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Don’t expect sugar prices to rise much: Vivek Saraogi, Balrampur Chini

The government has been helping us. If this benign policy continues and which in all likelihood it should, in the next 2-3 years we should hopefully be on an even keel. I do not see the inventory being breached because of MSP. Right now, it is about Rs 32-32.5 a kg. It goes up to Rs 34 a kg.

ET Now|
Updated: Dec 06, 2019, 04.30 PM IST
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If you are required to carry a little more inventory to get higher pricing or a more reasonable pricing in the open market, so be it, says Vivek Saraogi, MD, Balrampur Chini Mills. Excerpts from an interview with ETNOW.

How is the dip in sugar production going to affect Balrampur Chini Mills?
We are not expecting any runaway prices. Rather, we are expecting stable prices. The opening stock was 14 million tonne. Let us assume we produce 260 million tonne and you consume about the same level. If you are able to export out of the six million, five million or four million tonnes, you could be left with an opening stock of 10 million tonnes next year. Now, 10 million tonne is a lot of sugar. However, it is a lot less than 14 million tonne. So, the bias is a little positive, the sentimental impact is a little positive, but prices would remain in a range where they have played out.

How much inventory are you currently sitting on?
I do not have the exact figures. We did give the inventory as when we declared our results, but maybe we had 49 lakh bags on 1st of October, but do not hold me to that. But yes, all mills are sitting with a huge amount of inventory. The good part is that the government reimburses the carrying cost for a lot of that in the form of buffer stock. The bank rates for companies like us is very benign; commercial paper for us is available at about 6% in today’s markets. If you are required to carry a little more inventory to get higher pricing or a more reasonable pricing in the open market, so be it. It is not a bad idea at all.


What is your view on the demand supply mismatch that we are seeing the system? Also, what is your view on sugar prices in the medium term? How do you see these factors moving in the near term?
As we have told you, the inventory is there. I do not see that being breached because of the minimum selling price (MSP). Right now, it is about Rs 32-32.5 a kg. It goes up to Rs 34 a kg. The average expectation is around Rs 32.5-33/kg. The government has been helping us and there is going to be export, there is going to be diversion to B-heavy. I would assume if this policy continues and which in all likelihood it should, in the next two to three years we should hopefully be on an even keel.

Let us talk about some of the other businesses as well the non-sugar side. What is the outlook there?
The distillery segment is going to perform exceedingly well. The B-heavy price has been raised this year, C-heavy is at a reasonable level and I fully ditto the concept that this is one of the best programmes. Our distillery division should do extremely well. We are commencing our Gularia distillery in Balrampur on January 1.

Coming to the power segment in UP, after the quarterly results, the government of UP has reduced the tariff. We are up in court against them. In our view, we have a very strong case. The Rs 2 reduction that we are facing, is not here to stay. We hopefully are looking towards some kind of favourable judgment, but I do not know what the courts will decide.

How do you see profitability of the sector actually increasing?
I cannot comment on the sector. All I can comment on is our company. Our volumes have been good and our recoveries have been good too. We would be making more than Rs 14 crore from alcohol this year and sugar as you know state government has not yet declared the prices. Hopefully, the SAP announcement should come very soon, one does not see any variation in that. All in all, in Balrampur, with our balance sheet and our interest rates and our segmental performance with distillery enhancement, we expect to do better domestically.

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