Stocks In Focus With Shree Renuka Sugars

NDTV Profit

#StocksInFocus | Shree Renuka Sugars’ Atul Chaturvedi shares views on the recent rally in the stock post the acquisition of Anamika Sugar Mills. #BQLive

Transcript

00:00 You're watching Stocks in Focus,

00:02 and one company, or one sector that is in focus

00:06 is the sugar pack.

00:07 In fact, a good momentum that is seen

00:09 in terms of stock prices are concerned.

00:11 But from a consumption perspective,

00:14 what's in store for the sugar companies?

00:17 Joining us on the show to discuss more

00:19 is Mr. Atul Chaturvedi,

00:20 Executive Chairman at Sri Renuka Sugars.

00:22 Good morning, and welcome to the show, Mr. Chaturvedi.

00:26 - Thank you, thank you very much

00:28 for having me on your show.

00:30 - Always a pleasure to speak to you.

00:32 Mr. Chaturvedi, firstly, congratulations on the foray

00:34 that you've made in the UP market with the acquisition.

00:38 If you could help us more in terms of,

00:41 you know, why Anamika Sugar Mills, you know,

00:44 how will it actually bolster growth

00:46 with regards to Sri Renuka?

00:48 - Well, in fact, if you have a look at the Renuka's

00:54 asset base, we are largely concentrating

00:57 in the state of Karnataka and Maharashtra.

01:01 So we have to necessarily de-risk

01:03 our business geographically,

01:05 and that is the reason why we have gone to UP.

01:10 We have a brand called Madhur,

01:12 which is the market leader in the country,

01:15 and sending Madhur from Western and Southern India

01:20 was a logistical nightmare.

01:23 So it makes more sense for us to be present

01:26 in the most populous part of the country,

01:30 and which is also a very good cane belt.

01:33 And the other thing which we've seen over the years

01:35 is that UP cane is relatively stable,

01:40 unlike Maharashtra and Karnataka,

01:43 which depend heavily on the monsoons.

01:46 As this year, we are already witnessing

01:49 that August rains were not there,

01:52 and that is probably going to be affecting

01:54 the production in these two states this year.

01:57 So that is fundamentally the reason why we've gone to UP.

02:00 - Right, and with this UP-based acquisition,

02:06 by how much does your cane crushing capacity

02:09 increase to over an overall basis?

02:12 - Our cane crushing capacity in Maharashtra

02:17 and Karnataka was close to about 6.2 to 6.3 million tons.

02:22 And now with this acquisition,

02:25 I think we will be in excess of about 7 million ton plus.

02:29 So it could be closer to about 7.25 or 7.3 million tons,

02:34 or thereabouts.

02:35 - Right.

02:36 - But crushing capacity is all dependent

02:38 on the availability of the cane.

02:41 If the availability of cane is improved

02:43 in Karnataka and in Maharashtra,

02:46 the same capacity would be sufficient

02:48 for eight to eight and a half, nine million tons.

02:51 - Right, and will the plant in UP also produce ethanol?

02:56 - As of today, it doesn't have an ethanol,

03:00 but going forward, we certainly would be evaluating

03:04 and deciding on ethanol because as a company,

03:07 we have been focused on ethanol big time.

03:11 In fact, we probably may be the biggest producer

03:14 of ethanol in the country.

03:16 And we see no reason why we should not produce

03:19 in UP as well, but we would be evaluating after the season.

03:24 - Right, now from there on,

03:28 another aspect in UP is always how the sap prices move,

03:33 right?

03:34 What's the latest on that?

03:36 And being election year, if sap prices are increased,

03:41 how do you see it impacting sugar mills

03:45 specifically based out of UP?

03:49 - Honestly speaking, we are novices in UP.

03:52 We would start learning the ropes once now,

03:55 we will be running in this season.

03:57 We really don't have an idea as to how the sap

04:00 is going to be announced.

04:02 But my take is that whatever we were hearing

04:04 that 250 rupees is going to be the increase,

04:08 but that doesn't seem to be happening

04:11 because at one point, at one site,

04:13 the government is grappling with higher sugar prices

04:17 and inflationary pressures on the food basket.

04:21 And on the other, if they jack up the prices that much,

04:25 so it's going to get reflected in the sugar values.

04:28 I think the government is probably debating

04:33 and maybe they might err on the side of more caution.

04:37 We don't know for sure.

04:39 - Right, and overall, if you see in terms of sugar prices

04:45 from here on, what's the trend looking like?

