With prices touching an all-time high on a three-year low in domestic output, sugar has been at the centre of the government’s attention in recent months. Companies have been making huge profits — compared with the losses last year — and the high prices are here to stay. KUSHAGRA BAJAJ, joint managing director of Bajaj Hindusthan, the country's biggest sugar producer, speaks to Ajay Modi on the sector’s outlook. Excerpts:
What output do you expect in the new season beginning October? What kind of deficit is likely?
The domestic output is expected to be 13.5-14.5 million tonnes (mt) in the next season. So, after taking into account the 2-mt opening stock (as indicated by the government) and an optimistic output of 14.5 mt, we will still be left with a deficit of 6.5 mt (as consumption is estimated at 23 mt). It will be possible to meet this through imports. While some import has been contracted, we can expect further imports.
For the last two quarters, companies such as yours have seen a sharp surge in profitability. How long will this last?
The good performance should continue for the next six-eight quarters. The current ex-mill price realisation is Rs 30 per kg. Chances of sugar prices going higher from current levels are pretty good.
In the past, the industry expanded every time the sector was on an uptrend. But this time, there are no expansion plans. What will a company like yours do with the large earnings?
There is no sugarcane availability to further expand on. We plan to use the money to repay debt. We have already repaid Rs 900-1,000 crore. As of now, there is a consolidated debt of Rs 3,000 crore on our balance sheet.
Considering the realisation of Rs 30, what price can be comfortably paid to Uttar Pradesh’s cane farmers?
Anything in the range of Rs 180-200 a quintal at current price realisation. (Last year, the UP mills paid Rs 140-145 a quintal).
But will this price be sustainable when sugar prices may come under pressure due to higher output?
A substantial hike in levy price is round the corner and, for us (the mills in UP), it will be linked to the state sugarcane price. It will be revised every year. Usually, open market prices do not go below the levy price and if levy is raised to Rs 21-22 a kg, we will be adequately cushioned.
Diversion of sugarcane to gur and khandsari units has been an area of concern for mills.
We have seen in the past that diversion of sugarcane is highest in years when the crop is small. There can't be any practical solution to this, since one cannot stop the farmer from selling to either a gur or a khandsari unit. At best, what mills can do is to ensure prompt payments to the farmers.
Sugar imports have touched a record this season. For how many years do you see India remaining a net importer?
For the next two seasons (2009-10 and 2010-11), we will certainly remain a net importer. However, domestic availability is expected to improve from the 2011-12 season.
The government is going all out to curb sugar prices. There have been indications of an increase in the levy sugar quota from the current 10 per cent. What impact will it have?
The government's concern is understandable, given that sugar is an essential commodity. Such government interventions are not new for the industry.
