Prodn to fall next year but co to turn black in FY17: Sakthi

With five continuous years of reporting net losses, M Manickam of Shakthi Sugars says the company has seen the worst run in the past few years. He, however, hasn't lost any optimism as he says FY17 could be the year the company could turn into the black.

The sugar industry in India has been suffering due to rise in cane prices, high production cost and surplus output.

Manickam says there will be a sugar shortage that is likely to develop globally due to lower planting and an El Nino effect.

Below is the verbatim transcript of M Manickam's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Latha: On the terrain itself, sugar prices at long last have gone up by about Rs 12-13 a kilogram, what is the breakeven now looking like, are you all making money on every additional kilogram of sugar you sell?A: Not yet, in fact our break even is Rs 34 per kilogram, even with the last year's cane price. So we are around Rs 28-29 per kilogram. We are still about Rs 4-5 away but it is a far cry from Rs 15 that we were losing earlier. So it is definitely better in terms of cash and we expect that the prices will get above the break even by March-April. So next one-two years are going to be good. There is going to be shortage globally and there is going to be some kind of pressure on sugar prices globally as well.Sonia: What exactly are the prices in the domestic market now and how much have they gone up by in the last one month or so?A: Right now National Commodity & Derivatives Exchange Limited (NCDEX) is around Rs 29-30 and the last month they moved up by about Rs 3-4.Sonia: Going forward given that the production is expected to decline next year because we understand that a lot of farmers are shifting to other crops, what is the expectation as far as production itself is concerned next year?A: Next year definitely the production is going down because of drought particularly El Nino factor, drought in rest of India except for south, you will have lower plantings in the current year.So next year definitely we are having lower production that is a given. The unknown is current year's production whether we are going to be doing 27 million or 24 million depending on the estimates of various agencies. So that is the only thing which is kind of an unknown at this point in time.Latha: Will it help this improvement in the demand/supply dynamics? Will it help pull you into the black at least? This is four-five year run with red on your profit and loss (P&L)?A: This has been the worst one that I have seen. Normally the down cycle lasts for about two-three years but this time it is about five years we have been losing.Now it is turning around and probably the turnaround is fairly good. With the floods coming in Brazil that we have seen in the last two days, you might have production in the world market take a dip again. So it is looking good, the El Nino basically is much stronger than what happened in 2009. So we think that it will be a good turnaround this time.Latha: FY17 is a green year or black?A: Definitely yes.Latha: What is the accumulated debt?A: Right now we have about Rs 1,000 crore debt in total, but if we are performing well, we should be in a position to take care of this. As long as we are above break even, topline can be almost about Rs 1,500 crore if we are running at a full capacity.Sonia: Why have the sugar prices risen so much in the last couple of months, isn’t there still a large amount of surplus in the godowns or large opening stock as it is called?A: Opening stock or closing stock for the current year could be as high as about 7-9 million depending on the various estimates that you are looking at. The minimum stock required closing September 30th is roughly about 6 million because October-November-December are non-producing months. So we need to stock for that.Bottom stock that is required by India is minimum 6-6.5 million. So we are now coming closer to about that bottom stock. So the prices are moving up and if some were to believe the lower production of 24 million estimates then definitely we will be hitting their lower stocks.