These are sweet times for sugar sector, it is no longer a cyclical: Atul Chaturvedi, Shree Renuka Sugars
“Whether we like it or not, the cyclicality of this sector is a thing of the past. Four, five, six years back yes, it was relevant but no longer now because the returns to the farmers are probably one of the best,” says Atul Chaturvedi , Chairman, Shree Renuka Sugars.
Global prices of sugar are going up. We understand that MSP still has to be fixed for the new sugar season. Going into that, can you tell us a little bit about how pricing is moving in the country?
It has taken a lot more time than what we expected for the sugar stocks to start buzzing. In fact, sugar MSP has not been raised but the government has definitely raised the FRP and the FRP increase for cane has been reasonably moderate. Sugar is in any case selling above the MSP and so there is no issue on that front.
Exports have also been very robust. In fact, this year India has exported close to about 11 million tonnes and next year too we are looking at 8 to 9 million tonnes of exports because the sugar crop looks to be quite good as rains have been spot on as far as the cane producing states like Karnataka or Maharashtra or UP is concerned. There is no reason why next year we will have a much more divergent direction towards ethanol and exports will continue to be robust and the icing on the cake is that the rupee has weakened quite a lot and that should give a boost when we are exporting. Things have finally turned sweet sweet for sugar stocks and there is no reason why it should not continue.
The fall in rupee is always great news for exporters. Having said that, we have also seen that from the government there was some curb on exports but because of the glut in the market, they raised the cap. Does that mean for the new season and the rest of the financial year and going forward in next year as well you are expecting a revision on that export cap?
It has taken a long time for the smile to come on our faces. There is no reason why India should not continue with its export programme because we are in a surplus situation and one of the best ways to get rid of the surplus sugar is both ethanol and exports because this ensures that the farmers get paid in time and cane probably gives the farmers one of the best returns compared to the competing crops.
So cane production is going to keep growing and something which used to be actually a bane is now a boon for the sector. Sugar is no longer a sugar sector; I would go to the extent of saying that it is a green energy sector with our thrust on ethanol and bagasse for running our cogen plants. It is contributing to the circular economy and it is a renewable fuel and with the Government of India’s thrust on bringing down carbon emissions and being an import substitutes, these are good times for the sugar sector and there is no reason why it should not continue.
As far as the policy for exports for next year is concerned, I am sure the government is seized of the issue and we would have a reasonable policy in place which will ensure that exports continue to be robust because India is probably one of the few countries sitting on surplus sugar.
Sugar is always considered to be cyclical. It never gets a PE multiple because it is difficult to predict cycles and earnings. Ethanol gives stability to a significant amount of EBITDA that any company or any sector company would generate in the sugar pack?
Let me first clear one misconception. India is a sugar surplus country now. Whether we like it or not, the cyclicality of this sector is a thing of the past. Four, five, six years back yes, it was relevant but no longer now because the returns to the farmers are probably one of the best as far as the sugar sector is concerned and with a lot of irrigation and all those things like drip irrigation happening, the dependence on water has also come down for the sugar sector.
We do not see sugar going into that cyclicality again. It is available in excess and so the diversion to ethanol will definitely continue to be strong. One of the biggest advantages as far as ethanol play is concerned is that the sugar sector suffers by way of a very high interest burden. You crush in five, six months and then carry the sugar inventory for almost 12-14 months, no longer now.
Now you are able to supply to the oil marketing companies during the crushing season and the icing on the cake is that you are allowed to convert juice directly into ethanol and that has come as a big boost.
As far as the sugar sector is concerned, there is no reason why the EBITDA of those companies which are fairly well managed and have a play on the ethanol side should continue to remain low. It should continue to keep improving as we go forward. All these things will result in the sugar sector getting rerated and coming out of the so-called mess in which it was a few years back. These are sweet times for the sugar sector.
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