Stocks In Focus With Shree Renuka Sugars
#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)