Having reported a sweet fourth quarter, Sakthi Sugars is now expecting its contribution to power business earnings to rise to Rs 80 crore in FY16. According to M Manickam, Executive VC, the company’s power business is expected to post good earnings with at least Rs 60-70 crore on the topline. The company reported a power EBIT of Rs 56 crore verus Rs 7 crore from a year ago period.
The Tamil Nadu-based company reported a net profit of Rs 59 crore versus loss of Rs 14 crore compared to same quarter last fiscal. The EBITDA margins also rose to 25.7 percent against 16.6 percent.
Speaking to CNBC-TV18, Manickam said the sugar prices are unlikely to improve much going ahead. The international market will have sugar surplus for the next three-four years and therefore, it will be difficult for Sakthi to increase sugar prices, he elaborated.
Below is verbatim transcript of the interview:
Q: This quarter we have seen a lot of sugar companies report a good performance for the sugar business at least. Even for your company this time at the EBIT level, the sugar EBIT has come in at Rs 12.5 crore versus Rs 1.9 crore on a year-on-year (Y-o-Y) basis. What led to the improvement in the sugar business and is it sustainable?
A: That difference has come at an EBIT level. What has happened is the power income - we have started selling to grid that has made a big difference to us for this quarter versus the previous quarter. So that has been the major difference for us. It is not sugar per se but it is actually cogeneration where we have made more money.
Q: Your power EBIT has gone up substantially to about Rs 56 crore versus Rs 7 crore last time, do you think the contribution from the power business will increase further and if yes what could the growth be in the power business in the next six-twelve months?
A: The power business is what we expect to stabilize and we probably will be doing not as much as this quarter because this quarter we didn’t have energy cost but we expect a good earnings out of the power at least about Rs 60-70 crore topline or about Rs 80 crore topline at EBITDA level is what we are expecting out of power.
Q: For what tenure will be Rs 80 crore?
A: For the whole year.
Q: This quarter your finance cost is negative at 1.7 percent, how did that happen?
A: There was a liability in the balance sheet of Sakthi Sugars which has been assumed by the parent company because Sakthi Sugars was under strain.
We have transferred the liability along with the interest to the parent company. There was a reversal of about Rs 41 crore of interest which has been assumed by the parent company. That will be one time.
Q: Next quarter onwards will you have a quarterly run rate or finance cost of about Rs 50-60 crore?
A: About Rs 30 crore.
Q: Tell us a bit more about the sugar business. We were speaking with Shree Renuka a couple of days ago and he also mentioned that the numbers are improving for the sugar business although he doesn’t expect too much of movement in sugar prices going ahead, what is your own sense of where sugar prices will stabilize in the next couple of quarters and purely for the sugar sales what could the runrate be?
A: We don’t expect sugar prices to improve very much because the world market is also down. In fact if you look at the international markets, the prices have come below 12 cents in the past two days. The world market will be in surplus for the next three-four years.
Until we get some kind of a policy intervention like protection of the domestic sugar price like what they have in US or Europe, we don’t see a dramatic improvement in the industry for the next three-four years.
There is confusion in the industry, there is confusion in the government and so, we are not clear of what direction the industry will be taking.
The only issue that the government should face is decontrol the sugarcane prices basically not allow the state governments to announce the price and let the millers negotiate a viable price or implement Rangarajan committee which said 70 percent of sugar realization should be paid as cane. So notwithstanding this, I don’t see a major change in the industry.
Q: In lieu of the interest cost which has subsumed by the parent, did you have to give equity or something, can you walk us through that transaction?
A: We have just reversed it so it has gone as contribution from the parent. So we have taken over liability so there is no contribution on equity at this point of time.
Q: Since you don’t have too much by way of expectations from the sugar business in the next couple of quarters, what about the industrial alcohol segment, can you give us an update on that because even over there this quarter both the revenues and the EBIT has seen a drop?
A: Yes, because the problem with industrial alcohol – again it is different on the cane that we crush. So lower amount of cane we crush, lower alcohol we produce and that is a basic cycle. Both sugar and alcohol are related, it depends on how much quantity of cane we are going to crush and south we had a drought and maybe this year the rains are a little better, we might have better planting coming forward but I don’t see any incentive for the farmers to plant at this point in time because sugar prices are still low.
Q: What was the sugar realisation in the January-March quarter and how has it been in the first two months of this current quarter?
A: Last year we averaged around Rs 28 for the whole year and maybe for the last quarter we did about Rs 26 and currently we are selling at Rs 24. So the prices are lower than what we started with. If you compare Q1 of last year i.e. March ending 2015, we had Rs 31 in Q1 of last year. So now we are looking at about Rs 24. So it is fairly a big drop from last year Q1 to this year Q1.
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