Sugar production to come between 24.7-26 MT: Shree Renuka

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

According to the managing director of Shree Renuka Sugars , Narendra Murkumbi, production for the year is going to come in between the government's and industry's estimates. "Yields are a shade lower, so we should have sugar production somewhere between 24.7 million tonne and 26 million tonne as of now," he said in an exclusive interview to CNBC-TV18.

However, on the price front, Murkumbi believes the industry continues to face problems due to the continuous hike in state advised prices (SAP). "The current pace at which the state advised price has been increased every year is unsustainable and the industry beyond a point will not be able to cope with this," he said.

Below is an edited transcript of his interview with Gautam Broker and Latha Venkatesh. Also watch the accompanying video.

Q: There is this buzz around the 16th January meeting where the Finance Minister is going to meet sugar producers like you. Are you hopeful of any reform coming through in the near-term or do you think this is more of a long-term kind of meeting again and we could have action once the budget and the elections get over?

A: I don't want to comment on any specific meeting, but I do think that the central government is well aware of the problems that the sugar industry is currently going through. There is a huge payment crisis that is building up with cane arrears, especially in the state advised price (SAP) states and we have been assured by the Food Minister recently that this is the topmost priority of the government after the Food Security Bill. So that is the background to which these moves are being talked about.

Q: Do you think that irrespective of how the UP election results go, there would be a sense of realism that will creep in thereafter and perhaps the ensuing period will be a little better for sugar producers?

A: I think there is a growing realization, even in the government, that the current pace at which the state advised price has been increased every year is unsustainable and that the industry beyond a point will not be able to cope with this and there will be a sharp reversal in the crop as arrears build up. I do hope that after the elections, whoever is in government in Lucknow and the government in Delhi will try to work out a more sustainable path for the industry. The current system is not going to work; it's not working even this year.

Q: What is the arithmetic of sugar output looking like for the current sugar year?

A: The industry believes it will be about 26 million tones and the government's estimate is about 24.7 million tones. I think yields are a shade lower, so we should have production somewhere in between these two estimates as of now. About a million tonne of exports have already been allowed and we are hopeful that there will be further permission for export in the near future.

Q: What's the outlook on sugar prices in the global market, and on the domestic front, do you see a kind of stability on the realizations front? Are they tending to move slightly higher?

A: They are still about 5% higher than they were for most of last year. On a year to year comparison for January, they are about 10% higher than last year. But right now, this is the time when there is maximum pressure on the domestic market because khandsari is being produced, gur is being produced, and the sugar industry is crushing in full swing, so I do expect better price in the next quarter.

Q: A lot of your troubles erupted also because of forex and these kinds of losses. There has been a turn in the currency situation. Do you think Q3 is going to look a little better?

A: Let me say that the weak rupee is very good for sugar exports. Secondly, you have unrealized losses based on your foreign currency loans, but I don't think it is really impacting our cash flow today. As I said, our export flows even out of India are significantly higher than any dollar exposure that we have on the liability side.

Q: The Brazilian real made a huge move in Q2, but not as much in Q3. So are we to assume that Q3 would be in the black in the absence of these huge forex losses?

A: Absolutely. The Brazilian real last quarter has been flat, unlike the Indian rupee. Our gain from a weak real is very high because we have almost USD 450 million of exports every year out of Brazil and our costs are mainly in real. So for the business, I think a weak real is great. It increases the competitiveness of our assets there by a big margin.

Q: If you can update us on the deleveraging part, you were looking to monetize your stake in some of the bad assets?

A: I don't want to comment just today. I think things are at a fairly advanced stage, I don't want to say anything more at the moment.

Q: So we could see the closure in about a month or so, atleast that much?

A: I don't want to comment beyond that, whatever we do we will announce.
 
Q: Would you want to update us on the profitability of the Brazilian operations that was the disappointment in your last set of numbers. Are things on the mend? What can you update us?

A: We gave a fairly detail update of what the final number was. Our crushing number is in line with what we guided at the time of our last earnings and we have completed the season for last year. I think very importantly and the biggest in that turnaround is the cultivation of additional cane. I am happy to confirm that we have completed our target of 20,000 hectares of new cane planting for the last year, we completed that in the 3rd week of December, and we are now focused on this year's target which is about 30,000 hectares to plant this year. So we are well on track to recovery. Weather has been better than last year, so we do expect a significantly better crop in 2012.