Mar 22, 2013, 06.44 PM IST | Source: CNBC-TV18

EGoM may discuss sugar decontrol in April: Shree Renuka

Shree Renuka Sugar board has agreed for merger, with overseas arm Renuka Commodities DMCC. It is an international trading arm of company and its net worth as on Mar 2012 is Rs 622 crore. DMCC Debt is nil and this will lead to improved debt-equity ratio for the parent company.

Merging the two companies together increases the net worth of the parent company by almost 40 percent

Narendra Murkumbi

MD

Shree Renuka Sugars

Cabinet committee on economic affairs (CCEA) deferred the decision on sugar decontrol on Wednesday. No new date has been fixed yet for taking up the issue. Narendra Murkumbi, MD, Shree Renuka Sugars expects the sugar decontrol proposal of the food ministry to be discussed in the first week of April as it could not get discussed due to lack of time.

In terms of company's business plans,  Shree Renuka Sugar board has agreed for merger, with overseas arm Renuka Commodities DMCC. It is an international trading arm of company and its net worth as on Mar 2012 is Rs 622 crore. DMCC Debt is nil and this will lead to improved debt-equity ratio for the parent company.

Murkumbi told CNBC-TV18 that this has been one of it's long standing subsidiaries, over eight years old. "It has is a fairly strong balance sheet and given our challenges with overall debt, it makes a lot of economic sense", he added.

Below is the verbatim transcript of his interview to CNBC-TV18

Q: Any clarity when the next CCEA meeting is going to be to consider at least partial decontrol on sugar?

A: I think it was on the agenda last week. It could not get discussed because of lack of time. We expect the sugar decontrol proposal of the food ministry to be discussed in the first week of April.

Q: You have merged one of your overseas arms - Renuka Commodities DMCC headquartered UAE with yourself. Tell us why and what it means to the profit and loss (P&L)?

A: This has been one of our long standing subsidiaries, over eight years old. It is our international trading subsidiary. It is a fairly strong balance sheet. Given our challenges with overall debt, it makes a lot of economic sense.

Merging the two companies together increases the net worth of the parent company by almost 40 percent and improves all our ratios whether debt-equity, current ratio. So, financially we have strengthened the parent’s balance sheet. It was not getting due credit being an overseas subsidiary. We think that this merger will help us.

Q: How will the P&L look for FY13 or FY14? It increases by what percentage, EBITDA increases?

A: I don’t want to talk about future profits. This is a profitable subsidiary of Renuka Sugars. More importantly than profits or revenue, as I explained, it increases the net worth of the parent by almost 40 percent.

Q: What would your debt-equity come down to?

A: Our long term debt would now drop below 1:1. Overall debt equity including working capital debt would drop to about 1.5 times which is much more manageable. Current ratio would improve as well. So, we expect therefore to have a much stronger balance sheet as of March 31, 2013.

Q: Could you tell us the size of Renuka Commodities? What it did see perhaps last quarter in terms of revenues, in terms of EBITDA as well as in terms of earnings per share (EPS)?

A: This year we haven’t declared the results of our subsidiaries. We will do it at the end of the year. Its net worth today as on March 31, 2012 was about Rs 660 crore. As of March 31, 2013, it would be about Rs 750 crore.

Q: Are the margins higher than your consolidated margins?

A: The subsidiary is a trading subsidiary. So in some sense, the margins are volatile but it has been a steady profitable subsidy of the company.

Q: Give us an idea as to how things are panning out for your sugar operations itself? What’s the Brazilian operation likely to end the year with? Is it going to be better than last year? We hear the outlook is pretty positive for crushing and for ethanol prices?

A: Ethanol prices have improved significantly since January thanks to strong policy moves by the Brazilian government. We had a better year operationally last year compared to the previous year. We are expecting another significant improvement in the coming years.

Also, with much improved ethanol prices and a fairly good sales book for sugar, we are expecting 2013-14 for us to be the turnaround year and a breakeven on the bottomline. We are already cash flow positive and we expect next year to be also on the breakeven on the bottomline.

Q: Any movement with respect to debt reduction? You were looking at some stake sale.

A: We continue to purchase that including a possible divestment of our cogeneration unit. Right now there is no further progress to report. However, we are continuing to be pursuing various options to reduce the overall debt and balance sheet size of the Brazilian subsidiaries.

Q: If the CCEA meeting does happen in the first week of April or some time in April, how soon before it gets implemented?

A: To the best of our knowledge, there are two main proposals. One is to scrap the monthly release control on domestic sales which will happen almost instantaneously. The other would be to do away with the levy sugar. Currently, the government is listing levy sugar entitlement from the 2011-12 season. That would continue up to May 31.

Levy sugar from production starting October 1, 2012 will be listed from the June 1 as per the original schedule. So, we would expect that any positive decision on levy would reflect in no levy sugar at all being having to be given to the government from the 2012-13 season. So, the benefit will start accruing from production of October, two quarters before today.

Q: Do you seriously expect that?

A: We are now at a stage where a very important committee has made certain recommendation that has translated into formal cabinet proposal. This has been in circulation for the last few weeks. We believe what we have heard and we have seen in the public space, we do believe that this has a very high chance of success.

Q: The levy is abolished provided all these things come in place and that you all handover part of your profits to the farmers. Before that, the state governments have to come on board. Do you think all that happen?

A: There is a misunderstanding. The current proposal is not contingent on reform on the cane pricing. The Rangarajan committee itself has recommended that reforms of the cane pricing regime should happen two-three years down the line. What has been proposed first, is reforms on the product and marketing side which is levy and release mechanism. What will happen if this goes through in early April is that the only remaining major regulation will be the states.

Therefore, there is going to be even sharper polarisation between companies in states where you don’t have state advised price (SAP) and states where you have the SAP. In fact, the reform of cane pricing and the attitude of various state governments to the industry are going to be the main factor in terms of relative competitiveness, etc. For Renuka per se, operating in Maharashtra and Karnataka, will be a very positive kind of policy move if it goes through.

Q: Any impact on sugar prices you think as the festive season starts? Do you expect you would be seeing increase?

A: The release mechanism scrapping would normally have resulted in volatility in prices. Since government has already moved to a four month release and probably for the next six months until when this decision is taken, they will give a six month release.

So, effectively it is already been dismantled. I do not expect too much volatility in prices because of this anymore. It is already been phased in certain way.

Shree Renuka stock price

On April 23, 2014, Shree Renuka Sugars closed at Rs 22.40, up Rs 0.50, or 2.28 percent. The 52-week high of the share was Rs 25.75 and the 52-week low was Rs 14.50.


The latest book value of the company is Rs 26.71 per share. At current value, the price-to-book value of the company was 0.84.

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