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A bittersweet battle for UP

Bhupesh Bhandari | August 21, 2004

Bhaisana, a small town about 30 km from Muzaffarnagar in west Uttar Pradesh, seemed to have come alive on Saturday, August 14.

Uttar Pradesh Chief Minister, Mulayam Singh Yadav, had winged his way from Lucknow in a helicopter along with man-about-town Amar Singh to take part in the bhoomi pujan for a new sugar mill being put up by Bajaj Hindusthan. Hundreds had gathered to witness the ceremony and take part in the celebrations.

Though he is media shy and likes to keep a low profile, Shishir Bajaj, the chairman of Bajaj Hindusthan, spoke freely to the media about the four new mills his company is putting up in west Uttar Pradesh.

Along with his elder son, Kushagra Narayan Bajaj who is the chief executive of the company, he waxed eloquent on how the Bhaisana mill, which is expected to be up and running in record time by December, will make Bajaj Hindusthan -- which has always been a conservative organisation ever since it was founded 74 years ago -- the largest sugar producer in the country.

But Bajaj Hindusthan is shaking off the conservative approach and gunning for the top slot -- not just in India but also globally. And putting up the Bhaisana mill is Bajaj Hindusthan's first step towards becoming the world's biggest sugar producer. After Bhaisana, the company is putting up three more mills in west Uttar Pradesh.

By October next year, the company will have a capacity of 52,000 tonnes crushed per day-- head and shoulders above all the competition in India (see chart) and amongst the top dozen sugar producers in the world.

Sugar daddies' pecking order
Balrampur Chini Mills28,000 tcd
Triveni Engineering26,000 tcd
Bajaj Hindustan24,000 tcd
Dhampur Sugar Mills19,500 tcd
Upper Ganges12,500 tcd
But that's only the first stage of its ambitious expansion plans. The Bajajs are also eyeing the UP State Sugar Corporation, which has been put on the block by the Uttar Pradesh government. The corporation has 24 mills with a combined capacity of 35,000 tonnes. If Bajaj Hindusthan is able to bag these mills, it will be counted amongst the biggest in the world.

Even as the father-son duo is drawing up its grand vision for the future, a clutch of businessmen are raising their voice against the company's new mills.

The opposition is coming from a group of long-established sugar barons in west Uttar Pradesh including Dhruv Sawhney of Triveni Engineering, the Goels of Dhampur Sugar Mills, Sidharth Shriram of Siel, Tilak Dhar of DCM Shriram Industries and K K Birla who owns a clutch of mills in the region.

Together, under the aegis of the Indian Sugar Mills Association, they are now busy taking stock of the damage Bajaj Hindusthan's new mills could cause them.

Simply put, they are complaining that Bajaj Hindusthan is encroaching upon cane areas developed by them over the last several decades. Every year in October, just before the sugar mills start crushing cane, the Uttar Pradesh Cane Commissioner allocates cane areas to the state's various sugar mills.

These businessmen fear that the four new mills will be allocated fields from their cane areas. "These are areas that have been developed by us over 35 years. Bajaj Hindusthan is planting itself in nurtured areas," Dhampur Sugar Mills vice-chairman Ashok Kumar Goel told Business Standard. Two of his mills, one at Dhampur and the other at Mansurpur, he said, will suffer if the Bajaj Hindusthan units come up.

Vikram Raina, advisor to Triveni Engineering, added that all the areas indicated by Bajaj Hindusthan in its wishlist to the Cane Commissioner are parts of the current cane areas of existing units.

The company's mills at Deoband and Khatauli could lose substantial cane areas to Bajaj Hindusthan, he added. "We welcome competition and new investment but not at the cost of existing players," he said. "In the past, new mills came up in the region but they developed new cane areas for themselves."

The opposition is building up and ISMA (Bajaj Hindusthan gave up its membership of this all-powerful industry lobby group a few months ago) is up in arms. Several of its members are planning to go to the courts. ISMA is also planning to write to each member of the Uttar Pradesh Development Council about the plight of its members.

Kushagra Bajaj is only too aware of the opposition that is building up but he is unfazed. Legally, there is nothing against him. The industry has been totally delicenced. The only caveat in the rule book is that a new mill should be located at a distance of at least 15 km from the nearest existing mill and all his four mills observe that criterion.

"It is all about survival of the fittest. Like in every other commodities business, here also the fight is for the raw material," he said.

According to Bajaj, there is enough cane grown in the area for all, but the mills lose a large part of the crop to gur and khandsari owners.

"The drawal (utilisation of available cane) in west Uttar Pradesh is less than 40 per cent. This can easily be raised to 85 per cent with 15 per cent kept aside for seed," he said, adding: "It has been noticed that since the distance criteria was reduced from 25 km to 15 km about 10 years ago, the drawal has improved from 25 per cent to 40 per cent. If the government changes the norm to 5 km, the drawal will improve further."

