Deshbandhu Sugar Mills to go public eyeing capacity expansion
The pioneering sugar mill’s daily refining capacity is set to go up 50% to 1,500 tonnes
Deshbandhu Sugar Mills Ltd, the country's pioneering sugar mill that started its journey in 1932 and was privatised in 1999, is planning to go public for an estimated capital of Tk100 crore to finance its capacity expansion by 50% before 2024.
The company has already appointed local investment bank City Bank Capital Resources Ltd its corporate adviser and issue manager for the planned initial public offering (IPO).
"Right now we are running with a daily refining capacity of 1,000 tonnes of sugar at Narsingdi and the expansion project will take it to 1,500 tonnes by the next 12-15 months," said Golam Mostafa, chairman of Deshbandhu Sugar Mills.
Due to the exchange rate volatility, the total cost of the expansion project is yet to be finalised, he said, adding that the company might offer a sum of Tk100 crore equity to the public.
He told The Business Standard that Bangladesh sugar market has grown at an average annual rate of 10% in the last two decades to around 26 lakh tonnes a year before the pandemic and it slowed down to around 22 lakh tonnes now as people are consuming less due to the pandemic and later the high inflation.
A producer turned refiner
Deshbandhu tried to continue the legacy of producing sugar from local sugarcane in the early 2000s, but raw material shortage and the high cost of sugarcane production in the country forced the company to opt for refining imported raw sugar.
The cost per kilogram of sugar would go as high as Tk150 if the company produced sugar from sugarcane, while it is buying per kg of raw sugar from the international market at around Tk52, and the government is charging duties and taxes of Tk30 on that before fixing the price at Tk89, according to Golam Mostafa.
"Local farmers are not interested in producing sugarcane as it takes more than a year to harvest and raw sugar import is the wise way for the country," he said.
Opportunities in export markets, local industrial sectors
"For us, the local market is more for a narrow profit margin and the biggest opportunity is in exports," said the chairman of the country's first sugar exporter to the European market.
His company earned over Tk500 crore from exports in the last two decades and it could have grown much more had the government not restricted exports of the essential commodity a decade ago.
In the Middle-Eastern markets some big sugar mills either are refining less or shutting down and the big markets await competitive exporters like Deshbandhu, he said adding that China is importing 15 lakh tonnes of refined sugar each year nowadays and this appears to be creating the most lucrative market for his company.
Shipping cost from Bangladesh to China is much lower than that to the Middle East or Europe, as the country sends back most of the containers to China empty, following huge imports.
The local market opportunity lies in the industrial use of sugar in the food processing industry, while some of the export markets are offering a lucrative profitability, foresees the entrepreneur.
He said, "I hope a surplus refining capacity would lead to the reopening of our sugar exports."
Deshbandhu Group's textile, packaging and food processing units are earning around $200 million in foreign currencies a year.
Right now Deshbandhu Sugar Mills is selling around 3 lakh tonnes of sugar a year, and expects to raise it to 5 lakh tonnes in 2024, said the board chairman.
The company is yet to disclose its financial details.
However, stock investors who are tired of the two loss-making state-owned sugar mills Shyampur Sugar Mills and ZealBangla Sugar Mills may find a way to partially own a profit-making private sector-run sugar mill if Deshbandhu succeeds in its planned IPO.
Unlike its sugar refining competitors including City, S Alam, A Monem, Deshbandhu is a mill that can also produce raw sugar from sugarcane.
Also, the company has a unique local licence of producing ethanol fuel locally which might be in need in the coming years.
India is now allowing a mixture of up to 30% ethanol fuel with gasoline, up from 20%, to conserve foreign currencies, said Golam Mostafa, adding "If we can secure cost-effective local sugarcane or molasses, we also can do the same in Bangladesh."
The Tk945 crore duty dispute
Earlier this year, Deshbandhu Sugar Mills secured a High Court verdict in its favour regarding a Tk945 crore duty dispute with the National Board of Revenue (NBR), according to Golam Mostafa.
However, the matter again went sub-judice following the NBR appeal to the Appellate Division of the Supreme Court that asked for further hearing by a wider bench.
Deshbandhu chairman believes his company is heading to finally win the legal battle.
"Whatever happens, as the only Bangladeshi member of the Refined Sugar Association (RSA), London, we are having an enormous response from the foreign investors for private placements of pre-IPO shares," he said.