Jay Shree Tea: Future nos to tell how well sugar foray is

Kolkata-based BK Birla group company Jay Shree Tea & Industries, which is in the businesses of tea, chemicals and fertilisers, is set to diversify into the sugar business. The Rs 400-crore company is acquiring MP Chini Industries, an unlisted sugar company in Bihar.

MP Chini Industries is an integrated sugar company with a capacity of 4600-tonne crush per day (TCD) and having a power generation capacity of six mega watts. Its sugar-manufacturing unit is located in the land-locked region in West Champaran, Bihar. The company has maintained high levels of capacity utilisation (over 95% in ’06-07) and has also maintained a base recovery rate of 9% over the past four years, which is on par with average players in the industry.

However, its long distance from the Kolkata port limits the company’s ability to export sugar or import raw sugar for processing. The company is estimated to close this fiscal year with a profit of Rs 26 crore, earned on a topline of Rs 80 crore.

The sugar industry in Bihar is poised for growth. Oxfam International, a UK-based NGO, has released a report in ’08-09, recognising the potential of Bihar in producing good quality sugar, during its trade fair campaign in the state recently. According to the latest available official data, the sugar industry in the state had already attracted private investments of Rs 4,600 crore in the past one year.

At Rs 112.50 crore, Jay Shree Tea & Industries is acquiring the sugar company at close to one-and-a-half times the revenues of the company. The company is bullish on the agri-commodity business which is why it has diversified into the sugar business. It has already been expanding its tea business for a while now. With tea prices rallying, the company’s stock also witnessed positive action. The stock has vaulted 282% in the past year — significantly outperforming the Sensex’s gain of 85% during the same period.

However, the stock market did not react positively to the company’s acquisition announcement and the stock fell over 8% on Monday. A buyout in the sugar sector at a time when the bullish commodity cycle is turning is not being perceived as the right move. The company’s performance in the forthcoming quarters will be a reflection of how well timed its entry into the sugar business has been.

From The Times of India