Drawing the battle lines further, he said: "It is the farmer who will get a better deal once new mills like ours come up. And Bajaj Hindusthan in its 74 years has not for once defaulted on payments to farmers."

The message is clear: given Bajaj Hindusthan's sound financials (net worth of Rs 122 crore (Rs 1.22 billion) as on September 30, 2003; a Rs 100-crore (Rs 1 billion) public issue has been lined up for later in the year), Bajaj is not averse to paying higher prices to the farmers to corner cane for his new mills.

Bajaj's opponents contest his drawal figures for the region. "It has already reached 60 per cent, which is the optimum and cannot be raised further. The gur and khandsari industry cannot be wished away," said Shanti Lal Jain, director general, ISMA.

To take the argument forward, both Goel and Raina added that their mills face an acute shortage of cane. "Our mill at Khatauli requires 198 lakh quintals of cane in a crushing season (November to April). Last season, we barely crushed 170 lakh quintals," said Raina. "We are barely able to crush for 130-140 days in a season against the norm of 180 days," added Goel.

They make two more points. One, if Bajaj Hindusthan wants to grow, why doesn't it undertake brownfield expansions at its existing two sites in east Uttar Pradesh (Golagokarnnath and Palia Kalan in the Lakhimpur Kheri district)?

Two, when the global trend is to put up large factories of at least 10,000 tcd, why is the company putting up four sub-optimal capacities of 7,000 tcd each? "Do you want economies of scale or do you want small mills all over?" Raina said.

Bajaj argues that an expansion of the size undertaken by the company at Gola or Palia would be restricted by the availability of cane in the area.

Also, a 28,000 tcd plant anywhere in west Uttar Pradesh would have caused a definite shortage of cane. Hence the decision to spread the exapnsion across four mills in the region. "And 7,000 tcd is a globally comparable scale. In India, the average size is 3,000-4,000 tcd," he added.

Kushagra Bajaj hopes to become the world's biggest sugar baron? But there's a long way to go and the first round of the battle has just begun.

A new sultan of sugar

Like all good Marwaris, Kushagra Narayan Bajaj, the 27-year-old chief executive of Bajaj Hindusthan, is a strict vegetarian and doesn't drink. He even dislikes candy and chocolates and says that he doesn't have a sweet tooth. Now that's surprising for a man who is hoping in a few years to become the world's largest sugar producer.

Here's how Kushagra hopes to score a global-scale coup. Bajaj Hindusthan is investing Rs 530 crore (Rs 5.3 billion) to buy four greenfield sugar mills, which will make it the country's top sugar producer.

The first of these, a 7,000 tonnes crushed per day unit near Meerut in west Uttar Pradesh, is scheduled to go on stream by December this year.

This alone will take Bajaj Hindusthan to the top slot ahead of the Dhruv Sawhney-run Triveni Engineering and the Vivek Saraogi-controlled Balrampur Chini Mills Ltd.

But Bajaj isn't stopping with that. He plans to put up three more 7,000 tcd mills in west Uttar Pradesh (two in the Muzaffarnagar district and one in Bijnore) by October next year.

Once these mills are up and running, he will be the country's sugar king by a very large margin with a total capacity of 52,000 tonnes tcd. More important, the new capacities will help Bajaj leapfrog to the 11th slot globally.

Kushagra's ambitions don't stop with that. Bajaj Hindusthan is the frontrunner to buy the UP State Sugar Corporation. If he does corner that company it would be a sizeable achievement because its 24 mills in the state have a combined capacity of 35,000 tcd.

It must, of course, be said that the company is a long way from bagging these mills. The state government has referred the matter to the courts in order to make the divestment foolproof.

Sources close to the Uttar Pradesh government say that Lucknow is keen that the divestment should not meet the same fate as the Taj Expressway project, which got stuck once the Mayawati government was toppled by Mulayam Singh Yadav.

If -- and there could be many a slip between cup and lip -- Bajaj Hindusthan gets control of the UP State Sugar Corporation, its capacity will rise sharply to 87,000 tcd. That's not all.

The UP government has laid down that whoever gets control of these mills must treble capacity in three years. In other words, the new owner will have to add another 70,000 tcd capacity. This could fetch Bajaj the global crown in the sugar industry.

Agreed India is the largest consumer of sugar in the world (and also host to the world's largest population of diabetics), but why is Kushagra determined to keep up the rapid-fire expansion strategy?

Bajaj, who graduated in economics, political science and finance from the Carnegie Mellon University, Pittsburgh, before earning his masters in marketing management from Northwestern University, believes that any commodities business is a game of volumes.

It helps spread your fixed costs and keeps you afloat when the business cycle is down. "Look at Tata Steel. Though the numbers went down, it still made profits when the steel cycle was at its lowest. Now that the cycle has improved, look at the kind of money it is making," he says.

That's true enough but Tata Steel doesn't have a blueprint as radical and daring as Kushagra's.


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