Sugar demand, prices to pick up in Sep, Dec quarters: Ugar Sugar

In an interview to CNBC-TV18, Niraj Shirgaokar, MD, Ugar Sugar Works spoke about the results and his outlook for the company.

"For any sugar mill, Q1 of financial year is a very tough quarter where they make losses", he said. However, Ugar made a profit in this quarter and Shirgaokar is looking forward to a good year going ahead.

Demand has been weak in the June quarter, but he expects demand to pick up in the current and next quarters because of the festive season. This will lead to firm prices as well, Shirgaokar says.

Below is the transcript of Niraj Shirgaokar’s interview to Nigel D’souza on CNBC-TV18.Q: If I take a look at your numbers, on a YoY basis, it is flattish. You have seen a big increase in prices though. On a sequential basis, it is sharply lower. This Rs 117 crore topline number, could you tell us how much of it was production of sugar and then you sold it and how much of it was inventory that you are selling?A: I would like to say here that Q1 for any sugar mill, start of the financial year, is a very tough quarter where they make losses for the first two quarters or so and then, when the production starts during the season, which is October to March, at that time, we have the sugar as well as the distillery and the co-generation doing export. As a result of which, we have more profits in the last two quarters. So, based on that, if you go to see this quarter as compared to the corresponding quarter in the last year, which had a loss of Rs 92 crore, we have shown a profit of around Rs 1 crore after tax. So, it had been a very good start compared to the same quarter in the last year.Q: But, if you could help us out, what kind of a consistent production run-rate can we sell? What I get from what you are saying is that in the last quarter, that is in the first quarter of this fiscal, you have majorly sold your inventory.A: That is because there has been no production. Production stops in March. So, it has just been sale and due to some of the things done where the trader had some stock limits and such things, there has been less demand. So, that is why we are seeing lower sales. That is the whole thing.Q: So, demand has been weak is what you are trying to tell us?A: Yes, demand is weak, the prices have kind of sustained maybe Re 1 or Rs 2 they have gone down. But the demand has overall been quite weak.Q: But going ahead, what kind of a run rate can we look at in terms of production. You expect demand to pick up in the second half of this year? Then what can be the consistent production run-rate that we can look forward to coming out of Ugar Sugar?A: Traditionally in the second and third quarter as the festival season comes, the demand picks up and so does the price. So, we are expecting an optimistic view on the price going ahead in the next 2-3 quarters. We hope that the production will start somewhere around October and once the production starts, we are looking at doing quite close to what we did for production in the last year, which is around 18 lakh tonnes of crushing. So, we are looking at around 17 lakh tones both units combined.Q: Ugar Sugar has given investors big investors in the last 12 months if someone did hold on to it. It is up more than 500 percent approximately. You are optimistic on sugar prices. What is it currently? Where do you expect it to go?A: Currently, we are selling ex-mill sugar price of around Rs 34.50 plus duty. That is a level where we are comfortable. The government seems to be comfortable with retail price of Rs 40 and at the same time, the farmers, who are the soul of our business, they are also getting a good price. All the fair and remunerative price (FRP) payments and dues are being paid at this price. So we would be comfortable at an ex-mill price of around Rs 35-36 per kilogram.Q: There is going to be a Cabinet Committee on Economic Affairs (CCEA) meet. They are going to be reviewing production, they are going to be reviewing subsidy. Now, you are sounding fairly confident in terms of pricing going ahead, what is your take? Do you export currently, because that is going to be a bit of a factor over there and what do you expect? Do you expect them to tweak the subsidy?A: The government has imposed an export duty of 20 percent a couple of months ago, which is understandable because when the price was reaching a certain level, taking inflation into consideration, they had to make sure that that price was controlled. So today’s meet will be again to review on what should be done with the production subsidy. Of course, those mills which have exported, the industry feels that they should definitely get the export subsidy.Q: You expect to return to profitability for the rest of the year. Final guidance you could give our viewers. What can we look forward to for the rest of the year?A: This is one of the very few times where our company has made a profit in Q1, it has always been a big loss. So, we are expecting the next three quarters to be pretty much more optimistic and if the sugar prices hold at the current level or a bit more and if we stick to our FRP payments, which we are totally clear of right now, then definitely, we look to a very optimistic and a very good year going ahead.