See farm solutions, bio-seeds biz to grow at 20%: DCM Shriram

Ajay Shriram, Chariman and Senior MD, DCM Shriram is very happy with the company’s FY16 performance on back of strong performance from their Chloro-vinyl and sugar business segments.He said the focus was on reducing costs and improving efficiencies in the chloro vinyl business, adding that stable selling price helped.He is also upbeat on their farm solutions business and the bio-seeds business growing at around 20 percent.DCM Shriram has swung into black with a net profit of Rs 51 crore in the March quarter, helped by lower cost of production across business segments.With regards to the sugar business, the central and state government initiatives like ethanol push, export push had helped both the industry and farmers. The breakeven price for sugar is around Rs 32/kg, said Shriram adding that there is a balance between cane and sugar prices now.Below is the transcript of Ajay Shriram’s interview with Sonia Shenoy and Latha Venkatesh on CNBC-TV18. Sonia: It has certainly been a great quarter and perhaps, a financial year where things have turned around for the company and the sector. How do you read your own performance and can you pick out 2-3 areas of business which have shown a genuine turnaround this time? A: We, in fact, felt that this financial year, the performance has been fairly satisfactory. With our profit before depreciation, interest, and taxes (PBDIT) going up by about 21 percent and our profit after tax (PAT) going up by about 41 percent to Rs 297 crore. We are a mixture of a lot of different businesses, but I would like to focus on just two of them which actually had a major impact. One is our chlor-vinyl business which is our caustic soda, chlorine, PVC business. There has been a tremendous focus this year on reducing our cost of production through our raw material cost as well as focusing very aggressively on efficiency improvement across the board and that has given us good results. What has also helped is that the selling price has been stable in this year. So, that has been a positive trend, which has impacted. The second industry which has made a major difference to all companies in this business is the sugar business this year. In the last couple of years, we have lost really badly and we were all under water. We were really sinking. We appreciate the central government and the state government, both coming to the rescue of the sugar industry, centre and sounds of the ethanol push in terms of the export push, Uttar Pradesh state government in terms of rationalisation of sugarcane price. And that has led to a much better health of the sugar industry and of the sugarcane farmer. Latha: Actually all your three divisions, chlor-vinyl, fertiliser and sugar have turned around. But sticking with sugar, yes it is a resurgent commodity, but what is your breakeven point and how do you see sugar prices panning out in the current year given the efforts of the government trying to smooth out the volatility? A: In the sugar business, the last year’s sugar price for us was about Rs 31. Today, the sugar price is about Rs 34 per kilo. Our breakeven with all costs, including depreciation and interest and everything is about Rs 32. So, having a price of about Rs 34 is stable considering what the industry went through over the last 3-4 years, we require a sustained good performance over the next 2-3 years to make the sugar industry a viable industry for the future. Ultimately, the end of the day, unless we have a balance between sugarcane price, sugar price, one will not have a balanced industry. And you cannot have a high sugarcane price, a low sugar price and a viable industry, that cannot work. We really appreciate the government’s efforts if the centre and the state to try to bring some life into this industry which is helping the farmers which is helping the consumers. Sonia: So, operationally, your chlor-vinyl business has been very steady, but we are seeing a decline in your revenues there. How much of this has to do with the fall in crude prices? A: I will break that into two if I may. One is the caustic soda chlorine business, the other is the PVC business. You are right. In the PVC business, because of the fall in crude prices, our selling prices have come down and that is having an impact. But fortunately, if we see the coal prices are also lower. So, that is a little bit offsetting. We have not really got that negatively impacted as we could have with the reduction in the PVC price. In the caustic soda, chlorine business, we are a major player in India on that. We have our operations in Gujarat and in Kota. Our Gujarat plant is doubling capacity from 450 tonne a day to 900 tonne a day which will be commissioned, part of it by the end of first quarter of this year and part of it by the second quarter of this year. So, with that we will be a good player, we are focusing on efficiencies. We are focusing on cost of production, we are focusing on our raw material cost and we feel the chlor-vinyl business as a group is a good business for us which we want to run and grow in a steady, stable manner as we go forward. Sonia: Assuming we do have normal monsoons, how do you see a growth in the agri inputs business for the fiscal FY17? A: You touched a very important point. I think the country needs a normal monsoon. With 65 percent of our people living in rural India, a regular, normal, satisfactory monsoon is what can give them some life again considering last two monsoons have been so tough. In our case, frankly we manufacture urea, we trade in the Diammonium phosphate (DAP), Muriate of Potash (MOP), single super phosphate (SSP) which we are now trying to rationalise a little bit. We have our farm solutions business where we sell value added chemicals and value added fertilisers and soluble fertilisers, crop care chemicals and seeds. And we have a bioseed business which is very focused hybrid seed business which is based out of Hyderabad with pan-India presence. So, for us, we expect the business to grow, our farm solutions business to grow about 15-20 percent a year. Similarly, our bioseed business to grow at 15-20 percent a year. Urea manufacturing is of course stable. We want to optimise that. But with the monsoons coming up well as the predictions are today, it is good for the economy, good for rural India, good for all companies especially agri input companies because the demand will be better and the farmer will get a higher productivity. So, that is a very positive sign with a good monsoon being indicated for all agri input businesses this coming year.