Rising sugar prices to help margins in 2 qtrs: Shree Renuka

With assistance from government on cane prices, Narendra Murkumbi, VC & MD, Shree Renuka Sugars expects margins to improve in the next two quarters. Speaking to CNBC-TV18, Murukumbi said the previous two quarters were hit by lower sugar prices, but things appear to be on the mend. Below is the verbatim transcript of Narendra Murkumbi's interview with Reema Tendulkar & Nigel D'Souza on CNBC-TV18. Reema: Largely it has been a quarter which was on expected lines. However, few segments were weaker; for example sugar has not done too well on the other hand ethanol has done fairly well. Can you take us through the important highlights of this quarter? A: The last two quarters have been the worst quarters as far as margins are concerned. We had lower sugar prices for five years and that is reflected in the result that you are seeing. However, since then both domestic and world prices of sugar have gone up significantly and we expect in the next two quarters there will be a significant improvement in terms of margins. At the moment the domestic price is prevailing around Rs 25,000 ex-mill, which is still below cost but given the expectation of government's assistance on the cane price front, I would expect that margins would improve in the coming quarters. Nigel: What is the current cane-sugar price differential and also give us -- in the next couple of months we are expecting a more favourable demand supply equation to play out. So when exactly can we see this differential between cane and sugar reducing?

A: Our cost of production is around Rs 2,700 right now given the minimum cane price declared by the government, called the fair and remunerative price (FRP). The current prevailing price is about Rs 25,000 which is a significant improvement from a low of Rs 19,000 that it reached in July. Going forward we expect some assistance from the government in terms of cane price, part of the cane price could be subsidised by the government. We are expecting the decision very soon, the season is starting now and I believe this is under consideration. On the other hand world and domestic sugar prices have gone up; there is a deficit in the world market in 2016 and world prices have risen about 40 percent from their low of 10 cents which they reached in the second quarter of this year and I would expect further strengthening in the coming calendar year 2016.  

Reema: We take your point that sugar prices have gone up at least recently and that would aid your margins in the coming two quarters, but generally the industry has been impacted on account of regulatory decisions by the government, any favourable decisions that you anticipate to come through for the sugar industry?

A: We are asking for and we are expecting some assistance directly in terms of subsidising the cane price because that has been declared by the government but it is out of line with the current fundamentals and the current sugar price that is prevailing. So we expect some direct help there - that's first. Second, they have notified a scheme of compulsory export which means everybody exports a small part of their production. This could be positive for domestic prices but we have to see how this scheme will be implemented. The third thing which has been done by this government has been very positive, ethanol policy and we have already seen that in these 18 months that they have been in charge, the consumption of ethanol in the country has almost doubled and the price that we realised today, in this quarter, for example our net realisation was about Rs 40 per liter. However, for next quarter under the new orders realisation will be about Rs 45.  Thanks to the government policy. So we expect further improvement in earnings from the ethanol segment as well._PAGEBREAK_

Nigel: Can you give us an update about Chapter 11 filed for the Brazilian subsidiaries?