Sugar prices may rise to Rs 31/kg in few months: Balrampur

Sugar stocks have held up quite well after the government removed cap on sugar exports and brought it under open general license (OGL). This step will primarily aid millers to clear cane arrears.

Vivek Saraogi, managing director, Balrampur Chini expects to see some improvement in domestic prices after this move.

Despite this, the company doesn't expect to turn profitable very soon. "Even with this, there is small leg up of Rs 1.50. I don’t think it is going to turn profitable very soon because cane price has been paid and other costs have also been incurred," he elaborates

He sees sugar prices rising to Rs 31 per kg in a few months.

Below is the edited transcript of Saraogi’s interview with CNBC-TV18. Also watch the accompanying video.

Q: Could you walk us through the direct benefit the Balrampur Chini sees on the back of yesterday’s news?

A: There will be an improvement in the domestic prices post this announcement. We have seen the improvement beginning yesterday. My personal view is prices should improve from here as we proceed.

Q: Where are prices at right now and how much of a leg up do you think the domestic prices will get in that case?

A: In Uttar Pradesh (UP) ex-mill price is about Rs 29.50 before the announcement. It is very difficult to predict exact numbers, but it could go up by a rupee or a rupee and a half easily as we proceed into the next couple of months.

Q: What is the situation right now amongst companies like yours in terms of having the capacity to export and whether or not the export market still remains lucrative?

A: Even in the earlier days we never exported. When you had a license which you could sell, we sold the license. So, exports will happen from South mainly. We have Tamil Nadu, Karnataka and Maharashtra, so all the export now will happen from that region.

Q: It has also raised the hopes of further measures of decontrol in the market, do you see this as being a precursor to further partial deregulation as well?

A: I am very positive. Rangarajan committee met yesterday and I feel pretty certain after this kind of an opening up. We never had exports, which said 40 lakh tonne can go out of the country and there is no need for any license or permission. This is a precursor. I feel very positively inclined and if I look forward to the Rangarajan committee, which is a time-bound program, I am positively inclined towards deregulation.

Q: Now that you expect an improvement in the realizations on the back of exports being allowed, when will your sugar division turn profitable now?

A: Even with this, there is small leg up of Rs 1.50. I don’t think it is going to turn profitable very soon because cane price has been paid and other costs have also been incurred, so if we get there at least in the last four months where we sold new sugar, we have lost money. We will stop losing money at Rs 31-32.

Q: What makes you hopeful that there maybe some movement on decontrol, things have not moved fast on the policy front and perhaps the government would chose to go with just this shifting into open general and expecting the sugar companies to work with that for the time being, any other headway that has been made between Indian Sugar Mills Association (ISMA) and the government officials?

A: ISMA is in dialogue, that is the job but I feel positively inclined. You have 20 committees, they don’t need a committee to tell them what to do. All the committees have a point and it is clearly said whether it is Thorat Committee, Mahajan Committee, Nand Kumar Committee. There have been a plethora of committees, so if you want the exact truth, they know what to do.

However, this is an online committee. Previous committees were committees which had retired judge or retired bureaucrat, but this committee is headed by Dr Rangarajan who is the head of Prime Minister's Economic Advisory Council (PMEAC). He is far more in the loop of things and I personally feel therefore that this committee it is going to give its report very soon and it is in the highest quarters of the government.

Q: How are things progressing on the production front itself in terms of what production for this year has been and what kind of early indications there are for next year, is it looking like another surplus here?

A: Too early for next year. This year, we will be around 26 million tonne. After monsoon, after the survey, probably August-September is a better time for next year.

Q: When we spoke in March, that time this rate was very optimistic when Samajwadi Party came into power in UP and there were hopes that there would be a lot of incentives, which will be given for sugar production, has anything of that played out up until now or any early signs?

A: We have had dialogues with the government, our representations at least reveal that they want to look at reality and they are aware of reality. Having said that, the basic thinking towards industrialization being positive that every government must have a balance of all, that is how they think and that is how I think they feel. I am pretty sure the things will look positive in UP also in terms of whatever benefits we should get.