Alcohol, power focus to show fruit post Q3: Sakthi Sugars

Sakthi Sugars is shifting focus from sugar to power and alcohol because of losses in cane crushing. Speaking to CNBC-TV18, M Manickam, Executive Vice Chairman of Sakthi Sugars says Rs 7 per kg fall in sugar prices led to increase in losses for the company.He believes the business shift will aid company’s growth December onwards on increased alcohol and ethanol production and added capacity of 20 megawatt by next 6 months."Government is making the right noises about export of sugar, about supporting the industry, so that will probably help if it comes to fruition," he adds.Below is the transcript of M Manickam's interview with Sumaira Abidi & Mangalam Maloo on CNBC-TV18. Sumaira: Can you give us a sense of the cane and the sugar price differential for Q1? A: Cane is almost same, Q1 last year to Q1 this year. Last year we did about 3,10,000 and this year is about 2,70,000, so hardly about 10-15 percent difference in the cane availability but the prices are down by almost Rs 7 a kilo. So, the difference that you are seeing in terms of increase in losses is purely due to the drop in prices which is almost quite a steep drop.Mangalam: When we look at your segments, your power business which has countered the overall weakness is up nearly six times in terms of revenue and earnings also margins have improved from 25 percent to 33 percent. Is that sustainable or is that just a one-off or is that also giving a sense that the company is moving to other aspects in terms of their earnings and business?A: What we had done is, we started focusing on power, and we started selling power to the grid. We are running it on coal. Even if there is no cane, we are running it as an independent business. So, we are focused on that and we are actually going further into it, we probably will add another 20MW in the next six months to one year because there is an incomplete plant we need to complete. So, we think that this will be a sustainable segment which will help us to grow in the long-term.Sumaira: What about your current production levels and if you can also give us a sense of what the industry surplus is like?A: Right now our current production we are restricting the cane crushing because every tonne of cane I crush, I am losing money, so we are restricting the cane crushing. We are trying to produce more alcohol and more power which will give us a margin and possibly from the December quarter you will see the impact coming in because this September quarter we are not going to be functioning very much, we take maintenance everything. So, from December quarter you will see the impact of our decisions of shifting businesses, that you will really see the impact coming in. As far as industry is concerned, we are still looking at a closing stock of about 10 million tonnes of sugar and about 28 million production next year, so it is still not very bright. Government is talking; they are making the right noises about export of sugar, about supporting the industry, so that will probably help if it comes to fruition.Mangalam: If you look at the other segments as well, your industrial alcohol and your soya products revenue, both the segments have underperformed, there has been margin decline in the alcohol business as well. So, where do you see the FY’16 and going forward the next three year’s growth coming in from?A: We are now focusing on producing more alcohol and also ethanol. The ethanol tenders have come out recently with a fixed price of about Rs 48, so we think once that ethanol offtake starts going, the alcohol sector will perform. The government has given a fixed price unlike in the past where even the price used to be negotiated. Now based on the Fair and Remunerative Price (FRP), the government is given a fixed price, so that is a very good move from the government’s perspective , that is going to help the industry and again that impact also you will see in the December quarter because offtake is starting from sometime end of August.As far as Soya is concerned, we have not been really putting in capital into it, we have been starved for capital, so we have been running it under capacity. Possibly once we get our finances organized, we should be able to run at little higher capacity and get better margins.