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Friday, 27 September 2019
CM RATING 10/100

Vishwaraj Sugar Industries

Karnataka-based integrated sugar player

Politician promoters are reducing their stake through offer for sale and the company is raising money for working capital through IPO

Vishwaraj Sugar Industries is an integrated sugar and other allied products manufacturing company operating from Belgaum District in the State of Karnataka which is designated as one of the "High Recovery zones" for sugar production by the Government of India. It operates a single location sugar unit having licensed crushing capacity of 11,000 TCD. In addition to sugar the company also manufactures other allied products like Rectified Spirits, Extra-Neutral Spirits, Indian Made Liquor, Vinegar, Compost, Carbon dioxide (CO2), etc. and are further engaged in the generation of Power for captive consumption as well as external sale. Its business can hence be broken up into five main segments namely Sugar, Co-Generation, Distillery, Indian Made Liquor (IML) and Vinegar.

In the year 2001, the company commenced operations of manufacture of distillery products such as Ethanol, Rectified Spirit and Extra Neutral Spirit. In the year 2006, it implemented backward integration and began commercial operations for sugar manufacture from sugarcane, along with co-Generation capabilities. During the year 2008, it began bottling of Indian-made liquor. Currently its integrated unit processes sugarcanes to produce sugar and the by-products are used to generate electricity for captive use and commercial sale, manufacture rectified spirit, ENA (Extra Neutral Alcohol), IML, Vinegar, Press-mud and Compost.

During the last financial year, it produced 32,170 tonnes of sugar and manufactured approximately 1,23,060 boxes of IML, 1,07,79 KL of industrial vinegar, 3156.59 KL of rectified spirit and 969.47 KL of extra-neutral spirit.

The company has made sugar sales to various wholesalers, FMCG companies and also to local and state government agencies. Its 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 it is sold only through KSBCL (Karnataka State Beverages Company Limited), its products are supplied to various wholesalers and retailers in the state of Karnataka through KSBCL. The industrial vinegar manufactured is mainly sold as preservatives and also for certain industrial uses. The company has entered into a PPA with electricity supply companies for sale of surplus power so 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, the company is in a position to always provide raw materials to the other products in sufficient quantities for captive consumption and also for external sale.

Offer and Objects

The IPO is of up to 1,00,00,000 equity shares aggregating to Rs 60 crore on the upper price band of Rs 60 per share and Rs 55 crore on the lower price band of Rs 55 per share. There will be fresh issue of up to 3000000 shares (which will raise Rs 16.50 crore on lower price band and Rs 18.00 crore on upper price band) and offer for sale of up to 70,00,000 shares.

The object of the net fresh issue is to raise funds for funding working capital requirement of Rs 15.70 crore and general corporate purpose.


The company operates from Belgaum in Karnataka, which is designated as one of the "High Recovery zones" for sugar production by the Government of India.

The government continues to provide support to the industry through various measures including regulating the minimum selling price (MSP) of sugar, soft loans, export subsidies, cane price assistance, higher ethanol pricing and blending mandates.


Sugar industry’s profitability depends significantly on the cost of sugarcane and the selling price of sugar, both are beyond industry’s control and are significantly influenced by state government. In most cases, the industry has been at receiving end leading to financial losses, large debts and cane arrears.

Sugar prices dropped more than 21% in the last 6 months due to more than required sugar production in MY 2017-18. Compared to the corresponding period last year, sugar prices are down 7% despite firm Indian demand during the festival season (September – February).

India is at the cusp of another bumper sugar production phase recording 32-33mnt (vs. consumption of 25-26mnt) in the coming season (October 2018-September 2019). This could put pressure on the sugar prices.

The company is carrying an inventory of 5 lakh quintals. In a bid to reduce inventory, the company plans to divert some of the sugar cane juice for producing ethanol and rectified spirit during this crushing season. However, the management believes that ethanol is unlikely to break the cyclicality of the sugar sector given its limited impact on sugar production.

Promoters & promoter group are part of the selling shareholders who have agreed to sell their shareholding or part thereof in this offer through the Offer for Sale. Promoters / Promoter Group have offered shares aggregating to 64,00,550 equity shares constituting 64.01% of the total offer size. The above offered shares will decrease the total pre-offer Promoter / Promoter Group shareholding of 54.20% to post-offer shareholding of 32.38%. Further, in this Offer the company has only earmarked not more than 10% allocation to QIBs, while 50% allocation has been earmarked for retail individual investors and 40% allocation for non-institutional investors.

Business is seasonal in nature. In addition, poor monsoon, adverse weather conditions, crop disease, pest attacks may adversely affect sugarcane crop yields and sugar recovery rates for any given harvest.

The company has incurred losses in the past, i.e., during FY 2018-19, FY 2017-18 and FY 2014-15 for amount of Rs 17.62 crore, Rs 4.27 crore and Rs 57.68 lakhs, respectively.

The company has significant amounts of outstanding payment to sugar cane growers. The amount as on FY 2019 stood at Rs 101.33 crore.

As of March 31, 2019 and March 31, 2018, it had Rs 338.79 crore and Rs 314.64 crore (including current maturities of long-term debt but excluding non fund based), respectively, of outstanding debt on its balance sheet.

Various states going dry will impact its IMFL business. Besides, its IML products lack adequate brand presence and awareness and also have geographical presence limited to Karnataka.

It has a large shareholder base including a large number of farmers, who hold shares in physical form. About 31.91% post-offer shareholding will still be held in the physical format.

Three of its promoters ( Umesh Katti, Kush Katti and Nikhil Katti) are politicians. One is an MLA in the State Legislature of Karnataka and the other two are a Member of Zilla Panchayat. Any adverse incidence in their political lives may affect the business growth of thecCompany and/or the price of our scrip.

In FY 2019, the company reported 76% higher net loss of Rs 17.62 crore as against a net loss of Rs 4.27 crore in FY 2018 on sales, which rose 29% to Rs 286.21 crore.

Vishwaraj Sugar Industries : Issue Highlights

Offer for sale (in Rs crore)  
- On lower price band 38.50
- On upper price band 42.00
Total Issue size for offer for sale (in no of shares in lakh) 70.00
Fresh Issue (in no of shares in lakh)  
- On lower price band 5.45
- On upper price band 5.00
Total Issue size for Fresh Issue (in Rs crore) 18.00
Price Band (Rs) 55-60
Bid size ( in no of shares) 240.00
Post issue share capital (Rs crore) 37.56
Post-issue Promoter & Group shareholding (%) 32.83%
Issue open date 30-09-2019
Issue close date 04-10-2019
Listing BSE, NSE
Rating 10/100


Vishwaraj Sugar Industries: Financials

  1603 (12) 1703 (12) 1803 (12) 1903 (12)
Net sales 335.65 284.02 221.81 286.21
OPM (%) 8.3 16.1 10.6 8.6
OP 27.89 45.86 23.53 24.73
Other inc. 2.89 1.04 9.65 1.08
PBIDT 30.77 46.90 33.18 25.81
Interest 12.16 24.91 20.85 36.36
PBDT 18.62 21.99 12.33 -10.54
Dep. 11.34 11.53 13.19 13.34
PBT 7.28 10.45 -0.86 -23.89
Tax 6.42 4.39 3.40 -6.27
PAT 0.85 6.06 -4.27 -17.62
EPS (Rs) * 0.2 1.6 -1.1 -4.7
*Annualised on post IPO equity of Rs 37.56 crore; Face value of Rs 10 each
Figures in crore,
Source: Capitaline Databases