Pramod Patwari, CFO of Balrampur Chini Mills says the domestic availability of sugar is sufficient and balanced, and therefore, no sharp price increases are likely in the near term.
The sugar industry, he said, is all set to play its part in reaching the government's target of a 20% ethanol blending in petrol by 2025-26. It can easily supply 50-55% of the blending requirement.
"We are still awaiting the revision of ethanol prices for the last year. But this year, as the government is looking for a meaningful diversion of sugar to happen into ethanol, I think the proper pricing will be set at some point," he told CNBC-TV18.
Balrampur Chini reported a 5% year-on-year increase in consolidated net profit at ₹70 crore for the first quarter ended June 2024.
Shares of the company, which currently has a market capitalisation of ₹10,421.34 crore, have gained more than 15% over the last month.
This is the verbatim transcript of the interview.
Q: Let's start with the sugar segment and discuss the top-line growth. Can you tell us how much you did in terms of volume? What is happening with pricing, and also an outlook on both volume and pricing, considering that we are very close to a brand new sugar year starting?
A: So sugar revenue is a function of quota release, which the government of India does on a month-to-month basis. So our revenue from the sugar segment derived primarily on account of that. As far as the current realizations are concerned, we are selling sugar at around ₹38.50 and for the quarter gone by the average realisation came at ₹38.90.
For the new sugar season, which is going to begin on October 1, our in-house view is that the country will begin with an opening inventory of around 8.5 million tonne. We are expecting that this year, the government will allow the production of ethanol through juice, and the B-heavy route in an unhindered manner. And our view is that the diversion of sugar into this can be in the region of around four to 4.5 million tonne.
If we consider that, the net sugar production, as per our view, for the upcoming sugar season should be around 30-28 million tonne. So if you add 28 million tonne with an opening of around 8.5 million tonne, that leaves us with an available inventory of around 36.5.
Against that, the domestic consumption next year should be around 29 million tonne. So we are still left with 7.5 million tonne of inventory, which is decent enough, and the normative inventory, which the government has considered in the past and was extremely comfortable with, was in the region of around 5.5 million tonne. So still, there is a scope of 2 million tonne of surplus inventory, and the government might consider exporting at some point in time.
Q: So on pricing, what should the expectation be if we assume that there's no change on the export front for now?
A: I would like to say that sugar prices in the country will also depend upon the availability of sugar in the country. As we have painted a picture of around 2 million tonne of surplus sugar, even after considering a diversion of around 4-4.5 billion tonne of sugar into ethanol, the government would like to see the progress of the monsoon and the yield of the crops may be sometime post the commencement of the crushing season and then they would take a call on the export front.
As far as future pricing is concerned, domestic availability of sugar is sufficient and it is balanced, so we don't see a very runaway in the domestic prices from here.
Q: On the ethanol front, just this weekend, we had Home Minister Amit Shah talking about bringing forward the 20% petrol ethanol blending to FY26 as compared to 2030 urging sugar cooperatives to increase production, etc. Are you expecting anything on that front in terms of pricing, etc? All that is settled?
A: This 20% blending target is nothing but a reiteration. The government is looking at a blending of around 20% in 2025-26. The sugar industry can easily supply 50 to 55% of the total requirement, which will be required for 20% blending.
For the pricing, yes, we are still awaiting the revision of ethanol prices for the last year. But this year, as the government is looking for a meaningful diversion of sugar to happen into ethanol, I think the proper pricing will be set at some point.
Q: It should happen anytime now, right?
A: The ethanol year begins on November 1. So still, there is a time.
Q: What would you expect the pricing to be?
A: If we take a relation of the last announced price of ethanol, vis-à-vis the FRP prevalent at that point, we get the conversion ratio. We would be comfortable if the government restored the same conversion ratio going forward.
