, Mumbai, Pune and Goa. The air route from Belgaum is also constantly growing which enables certain urgent transportation possible.
Cordial and strong relationships with sugarcane farmers
We have approximately 49 villages allotted to us in the vicinity of our factory unit and have cordial relations with many others in the nearby areas. We have maintained good and cordial relations with large sugarcane growing farmer base so as to ensure un-interrupted supply of sugarcane and within the required time period. Besides making timely payments to sugarcane farmers, we provide them with high-quality sugarcane seeds at subsidised rates, thus being an integral part of the cane development process. This not only helps us in ensuring the supply of sugarcane to us but also ensures quality of the sugarcane so that the recovery from these sugarcanes is good. We have entered into agreements for harvesting and transporting of sugarcane produced by the farmers, for no cost to the farmers. The harvesting and transporting groups are paid by our Company and this cane procurement activity ensures the harvested produce is transported to our factory for crushing.
Besides, the raw material procurement, our Company has also established many shops, local hotels and eating places for the convenience of the farmers when they come to our factory unit to sell their produce. These amenities keep the farmers happy and help us build and maintain a good and cordial relationship. Despite the cyclical nature of the sugar industry, we keep strong ties with the desired sugarcane growing farmers. We believe that these relationships are a competitive advantage as farmers have no obligation to sell their produce to us and they are free to sell to any sugar factory. Also, assisting the farmers with seeds, irrigation etc, ensures that the farmers do not switch to other crops that may be more profitable.
Captive Power plant and exportable capacity
Power is an important factor in every manufacturing facility. Considering the integrated nature of our manufacturing unit and its corresponding power requirements, we have installed a power plant with electricity generation capacity of 14 MW and 22.4 MW (from Bagasse / Coal). Our entire electricity requirement during the crushing season is met out of the electricity generated by us in-house. Also, the captive power generation gives us stable and uninterrupted power supply which is very crucial in manufacturing of our products. It further gives us steady and quality supply of steam for our various processes in the sugar, co-generation and distillery units. Uninterrupted power supply helps to avoid any delays in manufacturing process thereby ensuring optimum utilization of our capacities and reducing external electricity costs, especially during the crushing season.
With a total co-generation capacity of 36.4 MW, we ideally use approximately 14 MW for our captive consumption. The remaining electricity generated is sold to third parties through a PPA or an open sale. Currently, we have entered into a PPA for sale of balance MW electricity with 5 different electricity supply companies.
Further, we have installed various energy saving devices at our production facilities such as planetary gear boxes, variable frequency drives, swing type fibrizor, high efficiency pumps and energy efficient motors which help us reducing the consumption of energy in our crushing operations. We have also installed planetary gear boxes in our boiling house section and have further introduced energy efficient condensers and unforced cooling tower as power saving measures. Similarly, in the co-generation unit, our power consumption has been reduced due to installation of a spray pond instead of forced draught cooling tower. Due to the implementation of the above measures we have been able to reduce our captive consumption leading to higher availability of exportable power.