Truck network is in pain due to demonetisation: Shree Renuka

Shree Renuka Sugars reported a standalone net profit of Rs 2.5 crore for the quarter ended September.Government's move to ban Rs 500 and Rs 1000 notes is affecting the sugar industry.In conversation with CNBC-TV18, Narendra Murkumbi, VC & MD, Shree Renuka Sugars, says that transport in sugar industry is very badly hit. New purchases have come down to 50 percent. Supply of manpower at the lower levels is getting difficult.However, he said that there is no effect of demonetisation scheme on the company's exports. He also said sales lost or delayed this week, will get made up, as the inventory starts filling up and trucks return in full strength to the roads.He further said sugar segment is being driven by the refining volumes and refining margins.Below is the transcript of Narendra Murkumbi’s interview to Reema Tendulkar and Prashant Nair on CNBC-TV18.Reema: Let me ask you a question on demonetisation and how that has impacted your company’s business. If you could first tell us in terms of business transactions for Shree Renuka, what percentage is transacted purely in cash? Do you pay your farmers in cash? Are there any receivables now which is stuck on account of the cash freeze? How has this impacted you and have you seen a decline in sales in the last one week?A: In terms of cane payments and other payments including labour payments, contractor payments, everything is done by cheque through the banking system. Of course, at the last mile, contractors pay their employees many times in cash and that is affected. And therefore, the supply of manpower at the lower levels is a bit challenging at the moment. Also the same thing with the transport network for sugar cane. And especially what is hard hit at the moment is the transport of sugar because sugar is transported fairly long distances and the truck network is under a lot of stain at the moment. We are hoping of course that these crisis abates in this week. But at the moment, trade in sugar is very subdued. Reema: So how much would trade in sugar have been impacted by? It has been one week since demonetisation. Roughly by 10 percent, 20 percent, more than that?A: No, volumes of new sugar purchased by wholesalers, etc. is down 50 percent because people are busy lifting and finishing performing contracts which they had entered into before November 8. So, they are not making fresh commitments until the logistics are sorted out. In terms of production, while there are some challenges, mills and refineries are managing to run fairly regularly.Reema: How will all this reflect in your quarterly performance? Any early indications of how much it could impact your performance this quarter?A: This will be made up and anyway if you see, we have touched a new record turnover quarterly of Rs 2,000 crore. Almost two thirds of that is export. Now, our export logistics, because our refineries are based at the two ports, our export logistics are very short. They are 5-10 km at the most. So, we are not seeing any effect on the export side right now. Even with domestic sales, whatever sales are lost or delayed this week, will get made up as the inventory starts filing up and trucks return in full strength to the roads.Reema: Last quarter was very good for company, your earnings before interest and taxes (EBIT) went to Rs 87 crore versus a loss of about Rs 84 crore. Is that the kind of performance we should expect in the December quarter too?A: More than 50 percent of this is contributed by the refineries. So, refining production was particularly strong. We did close to four lakh tonnes of refining this quarter which was a record for us. Both the refineries are operating. In this quarter, we had an annual maintenance shut down on our bigger refineries, so volumes would be lower to that extent. But other than that, the sugar segment is being driven by the refining volumes and refining margins. What has happened is because India has an export tax on sugar now of 20 percent, we are facing very little competition in the regional markets and therefore, demand is very good on the export market. Having said that, now the next two quarters we have a wider mix of income. We have better cogen income. It is better in the offseason quarters. Cogen income should be positive in the next two quarters. Similarly ethanol, margins will continue to positive, but margins will be lower than last year because the price has been dropped by the government or the oil companies and also the tax break has ended. The tax break was on the molasses that was used for producing ethanol that used to account for about Rs 5 per litre. So, that is no longer there. So, these are some of the drivers of future results.