M Manickam, Executive VC, Sakthi Sugars expects losses to come down going forward. Speaking to CNBC-TV18, Manickam added that performance of power business is largely sustainable. Below is the verbatim transcript of M Manickam's interview with Reema Tendulkar & Nigel D'Souza.
Reema: Your losses have narrowed again in this quarter. Can we expect them to narrow even further in the coming quarter?
A: Yes, we expect that because sugar prices have moved up from about Rs 20 to Rs 26 which is helping us to recover the losses. So going forward we might have prices going closer to Rs 30, which would be good for the sugar industry for the next few years.
Nigel: What is the current cane to sugar price differential currently and could you give us a sense of what is the current production level as well as surplus globally as well?
A: India is looking at 260 lakh tonne of production in the current year with closing stock between 90 lakh to 100 lakh, is what we are looking for Indian market. However, some of us personally feel it may not reach 260 lakh. It might be little lower but next year it is likely not to cross 240 lakh. So we are going into shortage. The consumption is about 260 lakh. So we are looking at balanced equation starting from '16-17, so it is fairly okay.
Internationally there is a deficit of about 3.5 million tonne. Thanks of El Nino floods in Brazil and drought in India and Thailand. So we are looking at some balancing of demand and supply in the international market. Surprisingly Europe has started importing sugar and China is also importing sugar. So the next two years probably you will see the sugar industry coming back into balance.
Reema: Coming to one of the growth drivers and that has been your power business; revenues there have gone up nearly fourfold to Rs 63 crore in this quarter and your EBIT margins have surged to almost 40 percent in the power business. What was the reason for this stronger performance and is it sustainable?
A: We have been selling to the electricity board since last year, which we were not doing earlier as private power producers. So that has made the big difference and going forward we are looking at selling to electricity board at fairly reasonable rates. So this should be sustainable going forward, but subject to policies and other statements by the state government, but we are right now in tender with them for supplying for the next year.
Nigel: Could you give us the rate?
A: We are negotiating, in fact the rates are not finalised yet.
Reema: If that is the case and if you manage to get this tender sign in, you will be able to have a revenue run rate of close to about 63 crore in the power business and margins of 39-40 percent?
A: If we get the entire thing then we should be closer to Rs 90 crore. We are looking at fairly large income on that and closer to about 50-55 percent would be the margins.
Nigel: Let's talk about a couple of smaller parts of your business - the industrial alcohol. Over there we saw revenues bounced up. It is higher by more than 5 percent profitability though got hit and the second factor I want to focus on is your soy product business, there we saw revenues come down close to around 20 percent. What is the outlook on both these businesses going ahead?
A: Soy is not good this year because of the drought in Maharashtra and in Karnataka we have had lower crops, so price of soybean has gone higher. So we do not expect it to do very well. As far as alcohol is concerned; in the last quarter we produced more alcohol because the sugar prices had gone down to Rs 20 and we refrain from selling sugar and we converted alcohol and we sold more of alcohol. So that is probably an impact just for a quarter. You will see it coming back into balance by next quarter.
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