Brand ‘Madhur‘ to help boost realisations: Shree Renuka

Although the refining sugar margins improved due to low raw material costs, the bulk sugar prices continue to remain under pressure due to over supply is the word coming in from Narendra Murkumbi VC & MD, Shree Renuka Sugars. However, for the company the sugar segment performed well because refineries were working at more than100 percent capacity and low raw material prices aided margins. The company reported a good set of fourth quarter earnings. The standalone net profit stood at Rs 4.3 crore during the quarter ended March 31. The company had posted a net loss of Rs 88.3 crore in the same period last year, it said in a BSE filing.Brand ‘Madhu’ which is now the no.1 brand in the country helped the company perform better in the sugar segment because realisations are better by Rs 2-3 at bulk level, said Murkumbi.  The new ethanol policy helped that segment also perform better.

Below is the verbatim transcript of Narendra Murkumbi’s interview with CNBC-TV18's Reema Tendulkar and Sonia Shenoy.Reema: First let me talk a bit about sugar. Generally in the past when we have spoken to you you sounded bit despondent about sugar but at the Profit Before Tax (PBT) level your sugar business has actually done quite well. Its profit of Rs 40 crore versus Rs 18 crore. What were the realisations in sugar? Is this performance in sugar sustainable in the coming quarters?A: Bulk sugar prices continue to be low. They are under pressure because of high production. In our case sugar segment has done better year-on-year (YoY),Firstly our refineries have done better, they have worked at more than 100 percent capacity in this quarter and margins were better because of low raw material prices in the world market.Secondly our brand Madhur has now become the number brand of sugar in the country and their realisations are better by about Rs 2-3 at bulk level. So, that is feeding into our average sugar price for the quarter which is higher than the rest of the industry. This is the reason why sugar segment has done better.You will also notice that ethanol segment has done very well which is the direct result of the new ethanol policy of the NDA government and that has started feeding through our P&L now from this quarter. The policy was declared in December last year and orders from that policy at a higher price have started being dispatched in the March quarter.So, I feel going forward in the sugar segment our brand will help to improve realisations and also we will have continued strong earnings on ethanol or better margins than previous year. However bulk sugar prices continue to be under pressure and there is an oversupply situation still at least for another year.

Sonia: Good to hear that the new policy is having a good impact on your numbers. So, I understand that the realisations have gone up to Rs 38 per litre in ethanol. How much could they improve further?A: Current orders are now being dispatched at a net realisation of about Rs 40.5 and the latest announcement by government two weeks ago says that they will drop the excise duty on ethanol. Hence, from October the realisations should jump to Rs 45.Reema: So, at least in the coming two quarters, that is from June till September, your ethanol realisation should be at least Rs 40?A: That is right.Reema: Can you tell us a little bit more about the performance in Brazil? Did the company make losses over there? Can you tell us the performance?A: We had a bad year in Brazil, because sugar prices are very low and yields are low in 2014 as well. We are currently going through business re-organisation in Brazil which involves negotiating with the banks to reduce their interest costs. Also now that the currency in Brazil is weak, this year margins are showing an improvement. Ethanol prices in Brazil have increased. So, the outlook now is more positive than the previous year because of the recurrency and higher gasoline prices in Brazil and correspondingly higher ethanol prices.Sonia: You said that the bulk sugar prices continue to be subdued. What does it stand at currently and for the next quarter what could the average be?A: Right now on the bulk level, its realisations are about 24, 24 and a half here in this part of the country for us. I think it will continue to be steady in the off-season period, the selling pressure has reduced. Price will also be dependent on what government accelerates. There is one major item pending on policy which is a decision on the buffer stock. So, depending on the configuration and size of the buffer stock, the domestic price could be positively impacted or it could remain stable.Reema: So, no update yet on the government buying the surplus stock?A: No, proposal is under consideration. All other policy measures have been announced with ethanol reduction, making the excise duty zero etc. Reema: What was the reason for your high unsold inventory, nearly Rs 530 crore versus Rs 215 crore?A: Basically, we have produced more this year, compared to last year and you produce in the first six months of the season, October-March and you sell it over 12 months. Correspondingly the carry-over stock is also higher compared to previous years.

Sonia: Just give us an indication on this base of around Rs 1,680 crore of revenues that you did this quarter and profits of around Rs 4 crore odd. What could the next couple of quarter's average run rate be on revenues and profitability?A: We will have pressure because compared to this quarter earnings will not be there in the off season but beyond that I do not want to speak about forward numbers.Reema: Can you tell us a little bit more about the reorganisation and restructuring that you are trying to do with the Brazilian operations and also a word on your debt currently, where does it stand at and plans to reduce it in the coming few months?A: Due to movements in currency and some repayments, our debt in Brazil has dropped from Rs 4,900 to Rs 4,400 crore. Debt in India remains the same as it was last year.