Sugar prices to continue at Rs 3300 a quintal: Dwarikesh Sugar

The sugar industry has seen a turnaround in the last few months and the prices have risen since then. Vijay Banka, Wholetime Director & CFO at Dwarikesh Sugar Industries, expect the trend to continue over the next few months also.For fourth quarter of FY16, the company reported a 14.4 percent rise in revenues to Rs 230 crore and net profit rose 322 percent to Rs 52.8 crore. The company, as of March 31, 2016, has inventory of 17 lakh tonnes. Currently, the prevailing price is Rs 3,300 per quintal, which is expected to continue, Banka says. The company is focusing on improving its ethanol production and reducing long-term debt of Rs 250 crore.Below is the transcript of Vijay Banka’s interview with Nigel D’souza and Surabhi Upadhyay on CNBC-TV18.Nigel: The numbers looked quite steady on the whole. Do you think that you can keep up with this kind of a performance? Can the first quarter of this year give even better performance?A: It has been a turnaround for the industry and particularly, the last quarter we have seen sugar prices getting better. So, we should be able to keep the momentum going in the next quarter as well.Of course, the trading limits have been set for traders and then the government is keenly watching the prices, but the prices that are presently prevailing are reasonable and I expect them to sustain at these levels.Surabhi: If you could give us a sense of average pricing and how the pricing moved for you in the last quarter?A: The prices have gone as low as Rs 2,200 during August, 2015. So, we have seen the revival in the prices and in Q1 the average realisation was in excess of Rs 3,100 per quintal. Thereafter also, the prices have been moving a little upwards and presently, the prices are prevailing around Rs 3,300. As far as industry is concerned, as far as consumers are concerned, I do not see any reason why any attempt should be made to reduce the prices further.Nigel: So, you believe that this Rs 3,300 will hold even for the coming quarter?A: Yes, we expect this to happen.Nigel: You are sounding quite optimistic. I am not sure whether those prices will hold.A: I am cautiously optimistic. I am not overly optimistic.Nigel: So, what is the downside risk to that number of around Rs 3,300 or thereabouts?A: Recently, there has been an announcement by the Food Minister, that he could consider reducing the imports. But by his own submission -- if I read the statement correctly -- he has mentioned that the sugar companies breakeven at Rs 3,200 types. So, I do not think when the ex-mill prices are Rs 3,300, any effort should be there to reduce these prices further. Everybody is selling the stock properly. There is a, in a manner of speaking, self regulation happening. So, I do not think much intervention is required at this point.Surabhi: At this point in time, any sense of any kind of capital expenditure (Capex) that you might have outlined for the rest of the year? If you could share any of the other balance sheet details with us, any capital raising that might be required at all?A: We have not planned any Capex as of now. As far as the sugar capacities are concerned, the country already has surplus capacity. I do not think it will make any sense to increase sugar capacities as such. And yes, power and distillery are other segments where the capacity expansion can be considered, but as of now, in our ethanol capacity, we have already debottlenecked certain areas where we expect to improve our ethanol production. Going forward, if at all we want to increase our space, it would be in this space.Nigel: What exactly is the current debt that you have in your books? Any plans of scaling that down? And also, I am reading a Bombay Stock Exchange (BSE) announcement that has just come out. You have a proposal of fund raising by way of preferential allotment of securities. Some preference shares you are going to be issuing or is it just a periodic renewal that you have done, that is point number one. What is the debt in your books, point number two?A: It is an enabling resolution that we have passed. And of course, we would look for opportunities if any opportunity arises, we will definitely like to tap this. Our attempt is going to be immediately to downsize our debt as much as possible and with the given operation itself, we are reducing debt substantially in the coming months.Nigel: So, what is your debt currently? How much can you bring it down to?A: We have long-term debt in the region of Rs 250 crore odd.Nigel: Total debt?A: As far as March is concerned, the sugar companies appear to be very leveraged because we have huge cash credit limits drawn at this point in time, because we have huge stock also.Cash credit limits vary with the stock levels that we carry. Lower the stock, utilisation is lower. So, in March we appear to be leveraged, but we are more worried about the long-term debt because cash credit debt of course, when we move towards September-October, our cash credit utilisation will be substantially lesser.Surabhi: Can you leave us with an outlook? You have ended FY16 with earnings before interest, taxes, depreciation and amortisation (EBITDA) margins at around 13.6 percent. Your revenue growth for the year as a whole was around 11 percent. Can you leave us with some kind of guidance for FY17?Nigel: With that point itself, could you also tell us what are the current inventories that you hold and at what rate are you expecting to offload those inventories?A: As on March 31, we were carrying a sugar stock of approximately 17 lakh quintals because March and April, typically, these are the months when we carry a lot of the inventory because in April, the season would just end. So, my outlook is we are cautiously optimistic. We expect the momentum to carry on from here on. Unless something drastic is done in terms of policy initiative, etc, our effort is to keep performing as efficiently as we can which we keep doing.