Expect exports to boost sales in FY13: Renuka Sugars

Shree Renuka Sugars posted 81% drop in its net profit for the quarter ended March, 2012. The company recorded PAT of Rs 5.5 crore in the fourth quarter of FY12 versus Rs 29.2 crore in the corresponding quarter last year. Net Sales also dropped to Rs 980 crore versus Rs 1,250 crore.

The interest costs of Shree Renuka Sugars have crossed Rs 200 crore in Q4FY12. In an interview with CNBC-TV18, Narendra Murkumbi, MD, Shree Renuka blamed the depreciating rupee for its increasing debt and said that the tough macro environment is hurting their deleveraging plan.
The company continues to focus on controlling operating costs and expects its domestic realisations to remain stable this year. The MD informed that it will need at least 12 months to turn around the Brazilian operations. Shree Renuka is also working on stake sales in Brazilian cogen operations, added Murkumbi.
Murukumbi said, "We expect to be very competitive on export. We expect exports to be a significant portion of our overall sales and in rupee terms, we do not expect any large fall in prices over the next 12-18 months." Below is the edited transcript of the interview on CNBC-TV18. Also watch the accompanying video. Q: One thing which your investors will not like in these numbers is the fact that interest costs have gone up, have crossed Rs 200 crore at a time when you have been speaking continuously about deleveraging the balance sheet. Have you actually added on more debt since we last spoke?
A: I think the debt increase is only due to the depreciation of the rupee. The impact of the overseas balance sheets in terms of rupee looks higher. We have a little seasonal increase in India, but the seasonal increase in debt is less than the increase in the current assets, which is mainly sugar inventory.
We are running a tighter ship than before, but significant deleveraging will require some of the things I have spoken about in the past. Since that hasn't happened, we continue to focus on a tighter operation, increasing our earnings and turning around our operations in Brazil. Q: Why have those steps not been taken on the deleveraging front, the cogen asset sell or stake sell in the Brazilian operations? Are you stuck on issues of valuations or are buyers not there because of the difficult global environment?
A: I think the macro environment is definitely not helping. We have been quite pragmatic about valuations. Particularly for the cogen assets, we were closed last quarter. The key issue in Brazil at that time was that energy prices were very low for the last six months. However, in the last two months, spot energy prices have more than doubled.
Current energy prices are equivalent to about Rs 4.5-5. We continue to remain open to that option. According to us, that's the best and quick way of deleveraging Renuka de Brazil, which is a struggling company.
Vale do Ivaí, our other acquisition has had a good year. In the last 12 months it's made about Rs 300 crore of EBITDA and Rs 100 crore of PAT. The key challenge for us continues to remain Renuka de Brazil and once that is tackled, I believe the perspective will be very different. That is our main focus at the moment. Q: How do you get around that? The market is a bit tough right now. Can you work with any timeline or deadline in terms of how soon some stake sale can be done and some debt paid off?
A: We are open to it as soon as it is possible. To some extent it depends on external circumstances. Q: Just to get a figure as well on what exactly your debt levels stand at right now, both long and short term and whether this increased borrowing that you have done is primarily for your Brazilian operations?
A: Compared to September our main increase in India during March has been primarily because of the fact that March is the peak of our inventory. On 31 March, we had more than half a million tonnes of sugar here in India. That's the reason for the increase. Q: How do you expect this season to be for the domestic sugar business given that fears of oversupply still linger in the market?
A: There are two-three factors. On the whole, it's been more positive than I expected with such large production.
The first factor is exports are free from12 May. There is no restriction on the quantity of export. There is no licensing system which was imposing unreasonable cost on exporters. That has all been scrapped and thanks to the depreciation of the rupee, Indian exports are still competitive and I do expect this situation to continue even into the next season.
For us, where most of our production is along the coast, we expect to be very competitive on export. We expect exports to be a significant portion of our overall sales and in rupee terms, we do not expect any large fall in prices over the next 12-18 months.
Since exports have been announced in India, the domestic price has increased by about a rupee per kilo which I think is very good given the high production figure of this year. Q: The bigger question is of course when you can turn around the Brazilian operations. It's taken awhile. By which quarter do you think one can start seeing significant tangible and visible improvement?
A: I think we will need the whole of the next 12 months to turnaround the business. The first business has turned around. This year it has shown outstanding results with a 42% EBITDA margin. We have to repeat the same process here.
We of course had a big setback due to drought in the last two years. But, now rainfall is normal. We have had very good rain for the last two months and we expect that this season will be significantly better than the previous one. It has been a big setback last year and it will take the whole year. Q: For that though you will need global crisis to recover, which doesn't seem to be happening and part of the problem is that there is a larger amount of Indian exports. What is it that you expect to see on draws globally, for the course of this year?
A: I think there are two things. One is, we are almost 75% hedged in Brazil at prices higher than today. Secondly, the Brazilian currency has also weakened considerably. So today's 20 cents which is the forward price for sugar or sugar for October, is actually equal to 24-25 cents of last year, if you look at local currency in terms of cost of production.
Even for Brazilian production, the currency is actually a blessing in disguise. We don't see these prices as being very low, given the current currency scenario.