Sugar cos target Rs 33/kg upon good export: Simbhaoli Sugar

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Sugar cos target Rs 33/kg upon good export: Simbhaoli Sugar

Sanjay Tapriya, chief financial officer of Simbhaoli Sugar, in an interview with CNBC-TV18's Latha Venkatesh and Ekta Batra, said that the market is not affected by this year’s balance sheet of the sugar.

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Excerpts from Markets Midday 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?

Sugar prices have strengthened further by Rs 15-20 per quintal this week. Sanjay Tapriya, chief financial officer of Simbhaoli Sugar , in an interview with CNBC-TV18's Latha Venkatesh and Ekta Batra, said that the market is not affected by this year's balance sheet of sugar.

"Sugar exports have helped ease losses. Companies are now looking at price of Rs 33 per kg," added Tapriya.

Below is the edited transcript of the interview. Also watch the accompanying video.

Q: How are you expecting your own company's revenues and margins to pan out this year? Some of the macro factors are very clear; you are certainly going to have a lower carry forward stock because an extra export has been allowed. You also have a fair idea of what the harvest is likely to be, everyone is working with 24.2 million tonne. If this is what you agree with, then what will be the revenue and margin position of your own company?

A: The sugar year 2010-11 is fairly clear now. The production in the country is about 24.2 million tonne; 1.5 million tonne has been allowed to be exported under open general license (OGL) and another 1.1 to 1.2 million tonne has gone in the past against the advance license scheme (ALS) etc. Actually, the market is not affected by this year's balance sheet of sugar, how much sugar being produced and how much sugar has been exported and consumed.

However, the market is going to be terribly affected by the next season's crop outputs. We have been planning to produce 26 million tonne in the next season but there is a lack of clarity that how much of that should be available for exports. So, clarity is essential otherwise the sugar market is low and any incentive for any movement of exporting sugar is not attracting or not giving positive inputs to the market since everybody is thinking that a lot of sugar will be available in the next crop year.

So in that situation, the year which is going now in September has not been a very good year for the sugar industry, even not for Simbhaoli. Also, whatever sugar we produced on the domestic front, we sold it below cost and incurred losses on that. So, all eyes are on making the new season as worthwhile as possible on exports. 

Domestic prices should match with the sugarcane price if the exports are handled sensibly. So, the key point is that how much India gives to the world and at what price and time we give it to the world.

Q: What would in your estimate be a rational sugar price that you would want depending on which the government will hopefully work backward and plan exports? But that should be a fair realisation price?

A: We should look at about not less than Rs 33 a kg price to the mill. At Rs 33 a kg, we will be having sugar for the country and also to fulfill export requirements and we will be smoothing the cycle for the future also. Hence, it's very important that if a farmer has grown cane for next year, he should be paid right price at the right time, so he can continue to grow the sugarcane for future also.

So, if the mills get Rs 33, they will be able to make correct and timely payments to the farmer and that will be an incentive for the farmers to be in the sugarcane business.

India can continue to remain as an exporter of the sugar. So, short-term advantage of keeping the sugar price lower than that number will definitely be counter productive and maybe suicidal for the industry and the farmers together.

Q: Since exports are being allowed marginally, how much has Simbhaoli Sugar exported and on account of that what would be the profitability, which you will record in this year end?

A: Simbhaoli has exported quite a big quantity in the ongoing fiscal. We exported about 49,000 tonne of sugar, 490,000 quintal to be precise against old Advance License Scheme (ALS) obligations from our own production. We have been given about 11,000 tonne of sugar under OGL into three tranches, which we have exported. We have procured sugar from Maharashtra Mill because the cost was lower.

So, I will purchase the last tranche from the Maharashtra Mill and then sell it because that will be more profitable. Our total earnings out of that OGL export are about Rs 10-11 crore in this financial year whereas earnings in respect of ALS have been higher. So, export has definitely helped me reduce my losses and it was very appreciable move by the government.

Q: Could you also update us on your plans to hive off your power and ethanol business and how much can you grow that by?

A: As a company, we are looking for the avenues which can grow, which are sustainable and non-cyclical. So in that light, the company has been working on expansion of power capacity, which we felt we cannot do within Simbhaoli and within the backdrop of the sugar production. Hence, we have taken steps to hive off that power business into the new company and expand that 60 mw power generation to 150 mw.

The transfer process is on and that will be entailing fresh investments of about Rs 310 crore into the power business. On coal side, we are expanding Indian Made Foreign Liquor (IMFL) business, which is a 15% growth business and it will also be converting into a new company.

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