Sugar prices to stay at Rs 3200-3300 a quintal: Dwarikesh Ind

The sentiment of the sugar industry has improved considerably, says Vijay Banka, whole-time director and CFO of Dwarikesh Sugar Industries. Sugar is currently trading at Rs 3,200 per quintal and is expected to remain at the same level going forward, he says.Sugar prices were at Rs 2,200 per quintal in August 2015. Banka expects sugar production to be at 25.5-26 million tonne in the current year with carry forward stock estimated at less than 9 million tonne.Speaking about the company's business, Banka says fourth quarter is expected to be better than Q3, where the company had turned profitable. The current debt of the company stands at Rs 250 crore, Banka says adding that the aim is to reduce to Rs 180-190 crore by end of next financial year. Below is the verbatim transcript of Vijay Banka's interview with Latha Venkatesh and Reema Tendulkar on CNBC-TV18.Reema: In the last three months, could you tell us what has been the quantum of increase in sugar prices and therefore what will be the realisations a company like you will enjoy? Have you broken even and therefore making a lot of money?A: The sugar prices have risen from Rs 2,300 in the month of August 2015, presently sugar is traded with Rs 3,200 per quintal. So that has been a remarkable recovery as far as the sugar prices are concerned. Then sugar prices are at reasonable levels. I won't say they are too high, the kind of prices where companies would perhaps make decent money, we only hope and pray that the sugar prices remain at sustainable level in the times to come.Latha: What is the arithmetic of carry forward stock and current year's estimate, what is the demand/supply arithmetic?A: 2015-2016 we commenced with a high sugar stock, at least stock of more than 9 million tonne and current season we expect a production of about 25.5 to 26 million tonne with a consumption of nearly 24.5 million tonne and exports also happening, I think we should have stocks at reasonable levels, there is nothing to panic as far as stocks are concerned.Latha: This year also the carry forward will be around 9 million tonne?A: No, it shouldn’t be 9 million, it should be lesser than that because government is targeting an export of 4 million tonne out of its 3.2 million tonne it has made compulsory, so already contracts have been executed for nearly 1.35 million tonne. So we expect about 2 million tonne to at least move out. So the stock level should be lesser than what was the opening stock then.Next year again, the sugar production is going to be lesser which is mainly on account of unfortunate drought in the state of Maharashtra and Karnataka which is how the prices are now at reasonable level.Reema: Are Rs 3,200 per quintal, are you breaking even what is the cost of production for you?A: We breakeven at the price of -- if you factor for all the revenue that accrues to us from sell of power, ethanol etc. We breakeven at around Rs 3,000 a quintal but you must also consider the fact that this is the average realisation which we should have for the year. Now, like I said, at the beginning of the year, in the first half of the year, the prices were at abysmally lower level.Latha: Going by the arithmetic you are giving me, what will be the carry forward stock? If 2-3 million tonne move out as exports then by the time you get to Diwali and the sugar doesn’t even come into the market by then, the new sugar year, doesn’t it look like we are going to see a rise in sugar prices, what will be the carry forward this year?A: The carry forward stock should be around 7 million tonne, which is reasonable. There is nothing to panic about the stock level and it is just that the sentiments are improved and things are looking good for the sugar sector.Latha: I am asking you, do you expect the prices to remain at Rs 3,300 or will it be higher?A: I don’t expect any runaway increase in the prices should remain at Rs 3,200-3,300 level per quintal. I would expect them to remain at Rs 3,300 levels.Reema: In Q3, that is in the December quarter, you turned profitable, you reported a profit of Rs 2.8 crore considering that prices have only moved up. Will Q4 profits be better than Q3 and secondly, in FY17 do you see the possibility that the company being profitable for the full year?A: FY17, the critical question will be what will be the SAP that the state government of UP will announce because FY17 will capture not only a part of operations of the current crushing season but also of the next crushing season. So what is important is what is the SAP that the state government is going to announce but as of now, things look reasonably good for efficient sugar players. So we will have to wait and watch how it pans out.Latha: Won't you be profitable in FY16 itself, your losses have narrowed and you were profitable in Q3. Q4 will be the bigger profit month, isn’t it?A: Yes, Q4 is normally a better month. Over nine months, we still have still have loss. So we hope to wipe it out, let us wait and see how it turns out. Q4 should be reasonably better.Latha: What is your accumulated debt, how much do you think you will be able to clear in FY16?A: We have long-term debts of more than nearly Rs 250 crore. However, we would like to pay a major chunk of our debt, have better cash flows.Reema: Any plans to pay off Rs 250 crore of debt?A: It will not happen in one year. The scheduled repayment is nearly Rs 60 crore per anum so we will of course try and pay more than what is scheduled provided our cash flows permit.Latha: So you should be able to pay more than Rs 60 crore is your expectation?A: Yes.Latha: Your debt should fall to about Rs 190-180 crore?A: Yes. We should expect debt within the manageable level because with a lot of efforts and our cash flows are under tremendous strength for the last many years.