See no material benefit on sugar export sops: Sakthi Sugars

Sonia: We were speaking with the management of Renuka Sugars a while back and they indicated that the big benefit will be on domestic sugar prices. So, domestic sugar prices are expected to rise and then there is that drought in Brazil as well that will keep prices higher. What to your mind is the movement that we can expect on sugar prices because of this news flow?

A: Again this depends on the world market prices now and we are trying to match the  domestic prices and the world market prices but the fact remains that domestic industry needs about Rs 34-35 to break even and we are at Rs 26-27. So, until there are some concrete steps to support the price I don’t see a major upside but this will help the surplus sugar going out of the market to a certain extent.

Reema: So you are saying that you do not see any material benefit to the domestic prices because of this development. What about the cash flow and secondly how much can the excess supply in the domestic market come down by? What is the current excess supply?

A: We have about 7.5 million opening stock. Current year the way it is going we may close at 8 to 8.5 million because production is fairly high and it might reduce the closing balance by about one or two million. That is not going to be enough for prices to pick up.

Reema: Some fear would also be that if the Indian sugar companies start exporting it might hurt the international prices. Would that be a valid concern or is it too small?

A: Anyway international prices would have adjusted for it. India is not a major player in the market but of course in the Asian market we will have some impact because we are right in the consuming area but that is not going to be a major impact I would think.

Sonia: Is this subsidy enough for raw sugar exports to become profitable?

A: It is enough to make it viable but I don’t think it is going to be profitable because the only states which will benefit from this are Maharashtra and Gujarat who actually pay a very low cane price in comparison to the rest of the country. So, for them it might be viable but not for the rest of the country.

Senthil: So how much more subsidy would be required for it to become profitable?

A: Subsidy is not really the answer. The answer is that government has to create something like a buffer stock and increase the domestic prices. Any amount of subsidy that they give the world market might adjust for it. So, I don’t think that is going to really make an impact to the industry as much as some basic correction in the structure of the industry.

Reema: What we understand is that the kind of relief that the industry was asking in terms of Ethanol blending, in terms of export subsidy, being decontrolled it has largely come through and there may not be any more relief measures that the sugar industry may see at least in the near future. But the situation is very bleak. So, do we understand that the industry will continue to make losses at least for the next few years?

A: The major problem that we have is a linkage between the cane price and the sugar price and till we correct this anomaly whatever subsidy or whatever patchwork we will do is not going to help. There has to be a linkage between the sugar price and the cane price. That is the basic link that we need to establish first.

Reema: You said that this could benefit the cash flows of the company. Will you be able to quantify how much can it benefit?

A: To the extent of the subsidy, for us, not very much it will be actually Maharashtra and Gujarat who would be exporting raw sugar. I don’t expect anybody in the south is going to be exporting raw sugar really.