M Manickam, MD, Sakthi Sugars speaks about impact of hike in import duty on sugar factories.
The government is considering to hike import duty on sugar to 15 percent from 10 percent, but M Manickam, MD of Sakthi Sugars believes that 5 percent hike in import duty may not have much impact on sugar producers.
Earlier today CNBC-TV18 reported quoting sources that government has decided to raise the import duty on the sweetener to 15 percent from 10 percent currently, to discourage overseas buying amid a drop in local prices due to ample supplies.
Manickam said that the company is currently getting price of Rs 31 per kg. "We are not making money at this point in time and breakeven would be at Rs 34.5. We will definitely breakeven if the prices go up to that level," he added.
Manickam said that before the upcoming sugar year the country has opening stock of 7 million tonne and production is expected at 22.5 million tonne. Thus the country would be having total sugar stock 30 million tonne versus consumption of 23 million tonne.
Below is the verbatim transcript of the interview
Q: What would be the impact? Do you have any confirmation of the government thinking on this and what might be the impact?
A: I believe this was a negotiated compromise between the minister where the agriculture minister wanted to increase duty and food minister and finance minister didn't want to do it. So they have come at 5 percent. At 5 percent we are not really going to see an impact on sugar prices domestically and this will not really improve the realisation for the sugar factories.
Q: What is the landed price of sugar at 15 percent and at 10 percent?
A: Today internationally we are looking at about USD 491-500 white sugar and landed will be roughly about USD 530 and 15 percent will take you to about almost USD 580. Today, rupee is at Rs 60. So we are looking at almost Rs 34-35 per kg price at 15 percent import duty, In domestic market price currently is at Rs 31 per kg.
Q: In terms of your own realisations and what kind of realisations are you making and are you breaking even or are you making money on the division?
A: No we are currently getting about Rs 31 per KG and breakeven is about Rs 34.5. So we are not making money at this point of time.
Q: So 15 percent should help in that case isn’t it? By your own calculation the landed price would be Rs 34. So if the 15 percent comes you would at least breakeven?
A: That is right we will definitely breakeven if the prices go up to the level, but today we don't really see the imports as a major factor in the domestic supply which is - we have opening stock and we have good production as well.
Q: As a sugar industry veteran with this being an election year do you see this kind of scenario continuing, companies making losses on domestic sales of sugar?
A: Depends on who has got more vote power, the farmers or the consumer.
Q: What is the experience in normal election years, you wouldn’t think inflation would be an issue, sugar prices would be more important or do you think the farmer lobby is more organised? In the past what has been the experience?
A: In the past urban consumer won out, which means the sugar prices which will be controlled and you would see the farmers getting under lot of pressure.
Q: How are we shaping up for the sugar year 2013-14, what is the carry forward stock?
A: We are looking at about seven million tonnes of opening stock and possibly a production of about 22.5 million tonnes. So we will be having 30 million versus a consumption of 23 million tonnes.
Q: So you don't see much prospects of sugar prices rising on their own?
A: Not really.
Q: Did you participate in that revised tender from oil marketing companies (OMCs) for ethanol because I know some of the Uttar Pradesh based sugar mills did? Did you also participate or was the price still not attractive enough for you?
A: Today actually the domestic price of alcohol is about Rs 40-45 and the tender is around Rs 35 so we had committed something in the last tender and we stand by that, we are not going to take any additional exposure.
Sakthi Sugars stock price
On May 25, 2015, Sakthi Sugars closed at Rs 12.69, down Rs 0.21, or 1.63 percent. The 52-week high of the share was Rs 27.45 and the 52-week low was Rs 12.20.
The latest book value of the company is Rs 5.83 per share. At current value, the price-to-book value of the company was 2.18.
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