When 48-year-old Narendra Murkumbi's 'sweet' fortune turned sour in Brazil

Forty-eight-year-old Narendra Murkumbi is different from his counterparts in the sugar industry. Unlike most businessmen running the top sugar companies, Murkumbi happens to be a first generation entrepreneur who set up one of the most profitable sugar firms along with his mother, Vidya Murkumbi.

Renuka Sugars, founded in 1998, is named after the eponymous goddess in Belgaum district, the home town of Murkumbis. This was four years after he graduated from IIM, Ahmedabad. Having travelled widely in the farmland with his father, a distributor for Tata Chemicals, he was keen to be in the agri-business. He had a short experiment running a bio-pesticides business but shut it down.

Sugar was going to be his next bet. The Andhra Pradesh government had floated a tender to sell an old sugar mill. Murkumbi garnered funds from the bio-pesticides business, raised debt and approached relatives for help. He still ran short of funds. He went for the cooperative model persuading farmers to make contributions for the purchase in lieu of shares. That worked and he managed to purchase this mill for Rs 500 million at a time when setting a similar greenfield unit would have taken a billion rupees. These farmers, who had paid Rs 10 for a share, reaped rich dividends when Renuka listed in 2005 at a price of Rs 285.

In the following few years, the mill produced more sugar than it did in the previous two decades. In 2002, when sugar prices crashed, Murkumbi ventured into sugar trading in the overseas market. That helped Renuka remain in the green when the industry made losses.Since sugar is a cyclical business (sugar is produced only for six months of the year) Murkumbi utilised the lean season to convert raw sugar into refined sugar. Instead of making large investments in setting up sugar plants Murkumbi preferred to hire assets and operate them. Between 2006 and 2008 he took two sugar mills on lease. From a single mill in 1997 the company grew to seven mills in the country. 2009/10 happened to be the best year for the company and it earned a profit of Rs 4.1 billion on sales of Rs 55 billion. This was the year when Renuka ventured into acquisition of sugar mills in Brazil, the largest sugar producing country. He believed that sugarcane availability in India will be an issue and his mills in Brazil will secure raw sugar supplies for Renuka’s refinery business in India.

Renuka’s first acquisition in Brazil happened in November 2009. Three months after taking control of VDI, Murkumbi went for another Brazilian acquisition, Equipav SA in early 2010. Renuka was investing Rs 19 billion in these two deals that also made him the fifth biggest sugar maker in Brazil and second biggest Indian sugar company. Murkumbi became the poster boy of Indian sugar industry, his company enjoyed a market cap of Rs 76 billion in early 2010 (it is just Rs 14.7 billion now).

The debt driven acquisition of these two loss-making companies, however, did not work. Brazil suffered a drought in 2011, hitting production. The global surplus in sugar weighed on prices. The enhanced capacity utilisation that Murkumbi had envisaged did not happen and the two acquisitions continued to bleed. In early 2014, Renuka’s debt swelled to Rs 87 billion, of which Rs 52 billion was in the Brazilian operations. The local currency debt turned bigger with a sharp depreciation of the Brazilian real. Murkumbi struggled to sell some of the Brazilian assets. He then brought on board Wilmar which invested Rs 5.17 billion in 2014 picking up a 27.5 per cent stake. Murkumbi has now decided give up the position of vice chairman and managing director at Renuka, leaving all control to Wilmar.

In the hindsight one can blame Murkumbi for being ambitious and entering Brazil (Bajaj Hindusthan had explored such an idea in 2006 and gave it up) at a time when valuations were high. “But many big global names like Noble Resources were in the fray to acquire Equipav. It appeared to be a smart move then. A businessman is a businessman because of his risk taking abilities,” said a sugar industry executive. Murkumbi may not find sweetness in sugar anymore but those who know him bet that this is not the end of road for the former sugar baron.