Sugar biz to be profitable from Q2: Balrampur Chini

Country's second largest sugar producer Balrampur Chini posted disappointing results in the June quarter. It reported a net loss of Rs 18 crore in June against loss of Rs 19.4 crore in a year ago period. However, net sales rose more than expected at 22% year-on-year to Rs 692 crore during the same quarter.

Vivek Saraogi, managing director of Balrampur Chini told CNBC-TV18 from August onwards the company could realize an average of Rs 34-35 per kg. Its inventory as of July stands at 46.6 lakh bags including levy. Given these two factors, the slacker sugar business would fetch profits from second quarter onwards. Further, Balrampur Chini is hopeful to clocking cogen sales of 55 crore units this year. Saraogi sees domestic sugar prices stabilising at Rs 35/kg going ahead.  Below is the edited transcript of Saraogi’s interview with CNBC-TV18. Q: What have you made of the recent talk that the government is looking to clampdown on sugar prices by dropping 10% import duty because it is worried the way prices have moved above Rs 35. Are you expecting any measures to come in? A: Some measures are expected and have come in, but those measures are more linked to release of sugar – for e.g. yesterday government released about 4 lakh tonne of sugar in the month of August, which is perfectly in order. The prices have climbed up and they went up to about Rs 36.5 ex-factory levels. They would stabilize around Rs 35 range. Q: In your business this time around the cogen business has seen a strong performance. What kind of realistic volumes and realization run rate is sustainable from here according to you? A: This year we have done about 17.3 crore units in the first quarter and last year we did about 14.67 units out of which 6 crore was out of coal. This year it’s fully bagas and we hope to cross about 55 crore units for the year. Q: What is the total inventory you are carrying right now and what kind of realization do you expect to sell most of the inventory at given where market prices are today? A: As of July1 we are carrying about 46.6 lakh bags of sugar and this includes levy. The July realization has been about 3,200. August onwards, we hope the average could be Rs 34-35/bag. Between Rs 34 and Rs 35 is a realistic expectation. Q: Despite your long-term debt reducing your interest cost continues to rise. How much do you plan to bring down your interest cost by in the quarters to come? A: The interest cost is the biggest drag; it’s about Rs 53 odd crore. Last year the company couldn’t make any money, we have to payout Rs 92 crore and after accounting for that we barely made Rs 6 crore. If you do not make money the long-term debt remains where it is, it is Rs 700 crore, plus this year we produce much more quantity of sugar, almost about 30% higher and that led to a higher working capital requirement. The working capital interest rates are also in the range of 10.25%. Overall the interest cost has climbed because of interest no lowering of long-term debt it remains constant. It is also because of very high working capital requirement owing to the fact that we are holding on to stocks and also we crushed more.  Q: You cogen and distillery divisions are making money, in fact significant EBITDA. It’s just the sugar division which has been a bit of a drag. Now with realizations at Rs 34-35 as you are expecting, do you think the sugar segment will start making profits overall then you will be making a positive PAT this quarter? A: Yes, the sugar business now definitely where inventory valuation is 2,867. So with the level we are selling at we definitely are very hopeful now. Q: You said Rs 53 crore interest cost this quarter, how much do you plan to bring down the run rate by? A: The fact that you hold inventory you get gains also in times like this. Secondly, the fact is that you crushed higher you have a higher working capital requirement. However having said that, the moment you make profits for the full year you lower you debt, assuming interest cost remains constant and your overall finance charges will come down.