'We are not the demons we are made out to be'
Business Standard travels to Ground Zero to unravel the truth behind the documents and numbers of Nitin Gadkari’s Purti Group and brings to you the untold part of the story
Purti is not the first sugar factory in Vidarbha, Maharashtra’s eastern and most neglected region, nor is it the only one. Between 1985 and 2000, about 22 sugar mills were set up in this region, many of those by politicians such as Ranjit Deshmukh, Ram Nege, Praful Patel and Sudhakarrao Naik. Curiously, all but one have been shut down.
When Nitin Gadkari decided to set up the 23rd sugar factory in Vidarbha, he didn’t want to repeat the mistakes of his predecessors, said Sudhir Dive, managing director of Purti Power & Sugar.
Sugar production is centrally-controlled; the Directorate of Sugar, under the Union agriculture ministry, regulates supply. Often, this leads to a lag between production and ‘release’. Since farmers have to be paid, banks often take the sugar stock as a pledge and release funds to facilitate payments to farmers. This, however, comes at a cost. In the initial years, as the entire capacity couldn’t be utilised, overheads ate into profits, deteriorating financial health.
Also, as the crop was new to the region, farmers weren’t familiar with the vagaries in supply and demand, which created cyclicality. “If farmers made profits one year, everybody cultivated cane the next year, leading to a glut and a fall in prices. This resulted in losses, shooing people away from the crop the following year,” Dive said, adding, “If you started in a bad year, you never really recovered.”
Gadkari saw the need to beat this cyclicality and decided to set up an integrated plant, with power and fertiliser production facilities. “He had the conviction and vision to do this, against the flow, because he wanted this to benefit the farmers of this area,” Dive added. Attracted by Gadkari’s vision, Dive left his government job to join Purti. “I could have had an IAS (Indian Administrative Service) rank now, had I stayed in service.”
Gadkari also chose a corporate structure for his venture, something that would return to haunt him about a decade later. “Saab thought the cooperative model would not be suitable because of the widespread political interference,” Dive said. The Bharatiya Janata Party-Shiv Sena combine had been voted out of power in 1999. A cooperative venture, which would have meant the involvement of the cooperatives department of Maharashtra, then under the rival Congress-Nationalist Congress Party alliance, was simply not an option.
Purti was incorporated in 2000. At that time, nationalised banks looked at the sugar sector with scepticism, due to several failures that preceded Purti. A consortium of 19 urban cooperative banks came together to lend about Rs 26 crore to Purti. Once sugar, the critical part of the project, was tied up, the India Renewable Energy Development Agency agreed to fund the Rs 46-crore power project. While Bank of Maharashtra funded the Rs 29-crore distillery, State Bank of Indore financed the Rs 7.5-crore ethanol production facility.
The Nagpur-based Manish Mehta group contributed equity. This investment was routed through 12 entities — Parshwa Forgings, Shreyansh Machinery Handlers, Empire Forgings, Fargo Finvest, Gondwana Engineering, Creators Handicrafts, Heritage parks, Rushaba Forging, Coronation Shrines (India), Aarya.com, Aarya Infrastructure and Parshwa Agrico invested about Rs 48 crore in the venture for significant equity stakes. An IRB group company also picked up equity stake.
Dive says these are entities Purti issued shares to. “Shares are transferable instruments. If people who bought shares from us sold those to others through secondary sales, is it our duty to see who is buying these shares and what their addresses are?” he asks.
According to media reports, several entities that bought shares from these twelve companies didn’t have genuine addresses and some of these had named people associated with Gadkari as directors. Dive said the law didn’t prohibit people from becoming directors simply because they were drivers, adding they did so in their individual capacities. “We have a business to run. Over 25,000 farmers in six districts have planted cane across about 70,000 acres. We don’t have time to check directorships of unknown companies,” he says.
Dive is also upset that the controversy has taken up precious time ahead of the new crushing season. “This morning, we had a pooja at the Wainganga plant...I could not attend that because I am here, explaining all this to you,” he says.
Wainganga was acquired by the Purti group in 2010. The plant, currently in its second production season, is Dive’s second acquisition in two years. In 2009, he led the acquisition of Mahatma Sugar factory in the neighbouring Wardha district. Both the units, bought through auctions, were revived after being shut for years.
With the stigma surrounding sugar no longer there, both projects have received funding from public sector banks such as Andhra Bank, Bank of Maharashtra and Bank of India. “We are successful today. We have a working capital line of Rs 50 crore from Buldwana. We are unique in these nine districts and, obviously, some people cannot stand that,” Dive says.
In 2003, Gadkari had a life-threatening accident and was bed-ridden for several months. This threw the fledgling project off rails. Interest costs started piling up and banks were readying to junk the venture. Gadkari even mortgaged his flat in Worli, Mumbai, to raise about Rs 2.5 crore for the company. At this time, Purti took a loan of Rs 164 crore from Global Safety Vision, a non-banking financial company. The loan helped save assets worth Rs 270 crore. “We have paid off Rs 62 crore of internal accruals. Of this, interest alone is worth Rs 42 crore. We have a balance of Rs 142 crore, which we are confident of repaying in a few years,” Dive says, acknowledging the loan is critical. “Due to the depreciation and other write-offs, we are booking losses. But on a cash basis, we are profitable,” he says.
Last season, Purti crushed 400,000 tonnes of cane, recording revenue of about Rs 200 crore. This year, it aims to crush 800,000 tonnes and a record revenue of Rs 350 crore. According to the group, about Rs 200 crore of the revenue would go to farmers, while Rs 70 crore would go to labourers and transporters. About 20,000 labourers and 2,000 truck drivers benefit from the group’s business.
“This is what we are being put to trial for,” says Dive, adding: “We might have made some technical errors, which is not uncommon in business. But, we are not the demons we are made out to be.”
Concluded