SG7001 Managing Strategy Operations and Partnerships
Activity 3
| Identification of the industry in question. | The misalignment of supply and demand in the sugar markets bodes well for the long-term health of the business in the nation.
According to predictions, sugar prices are projected to rise in the future as a consequence of the tesa agreement (assuming a no vote). Furthermore, it is anticipated that less planting will be done in the next years as a consequence of tes. According to projections, a rise of a quarter of a percentage point will occur. |
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| Political | Consequently, firms with low EBITDA/per tone of cane crushed could anticipate significant improvements in their operational performance as well as significant increases in the value of their stock holdings | Recent heavy rains in major sugar cane producing states are expected to have a negative influence on cane output in the coming months, according to forecasts |
| Economical | As planned by the federal government, the maximum ethanol mix will be increased from 5 percent to 10 percent in the next fiscal year, which will begin in January. According to industry sources, the sugar sector expects to see a considerable rise in demand for ethanol as a result of the new law, which will result in higher sugar prices. | Sugar mills are being pushed to increase their ethanol production capacity by the government, which is granting loans of up to 40% of the total cost of the project to help them do so |
| Social | The price of ethanol has risen to INR 43-45 per litre, which is a significant increase from the previous value of$33-35 per litre, which is based on the current exchange rate. | In addition, the agreement calls for the establishment of a “attractive ex-depot price for ethanol” as well as the repeal of some tariffs levied on the transfer of ethanol to oil marketing organisations. |
| Technical | Because of the increase in the price of ethanol, the sugar sector will see an increase in the margins it earns from the sale of ethanol. | The predicted rise in sugar prices, along with the continued stability of sugarcane prices, suggests that increasing the delta from$1-3 to$3-5 might result in an increase of as much as 200 basis points in margins, depending on the exact conditions (bps). |
| Porter’s Force | Strength | Justification/ Reasons for your decision about the strength |
| New entry | Sugar companies have been identified as potential long- term investment prospects for you as a consequence of the favourable outlook for the sugar sector. Please review the following information. | The outcome is that fewer seeds are planted, and yields for SSFY16-17 will be lower as a result of the reduction in seed availability during this time. In light of our forecast for consumption growth of 2.5 percent each year between fiscal years 2016 and 2019 (Gopinath,2018), |
| Substitute | They were chosen from a pool of 25 sugar companies with a | we believe that the country will continue to be in deficit until the fiscal year 2019. In |
| total market valuation of $1.5 billion by the experts because they have a trustworthy financial statement and are handled cane arrears stocks, according to the experts. | spite of the favourable outlook for sugar production in the Hern Belt, it is anticipated that excessively high temperatures will cause sugar output in other sugar-producing states to plummet, as well as a decrease in the recovery of sugar. (Bedir,2021) | |
| Buying Power | Cane Arrears did its own assessment into the operational load in order to calculate its own operational burden. | Of light of the anticipated reduction in buffer stocks, it is anticipated that the inventory position will become increasingly constrained in the next years. Prices for argon have already increased by
62 percent (since their lows) as global supplies continue to be depleted |
| Bargaining power of suppliers | Calculate the financial burden by generating a profit and loss account for each tonne of cane crushed and checking the correctness of the figures in the account | . Prices are expected to grow even higher in the next years, according to projections. Because of the predicted supply deficit, it is expected that the global price of commodities would rise, which might have a favourable influence on local pricing (Meghana,2020). |
| Bargaining power of Customer | A stock’s value may be estimated using ROCE in order to calculate operational EV/EBITDA, which can then be used to estimate the stock’s value as a measure of its worth as a gauge for its worth. | It is likely that growing demand for bioethanol, in conjunction with increased government support for the sugar sector, may result in higher revenues for the industry as a whole in the future (Rajaeifar,2021). |
| Stage in the industry life cycle (just its title) | Also important was determining if the probability of margin growth will increase as a consequence of the five-year relationship between the 25 enterprises.
To clarify, delta is a statistical metric that is used in this context to compare the amount of sugar produced per kilogramm of sugarcane and the cost of generating that sugar per kilogramm of sugarcane. In order to arrive at this amount, the sugarcane income are split by the cost of sugarcane production. |
| Implications | According to the study that has been done so far in this area, a 200 basis point increase in the delta value from$1 to$2 would result in a 200 basis point increase in the margin from$1 to$2. Combining the strengths of Sugar industry , both of which have low EBITDA per tonne of cane crushed, the two companies might emerge as dark horses in the race if their current growth rates are kept up. |
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References
Bedir, Ö., & Doğan, T. H. (2021). Use of sugar industry waste catalyst for biodiesel production. Fuel, 286, 119476. https://www.sciencedirect.com/science/article/pii/S0016236120324728
Gopinath, A., Bahurudeen, A., Appari, S., & Nanthagopalan, P. (2018). A circular framework for the valorisation of sugar industry wastes: Review on the industrial symbiosis between sugar, construction and energy industries. Journal of Cleaner Production, 203, 89-108. https://www.sciencedirect.com/science/article/pii/S0959652618326039
Meghana, M., & Shastri, Y. (2020). Sustainable valorization of sugar industry waste: Status, opportunities, and challenges. Bioresource Technology, 303, 122929. https://www.sciencedirect.com/science/article/pii/S096085242030198X
Rajaeifar, M. A., Hemayati, S. S., Tabatabaei, M., Aghbashlo, M., & Mahmoudi, S. B. (2019). A review on beet sugar industry with a focus on implementation of waste-to- energy strategy for power supply. Renewable and Sustainable Energy Reviews, 103, 423-442. https://www.sciencedirect.com/science/article/pii/S136403211830858X
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