Sugar prices may remain firm in coming days: Dwarikesh Sugar

In an interview to CNBC-TV18, Vijay Banka, Wholetime Director & CFO of Dwarikesh Sugar Industries spoke about the results and his outlook for the company."We expect the price rise to be reasonable. We don’t expect any arbitrary and high increased price though election in Uttar Pradesh (UP) are around the corner", he said.Talking about sugar prices, he mentioned, "In India also, we expect lower production in the coming season mainly on the account of unfortunate drought that state of Maharashtra and Karnataka suffered last year. We expect sugar prices to be firm".Below is the verbatim transcript of Vijay Banka’s interview to Latha Venkatesh & Sonia Shenoy on CNBC-TV18.Sonia: Your other expenses have doubled this time around leading to drop in your margins. Just take us through what went through in the quarter?A: This quarter was a very satisfactory quarter. We have earned a profit of about Rs 37 crore. If you are comparing with the corresponding quarter last year, last year in the same quarter we had accounted for a subsidy of about Rs 46.68 crore, which was Rs 20 a quintal per sugarcane received from the state government. That was one off thing in the corresponding quarter last year, which is why the results appear to be not so satisfactory but this has been a satisfactory quarter.Q2, typically for sugar industry, is very challenging because there are no income coming from the power segment and very little income coming from the distillery segment. Whatever profit we have earned is all attributable to the sugar segment. So, it has been a very satisfactory performance from that perspective.The other expenses have gone up because we have incurred about Rs 7.5 crore extra on the repairs and maintenance. The sugar industry, which was in bad shape in the last many years had to postpone certain essential repairs and maintenance expenditure, which have all been incurred. If you see our half year’s performance this year we have earned a profit of about Rs 69 crore as compared to Rs 17 crore of loss that we incurred in the last year.I would term the performance to be extremely satisfactory and of course the coming quarters are typically not very difficult quarters for the sugar industries because income starts coming from the power segment, from the distillery segment etc.Latha: The more secular question I have is, are the gains from cheaper inventory and all that over? Now will we have more moderate numbers in the second half?A: The inventory gains, yes, we have sold nearly 6.59 lakh quintals of sugar in Q2. So, we are still left with 4.3 lakh quintals of sugar, which will get sold in Q3. We will have earnings coming from there also. Q3 and Q4, we will have income coming from the power segment, from the distillery segment. So, if you have seen historically in the sugar industry Q3 and Q4 are much better as compared to Q1 and Q2 where expenditures are incurred and there is no income accruing from the power segment and the distillery segment.Latha: What I meant was more in an annualised sense as well. The cycle for sugar normally moves in these three years, three bad years, three good years, so have we seen the peak of sugar profits in FY17 and will we start seeing it ebb in FY18?A: In the coming quarters, of course one very critical thing that we are all keenly awaiting and watching is the sugarcane price, which the state government is going to declare for the season 2016-2017. We expect the price rise to be reasonable. We don’t expect any arbitrary and high increased price though election in UP are around the corner. We in our company, we have been extremely efficient in so far as the recovery is concerned and so far as our efforts on cane developments are concerned. We will keep performing efficiently.If you see the market forces, sugar prices are expected to remain firm because globally as well as domestically after many years of sugar surplus we are having a deficit situation. In India also, we expect lower production in the coming season mainly on the account of unfortunate drought that state of Maharashtra and Karnataka suffered last year. We expect sugar prices to be firm.In that sense the challenge of course would be about the sugar cane pricing. If we keep performing efficiently, if we keep our recoveries high and all efforts are being made to improvise our recoveries so we will get into an orbit where we will have sustainable and good EBITDA.Sonia: Just to get clarity on some more numbers in the first half of the year your realisations were at around Rs 34 per kilogram if I am not wrong. What is the forecast for the second half of the year and where do you see sugar prices head in the second half?A: In Q1 our average realisation was Rs 3,380 per quintal, in Q2 our average realisation was Rs 3,545 per quintal and together our average realisation was Rs 3,455 per quintal. We are currently selling sugar at about Rs 3,600 per quintal and we expect these prices to be sustainable for the next few months. By next few months I would say a year or so.Latha: Would your finance cost continue to fall a little more if you can give us over the next six quarters?A: The finance cost is going to come down because we have recently raised about Rs 59.39 crore by way of qualified institutional placement (QIP). We have used the money immediately for pre-paying our accelerator repayment of our debt. So, finance costs are definitely going to come down. From the earnings, our main aim is to strengthen the balance sheet to become debt free as quickly as possible.Once the term debt comes down, what will remain is only the working capital debt, which of course varies -- if our utilisation is higher during the peak period, it becomes virtually nothing at the commencement of the season. So, you will see definite decline in the interest cost in the coming years.