Key Highlights by Capital Mkt;
India produced about 23.75 Million tons of sugar till 30thApril'14, down by about4% YoY. This is primarily due to UP production being down by 14% YoY and Maharashtra down by about 3%.
The company's financials for FY'14, particularly the sugar division got affected due to higher cost of production and lower sales realization.
For Sugar division, the average selling price was around Rs 32 and costs were around Rs 31.96. The cost is before the interest and corporate expenditure. The interest loss including the corporate and other expenditure of sugar division is about Rs 225 crore.
As per the management, while the monsoon, Elnino Effect, international prices etc will determine the sugar prices, the chances of sugar prices coming down is very remote.
The reduction in export subsidy of export of raw sugar from Rs 3300 per ton to about Rs 2275 per ton from April'14 will not have much impact. While it is sad that the subsidy was reduced instead of increasing it due to promise of rupee parity, the effect on the industry will be negligible, as till Mar'14, most of raw sugar has already been exported for the season 2013-14 ending Sep'14.
The company earned an REC entitlement of about Rs 4 crore during Mar'14 quarter. REC entitlement is on the power used for captive consumption. Management expects about Rs 25-30 crore as REC entitlement income in FY'15.
Management kept on reiterating the fact that the results need to be seen on annualized basis and not on quarterly basis, as costs are booked in first 3 quarters and their income may be booked in Q4 which is a general phenomena adopted by the whole of industry.
For Distillery, the company sold about 7.4 crore liters of alcohol@ Rs 32.66 per liter as compared to about Rs34.7 per liter on YoY basis. For FY'15, management expects to sell about 8 crore liters of alcohol driven by the high demand from OMC companies post election and post policy framework and price is expected to be not less than Rs 34.7 per liter, given the pricing parity based on landed costs of petrol.
Also rate of recovery for alcohol and molasses were better in FY'14 and also are expected to be better in FY'15.
For Power, the company sold about 54.7 crore units@Rs 4.17 per unit generating PBIT of about Rs 137 crore including Rs 4 crore of REC entitlement income.
Post election, management expects tariff hike to happen in UP. Also with the capacity addition, management expects power units to get sold will be around 60 crore units in FY'15.
There is an important committee meeting which has been set up in UP State to look into the matter of linking of sugar cane prices with sugar realization. The committee will confirm its decision by end of Aug'14. If implemented for 2013-14 season, the company will receive about Rs 9 per ton or about Rs 70 crore as cane arrears which will be booked as other income.
The company has cane arrears of about Rs 700 crore outstanding as on Mar'14.
Overall, FY'15 looks to be a better year than FY'14. However the sugar prices will depend upon monsoon and Elnino effect and the prices in Brazil and Aus, where maximum Elnino effect is predicted.
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