Power unit rejig to boost sugar business: Simbhaoli Sugar

Excerpts from Midcap Radar on CNBC-TV18 Watch the full show » ALSO READ See latest News about Simbhaoli Sugar See previous management interviews See what other Experts & Brokerages are saying about Simbhaoli Sugar Simbhaoli Sugar BSE | NSE 29/05/12 Are Mutual Funds betting on Simbhaoli Sugar?

Sanjay Tapriya, CFO, Simbhaoli Sugar Mills , in an interview with CNBC-TV18 talked about how the restructuring exercise the company is planning to for its power division is likely to benefit its sugar business.

Below is a verbatim transcript of his interview with CNBC-TV18's Latha Venkatesh and Gautam Broker. Also watch the accompanying video.

Q: I believe you had a board meeting for restructuring of your power business, if you can take us through what the outcome was?

A: We have a biomass-based power generation in each of the sugar plant and our plan is to expand that capacity from 60 megawatt (MW) gross to nearly 120 MW gross and for that purpose, our idea is to make it a subsidiary or take that business out of Simbhaoli and then grow it, fund it accordingly and also expand that biomass-based generation capacity by increasing the exportable power to about 80 MW.

So that is the plan which we have discussed in the board today and we will be discussing it further to reach it to a conclusion.

Q: So you haven't reached a conclusive decision yet and also once this is hived off, given that the ancillary businesses contribute a lot to the profitability of the company, what kind of an impact we will see on the financials once this happens?

A: It will be good for the sugar company if it happens because the surplus power, which is available to the group will increase from nearly 30 MW to 80 MW i.e. 2.5 times increase and this power will be biomass-based power so it will be eligible for the benefits under Clean Development Mechanism (CDM) and Renewable Energy Certificate (REC) also.

So given the fact that in case that project can be implemented and the expanded power capacity is available, then that will be beneficial for the sugar as well.

Q: Have you thought through the method of hiving off, will it be a demerger and the other company listed, what will be the modus operandi?

A: As I said, we have not concluded it today and we will be discussing with the lenders also. I will be giving the information to the shareholders and to the exchanges and also to the public at large.

However, mood was that the expansion of power is essential and critical and as a sugar mill, I will have to work out for the maximum power generation mode from a medium-power generation system on which we are at present.

Q: What will be the timeline, by when you would perhaps take a firm decision?

A: We will be taking it very soon because overall project for an expansion by another 50-60 MW will take about two years to implement.

So definitely, a sure and short decisions will be taken and maybe in consultation as I said with lenders if need be we need to go to the shareholders and we will go to them for that purpose.

Q: What is the relative share of revenues and net profit from the two divisions - sugar and power?

A: Power is not a big division at present we are having a gross turnover of nearly about Rs 25-30 crore on the power side with a good EBITDA margin of nearly 50%. But idea is that this Rs 30 crore be increased to another Rs 100 crore or so with the higher EBITDA. That is what we are looking for.

Q: Can you give us a word on the sugar business, we saw international white sugar prices hit a record yesterday and also raw sugar has moved up to about 30 cents a pound, what is the differential you are getting between the export realizations and domestic?

A: Maybe about Rs 6-7 per kg differential is there at present and the only fact of the matter is that we do not have large quantities to offer to the international market.

We all are governed by whatever the government decides on the OGL otherwise this is a good opportunity and if we can sell some more sugar on the export market, this will be beneficial for the country as well as the company also.

Q: Is it possible that the listed Simbhaoli sugar will not be the owner of the power unit, are you contemplating something on those lines?

A: No, we are not contemplating on those lines. There is a very perfect synergy in the sugar business and the power business and that synergy will remain and we will be working on that.

Our idea only is that at present we are having an overall generation capacity of 60 MW out of that 30 MW is surplus to the unit. To increase that 60 MW to 120 MW and about 80 MW to the unit and that is what we are contemplating at.

Q: No fund raising at this point of time for that power expansion?

A: Let me first draw the structure and then definitely for expansion yes, for another 60 MW we will be requiring some Rs 300 crore investment at the rate of Rs 5 crore a MW also but definitely it will come subsequently. First let the board decide the structure.

Also read:  Tulsian`s view on sugar stocks- Shree Renuka Sugar