Government’s move to remove sugar levy burden will help Shree Renuka Sugar to get Rs 100-150 crore of additional margin in 2013-14.
Government's move to remove sugar levy will help Shree Renuka Sugar to get Rs 100-150 crore of additional margin in 2013-14, Narendra Murkumbi, MD, Shree Renuka Sugar told CNBC-TV18 today. On Thursday evening, the Cabinet Committee on Economic Affairs approved partial decontrol of sugar by abolishing the clause that required private sugar mills to sell a specified quantity of sweetener to government at concessional rates.
As per the CCEA decision, states will now purchase sugar from open market through a transparent bidding process and sell it cheap through ration shops. The difference between the two prices will be borne by the Centre, but only for two years.
Murkumbi said that the two year cap may refer to the price ceiling central government has decided for subsidizing sugar. He further stressed that decontrol of sugar will generate more cash flow and may also lead to more trading sugar in future market.
Shree Renuka operates 11 mills globally four in Brazil and seven in India and also has two port based sugar refineries in the country. Following the sugar decontrol move, shares of Shree Renuka Sugar were trading up 5.4 percent at Rs 26.40 in the morning trade.
Below is the verbatim transcript of the interview
Q: Could you just quantify for your company in specific what the impact of the two decisions announced last evening could be?
A: It is easy to quantify. The levy sugar impact for us for financial year will be between Rs 100-150 crore in terms of additional margin. Today we are selling levy at around Rs 19, so that is about 40 percent below the domestic open market price. As far as the one on release mechanism is concerned it is difficult to quantify directly, but to me it is as important as the levy sugar decision, because it frees up the market. It frees up decision making between exports and domestic sales and it will segregate people in terms of their ability to finance and manage prices.
Q: Were you expecting some changes in the cane pricing formula or did you always think that the states will come in the way and that is going to be difficult politically to push through?
A: No, given that the Supreme Court has ruled the states have a right to decide cane prices, it was very clear that the central government cannot arbitrarily take up and decide the issue of cane pricing. It will have to be done at the state government level. With yesterday’s decisions the main controls that were there with the central government have gone away. Now it is very much a game of which state has the most conducive policy for this industry. So, locational advantage is going to be a very key factor in the industry going forward.
Q: What did you make of this two year caveat on levy? Why was that inserted?
A: My understanding is that the two year levy period was referring to this price cap of Rs 32 up to which the central exchequer will subsidize the price of levy sugar which the state governments will buy in the market. I do not think that the policy itself is going to be reviewed in two years.
Q: Will there be any impact on the cane arrears situation from your understanding especially for some of these UP based companies?
A: In general, companies that need cash quickly to settle cane arrears will be able to do so far more easily, both by domestic sales as well as exports. It has probably not been pointed out, but exports actually have moved to a free regime. Government has a right to impose an export duty when domestic availability is a concern, but otherwise there is no restriction or licensing or permits required for export anymore. So you can decide between the domestic and the export market. I do expect cash flows will increase. There will be a sharper polarity between seasonal and off seasonal prices and we should see more sugar being traded in the Futures market.
Shree Renuka stock price
On July 28, 2014, Shree Renuka Sugars closed at Rs 22.80, down Rs 0.5, or 2.15 percent. The 52-week high of the share was Rs 31.80 and the 52-week low was Rs 14.50.
The latest book value of the company is Rs 14.56 per share. At current value, the price-to-book value of the company was 1.57.
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