04:48 Because what we've seen is not only the global markets,

04:52 but also in the domestic market,

04:54 the sugar prices are on an increase.

04:57 What's the sense you're picking up?

04:59 Because world sugar commodity prices are up

05:01 almost 50 to 51% in the last one year.

05:05 How does India stack up as compared to the world prices?

05:08 And number two, how do you see it moving ahead?

05:12 Because it is the festive season as well.

05:14 Demand is high.

05:16 We are talking of the production or yield,

05:19 which could be lower this sugar season as well.

05:22 So how are all of these elements actually stacking up

05:24 from a price perspective?

05:26 - Internationally, sugar prices have been on the boil.

05:32 And that is largely because Thailand

05:36 seems to be having a poor crop.

05:39 India also doesn't seem to be having a good crop

05:43 and the world markets have already discounted that.

05:46 And Brazil alone cannot fulfill the needs of the world.

05:51 And more so with Brazil also having a fantastic soy crop

05:56 at close to about 156 or 157 million tons of soy.

06:01 It's a logistical nightmare in Brazil.

06:09 In fact, our take is that Brazil cannot be exporting

06:12 more than anywhere between 2.5 to 2.75 million tons

06:16 of sugar every month.

06:20 So that is not going to satisfy the world.

06:23 And with India out of the world market for the time being,

06:27 we must understand that in the last two years

06:31 of our export campaign,

06:33 India has actually exported close to about 17.5 million tons.

06:40 So the stock burden or the stock pressure

06:43 which India used to have is probably no longer there.

06:47 And that is also getting reflected

06:51 in the Indian domestic values.

06:53 But having said that,

06:54 the sugar sector in our country is heavily regulated.

06:58 So Indian prices can only inch up

07:01 and they cannot go through the roof

07:03 for the simple reason that

07:06 we are a very, very regulated sugar sector.

07:10 My take is that Indian sugar values

07:14 would remain relatively firm,

07:17 but they cannot go through the roof.

07:19 The delta between domestic sugar values

07:21 and the international values as of today

07:24 could be more than 20 rupees a kilo.

07:26 Indian values are in the sub 40 rupees range, 37, 38.

07:31 And the world values would be closer

07:34 to something like 64, 65 rupees a kilo.

07:37 But with exports not likely to happen,

07:41 and we don't see exports happening from India,

07:46 the sugar value should remain more or less

07:47 around the same level.

07:48 And then sugar season,

07:50 there should be absolutely no issue

07:52 because availability is not an issue.

07:55 And come November 1st half,

07:58 we would start having the sugar

08:00 from the new season coming into play.

08:03 - Right, so Mr. Chaturvedi,

08:05 an interesting take over here is that,

08:07 yes, international sugar prices are elevated.

08:11 Domestic sugar prices will remain firm,

08:13 but will not mirror world sugar prices.

08:17 Taking this into consideration right now,

08:20 the demand is enough to meet the domestic,

08:24 the production is enough,

08:26 I would say to meet the domestic demand as well.

08:29 But with all of this said and done,

08:32 how do you think financials will get impacted?

08:35 Do you think a sugar mill,

08:37 which is doing ethanol plus sugar,

08:42 is slated to benefit or remain stable

08:45 as compared to a sugar mill,

08:47 which is only doing sugar in such a scenario?

08:50 Does that balance it out?

08:51 - My take is that India is committed

08:56 to 20% ethanol blending by 2025.

09:01 And our prime minister is actually spearheading

09:04 the biofuel interventions in the world.

09:09 So I don't think that India will cut down

09:14 on the ethanol play.

09:17 And my take is that ethanol values

09:19 will necessarily have to be raised a bit

09:23 to make it more competitive compared to the sugar values.

09:27 And I see no reason why companies

09:30 which have both ethanol and sugar should not benefit.

09:35 In fact, if they have both, they're bound to benefit.

09:39 - Right, so currently,

09:42 if you see in terms of ethanol produced from maize,

09:45 I think the last division was made in August 23,

09:48 62.36 per liter is what OMCs pay.

09:52 Is that a good price?

09:54 Or do you think an upward division is mandated?

09:57 Or necessary, I would say?

09:59 And if yes, how much do you think it should be?

10:02 - You're talking about the maize ethanol, right?

10:06 - Yes, yes.

10:08 - I'm not too sure because we do not follow maize

10:12 that closely.

10:13 - Okay.

10:14 - And we have still not converted any of our ethanol plants

10:18 to handle grain as well.

10:20 But with grain prices moving northwards,

10:24 it will always be a challenge to fill up the demand

10:29 for grain ethanol.

