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Jan 13, 2012, 03.10 PM IST
Shares of sugar companies shot up by 14% in the stock market on Monday, amid buzz of a partial decontrol of this sector, an old demand of the industry. However, Vivek Saraogi, managing director of Balrampur Chini Mills does not expect to see a rally in domestic sugar prices.
Speaking to CNBC-TV18, Saraogi said, pending cane arrears is forcing slump sale of sugar. “I think companies will find paying for cane difficult this year,” he adds.
According to Saraogi, exports would be of help in domestic companies’ cash flows. He says exports would help reduce mills’ inventory, the cost of carrying extra sugar and check the chances of distress sale, besides improving cash flows of mills, helping these make timely payment to farmers during the crushing season.
The decontrol demand includes a scrapping of the levy quota system under which the industry mandatory supplies a tenth of mills’ output at half the production cost, for the ration shop system. The loss to the industry is estimated at Rs 3,000 crore in a year.
However, Saraogi is not too sanguine on any significant outcome arising out of the January 16 meeting with finance minister Pranab Mukherjee. He says the decontrol programme formulated is not being cleared.
Below is the edited transcript of his interview with CNBC-TV18's Latha Venkatesh and Sonia Shenoy. Also watch the accompanying videos.
Q: What are you expecting from the meeting later this month? It is suppose to be a sugar policy reforms meeting. What can you realistically expect?
A: It is a regular meeting. The industry has been seeking this meeting for a long time. Our long standing demand is of levy abolition. That is the industry does not give the levy and decontrol. We have been saying it for a long time. I think it is high time the government took some action.
Q: The other thing that is dominating some mind space is the Food Ministry’s proposal to perhaps allow more exports. Will more exports be allowed? If yes, what is the quantum that people are demanding?
A: When the season began, we were looking at 255 or 25.5 million tonne production. The production target is absolutely on course. If you see the December end production, it is definitely higher than last year. It is high by 17-18%. This is the peak production time.
The first EGoM began by saying that they would do one plus one. This is going to be a completion of that, whenever it happens in January-end. It should be sooner than later, otherwise domestic prices will start falling.
Q: Even if that export of extra one million tonne is allowed, will it make a very big difference? Current global prices are not very lucrative, are they?
A: No. I wouldn’t say they would make a big difference. Tomorrow, if they allow it and we see a spike up in the domestic prices, no. Yesterday, I was reading that Maharashtra, it is a fact, is selling sugar at much lower prices because it wants to pay cane prices than have bank limits. So is the case with many companies all over the country. If you do not have an alternate channel for picking up cash flow, which is exports, the excess sale in the domestic market is putting pressure on the prices.
Q: What is your expectation of the international sugar prices? Do you think it would be stable from hereon or do you expect to see a surge?
A: I do not expect to see a surge, but I don’t at the same time expect it to see a break-down. So, it should be where it is.
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