Cane pricing reforms key, but unlikely soon: Sakthi Sugar

M Manickam, MD, Sakthi Sugars is expecting action on levy removal and release mechanism in next 15 days. A reform in cane pricing is the key, but it is unlikely in the near term.

According to him, reforms in the sugar sector are likely to be announced in the upcoming Budget. The imposition of additional duty may offset positive impact of additional levy. More News From Sugar Space: Govt to decide on sugar decontrol before Budget: Thomas Below is the edited transcript of his interview to CNBC-TV18. Q: What did you expect on the mention of the phrase 'partial decontrol', would it mean levy and release mechanism? Do you think those could be the starting points before anything more material and significant happens? A: When they passed the Act for Fair Remunerative Price (FRP), they diluted it by stating that, originally the states cannot announce their state advised prices (SAP) and that was actually diluted. So, I think SAP will remain. The area demarcation is again left with the states. Only release mechanism and the levy are left, and those will certainly go.       Q: Would that be a very significant boost or were the SAP issues far more material for the long-term health of the sector? A: Yes it is. Right now, cane price in Uttar Pradesh is so high that they have priced out of the market, including the world markets. Everybody follows UP, on one-two years lag. So, the Indian sugar today is priced out of the world market for export and we need to see how the industry fares with this. Q: Will the government scrap the levy quota completely or is it politically insensitive and they may find some loopholes around that or a more circuitous way of doing it? A: No, I think they are talking about buying it from the market and subsidizing it. There are enough reports which indicate that PDS is effective in four or five states, out of 30 states. So I don’t think it will make an impact on the country as a whole. Q: What is your understanding on whether all ministries are on board with this decision? Do you go with the opinion that this could come through in the next fortnight; do you think it might get addressed in the Union Budget? How soon will this come through? A: I suspect it would come in the Budget which means both the finance minister and the cabinet is on board. So, possibly, it will come through in the Budget. Q: Easy to quantify, what the exact material impact would be for your bottom-line levy and release going away? A: Not really. The release mechanism doesn’t make much of a difference. We can decide not to sell and hold back and see if we can get the prices back to a normal level as an industry. Second, as far as levy is concerned, whatever gains we will get by additional realisation will be subject to additional excise duty. So, the market may not fully recompense with this aspect. So, it will be neutral in terms of revenues and possibly good for long-term because like the cement and steel industry the decontrol helped those industries. Q: Where are current prices in the market? A: Current price is Rs 30-31 and in June it will go up to Rs 32. We will achieve breakeven at Rs 34, so we like the price to move north of Rs 34.  Q: From the equity markets point of view there is greater representation from some of the Uttar Pradesh-based companies. Do you think all these changes bode positive for that pocket as well or is that dependent on its own vagaries and what happens within the UP government? A: UP is an island on its own. The central government has increased cane price by another Rs 400 for next year. One needs to see what the UP government will do; if they match then UP will have an issue for next year as well.    Q: How do you think harvest will be because there are reports that it may be a pretty weak harvest this time around? A: This time we are hearing about Rs 245 plus and there are people who are talking about even higher. So we don’t expect this year’s production is going to be that much low.