10:32 In fact, if you look at the government's target,

10:37 at 2025, they expect about 4.66 billion liters

10:42 from the grain sector, which includes maize as well,

10:46 and about 5.5 from the sugar sector.

10:49 The sugar sector, I think, has the ecosystem in place

10:53 and it should not be an issue to supply 5.5 billion liters

10:58 from the sugar sector, and maybe even 7 billion liters

11:03 is not an issue as far as sugar is concerned.

11:06 But to ramp up the capacity as far as grain is concerned,

11:09 and with grain prices moving northwards,

11:13 it will be a bit of a challenge.

11:15 As of today, the ratio between sugar and grain ethanol,

11:20 including maize, is 80-20.

11:24 80% is being supplied by the sugar sector

11:27 and 20% by grain.

11:29 So ramping it up will always be a bit of a challenge.

11:33 - Right, so if you have to look at sugar,

11:35 ethanol from sugar as well, it's at, I think, 65.61 per liter.

11:40 Sorry, that's the ask, or that's the current one,

11:44 and the ask of the industry was to raise it

11:46 to around 69 to 70 rupees per liter, right?

11:50 What's the status of that?

11:51 And do you think the government will be able to increase it?

11:55 Because the other aspect that comes into play over here is,

11:59 you have crude also, which is on the boil, right?

12:02 So it's a catch-22 situation for the government as well.

12:06 - Well, it definitely is a catch because on the one side,

12:12 they are fighting inflation, and on the other side,

12:14 they're committed to reducing carbon footprints

12:18 in the country.

12:19 So my take is that the government will definitely

12:22 increase the price of ethanol, and in any case,

12:26 it should probably get done before the start

12:30 of the crushing season.

12:32 And most of the ethanol prices become relevant

12:35 effective 1st of December, because till now,

12:39 till end of November, the last year's values

12:41 will remain valid.

12:44 So I think what will be the quantum of increase?

12:48 We're not very sure, but definitely increase

12:52 is on the cards.

12:53 - Right.

12:54 My last question to you is, taking all the aspects

12:57 into consideration from the yield to pricing,

13:01 to what's happening in the industry right now,

13:05 will FY24 be able to mirror the past years of success

13:10 that we've seen, or do you think it could probably

13:14 be a downer for the industry as compared

13:16 to the previous years?

13:18 - No, I see no reason why the industry

13:20 should not perform well, because if you look

13:23 at the overall sugar scenario in the country,

13:26 if what we've lost out or likely to lose out

13:30 in Maharashtra and Karnataka will be compensated

13:34 by increasing UP, and we should not forget one thing,

13:39 that the area under sugarcane has also gone up

13:44 quite a lot, almost something like almost half

13:47 a million hectare has actually increased.

13:49 So overall, that will also get reflected

13:52 in the availability of cane.

13:55 So my take is that sugar sector, or rather,

13:58 I would much rather prefer to call it as the energy sector,

14:02 still would continue to do well, and the years to come,

14:07 it should continue to do well for the simple reason

14:10 that the ethanol play has become a big game changer,

14:15 because it ensures that the sugar produced

14:18 during the crushing season need not be carried fully

14:22 for the off season, and that is helping big time

14:25 the cash flow of the sugar sector.

14:27 And the interest burden is getting reduced,

14:31 so I think sugar, or rather, the energy sector

14:36 is likely to remain.

14:38 - Right.

14:39 - But to the extent of saying it's a green energy sector.

14:42 - Absolutely.

14:42 - It will remain in focus.

14:44 - It will absolutely remain in focus as well,

14:46 and it is the festive season, so from a consumption

14:48 perspective as well, we are seeing some good growth

14:51 coming in there.

14:52 Thank you, Mr. Chaturvedi, so much for joining us

14:54 on the show, it's always a pleasure to speak to you

14:56 and get insights for the industry as a whole.

14:59 Stay safe and speak to you soon again.

15:01 - Thank you.

15:02 - Thank you.

15:03 - Thank you very much. - So that's the management

15:04 of Sri Renuka Sugar, clearly indicating to us

15:06 what's in store for the industry as a whole,

15:08 and indicating that FY24, in spite of all the challenges,

15:13 does not seem to be a worry for the industry,

15:16 and the prices will remain firm in India,

15:17 but will not mirror the global market prices as well.

15:21 That's all that we have on this session.

15:23 Thanks for watching, and lots more lined up

15:24 on the other side.

15:25 Please stay tuned to BQ Prime.

15:26 (upbeat music)

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