Hello everyone, I know this is coming in a little late but I had attended the AGM 2022. Sharing some notes from my visit. I got a chance to interact with the promoters as well. Disc: Tracking Position (no transactions in the last 30 days).
Background of the company-
- The founders had realised early that sugar and carbs in a growing country will always be required. They saw that carbs were playing an important role in food, textile, and pharma sector in the West. India being a protein deficient country, they foresaw that carbs and starch would keep growing to make up for that deficit.
- They were situated in Punjab which is a maize growing belt. The founders pioneered the machines to go from 5 TPD to 30 TPD. Maize is the best route to produce starch as compared to Potato or Tapioca as both are unviable and expensive methods.
- They started adding more products to the portfolio starting 1960s. They claim that they were the first ones to manufacture Sorbitol and Dextrose indigenously in India
- Between 1987-2000, the company went through consolidation and did some de-bottlenecking. They also tried their hands at NBFC & Textile businesses but they did not work out. In 2000s, the company and promoters took a decision to focus and grow only in the Starch business. This is when they set up the Malda and Himachal Pradesh plant.
- In 2014, they realised that they needed to modernise the Phagwara unit and expand capacity. The old unit was right in the middle of the city and it was difficult to expand. That is when the Food Park happened (more on this later).
- Company was established by 2 brothers- Mr. K.K Sardana & Mr. I.K Sardana. Mr. I.K Sardana passed away in 2019 (his wife is the Chairman). Both the brothers have 2 sons each.
- All the 4 brothers in the second generation are completely involved in the listed entity and each look after respective units. Shareholding is also equally split among the 4 brothers. Mr. Bhavdeep Sardana (eldest) looks after new projects and business development along with the new Phagwara unit.
- Mr. Bhavdeep mentioned that because the company has been listed for a very long time, they have been transparent and this has kept the family and business together all this while.
- They have no other businesses outside of Sukhjit Starch.
Food Park–
- What happened in the form of approvals in 2017, should have happened in 2015. They mentioned that it was a very difficult period as the old plant was running at full capacity. The food park was developed and the new unit finally started in Oct’20. They were behind by 2-2.5 years
- The older Phagwara unit was 150 TPD. The new unit at the Food Park has an installed capacity of 600 TPD which can be expanded up to 700 TPD.
- Why food park and why did they spend 105cr?
- This is a 55 acres land. 26 acres is developed area. Remaining 29 acres is for greenbelt, roads, and utillities like Common ETP and Power Generation unit of 6.5 MW which is mainly for Sukhjit’s new plant.
- Out of the 26 acres developed area, 14 acres is for Sukjhit’s new unit. The initial idea was to give the remaining land to their existing customers and supply them with starch and other value-added products directly through a pipeline but covid ruined their plans. If they don’t get good customers, they can expand their existing capacity installed there.
- So, out of the 105cr invested in Food Park, 70% directly benefits Sukhjit’s new unit. They have invested another 160cr to set up the new facility. So, the 600 TPD capacity was set up at the cost of 230cr (70% of 105cr invested in Food Park and 160cr additional investment). For reference, Gujarat Ambuja had announced a capex of 400-500cr for a 1000 TPD capacity at Sitarganj in Jan’22.
- So, essentially only 30cr has been spent on non-core operations but that also they feel will be recovered from the core operations itself either through supplying to the customers at the Food Park or by expanding capacity.
- This was the first time they set up such a big plant along with power generation. They now know how to operate bigger plants and this will greatly benefit them in the future.
Overall Operations-
- They have land available at all the units. Current capacity is at 1600 TPD and they will gradually expand to 2000 TPD (as mentioned in the annual report). They have enough land to expand to 3000 TPD. They will start own power generation as well in other units.
- The major margin difference between GAEL and Sukhjit’s margins profile is because of much larger plants of GAEL (more efficient) and captive power generation. The company feels that once they expand at other locations and start generating own power, their margins should inch upwards.
- From 1 MT of maize, 0.65 MT of starch is procured. It is then on the company how they want to utilise this starch. They have dedicated plants at all the units for different products. When I inquired about the installed capacity of major products, Mr. Bhavdeep mentioned that this is not revealed by anyone in the industry and they would like to keep it that way.
- On Value-Added Products- His straightforward reply was that what is VAP in one year may not be VAP another year. VAP is defined by margins and not just by products. He ensured that Sukhjit has the right basket of products and will focus on products that have higher margins during a particular period.
- Main plants are Anhydrous, Dextrose, and Sorbitol. Products that go into pharma are automatically higher grade.
- The company has dealer distributors in place and also does direct supplies to large customers. There is not much of a margin difference.
- Company is working on new product development and that would their focus in FY23 & FY24. Growth should come from here and capacity going from 1600 MT to 2000 MT.
- They track plant wise profitability and take feedback on different units to make the overall operations more efficient.
Industry–
- The top 3 players are Roquette, GAEL, and Sukhjit. Roquette is the leader in terms of quality and GAEL in terms of capacity.
- Mr. Bhavdeep mentioned that after Roquette entered India, the industry has become highly organised and they have streamlined a lot of things which did not exist earlier like cash and carry sales, quality products, conducting business ethically, etc.
- The 3 large players are vendors with most of the large customers.
- On smaller listed players like Tirupati Starch & Universal Starch- they have been able to expand capacities and grow in India because the starch industry is growing at 1.5x of GDP in India. It has wide uses in paper, textile, and food industries among others. Growth of exports in these industries also help with rise in demand for Starch.
- He also mentioned that smaller players are inefficient (seen in their margins) and don’t have a high share from VAP segment.
- Chinese presence- China exports starch derivatives, but is a net importer. They export very few products to India. These are niche and small volume products
- They don’t want to enter small volume products and Chinese have the tendency to kill the competition. They want to go into larger volume products and be in the Top 3 in India.
- He was all praise for Manish Gupta (GAEL’s promoter) and did not shy away from saying that he has set very high standards and has taught the industry how to do business profitably.
Miscellaneous-
- NSE listing would be done soon
- They were looking for buyers of their old unit land. They have already announced about this publically. It is a 10 acre prime property right in the middle of Phagwara.
- Excise 29cr contingent liabilities- Confident that it will be in their favour
- Better investor communication- they will definitely consider an online AGM next time.
I feel that the company is conservative and has the right approach towards this industry. Overall, starch industry should grow and they have enough land to almost double their capacity. As capacity goes up and they become more efficient, margins can go up as well. A key monitorable will be how they utilise the sales proceeds from the sale of Phagwara land.
Disc: Tracking Position (no transactions in the last 30 days).
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