Atul Chaturvedi, Executive Chairman, Shree Renuka Sugars Ltd, talks about sugar sector and ethanol blending, growth plans, demand situation, expansion plans, capacity utilisation and outlook on the company's margins among others during a candid chat with Swati Khandelwal, Zee Business.

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Edited Excerpts:

Q: The sector has been in light for the last one to one-and-a-half years and even the government has a focus on ethanol blending, which is bringing positivity in the sector. How will you describe your performance to date and what is the outlook for the future?

A: As far as the sugar sector is concerned, the government's ethanol thrust is acting as a game-changer for the sugar sector. The biggest problem for the sugar sector was that crushing was carried on for five to six months, depending on if it is UP than six months and five months for Maharashtra and Karnataka and the investor of the produced sugar was carried on for 12-14 months. Ever since this diversion of ethanol has started and the government has a thrust on it has ended the issues like the presence of sugar inventory in the mills, which led to problems of interest and delayed payment to the farmers. I feel those problems are now away from the industry and it is largely due to the thrust on ethanol. As far as ethanol is concerned, I think, the industry has taken this very positive and it has also seen a tremendous expansion of ethanol. At the same time, I would also like to share something that the year is proving itself to be good for the sugar sector as the Indian sugar industry has exported a lot of sugar in October, November, December, January and February and its shipments are going on. I will not be surprised if India make exports of around seven million tonnes this year because exports of 4 million tonnes will be completed by February end. So, all these factors together are reducing the pressure on the mills and due to this, the payment of farmers is getting much better. I believe that the farmers and industry, both, will be benefitted from it. In addition, as far as the thrust on ethanol is concerned, it is linked to our Prime Minister's target to reduce carbon emissions and is a very strong step in that direction.

Q: You are positioned at a very good place now as the largest in the country. So, tell us about your growth plans and what kind of increase you are expecting on the front of the top line, bottom line, margin, overall production among others?

A: As far as ethanol is concerned, we, in any case, were sold out on ethanol. So, we expedited our work on increasing our ethanol production capacity for a long time. Now, as you have talked about our capacity of 720 KL them we are practically doubling it to 1,400 KL per Day. At the same time, I would like to share that our current capacity utilisation of ethanol is more than 100% as we are making ethanol with cane juice. If we have a look just at our milling sector then around 45% of our revenue is coming from ethanol today. I do not add the turnover of our sugar refineries in it. I think this thrust will continue in the coming days. Secondly, currently, we are making ethanol from the juice but in off-season months, we will continue to manufacture ethanol from ashes and B-heavy molasses. So, our distillery industry should remain operational to a great extent even during the offseason. Amid all these things, I think, we are leaving behind the old bad days and Renuka's numbers available in the public domain can give you a sense that we are on the path of growth. At the same time, Wilmar is our parent and is a very big sugar company as well as agri company of the world, so, I think, the coming should be good for the industry, especially for Renuka.

Q: As you can foresee a surge in demand, what are your preparations to meet this demand and what kind of working capital will be required and how will you fund the plans? Also, update us on the debt situation of the company and how much CapEx will be lined up to meet the expansion needs if any? What is Renuka's production capacity of Ethanol?

A: Our ethanol production capacity stands at 720 KL/day at present, which will be expanded to 1,400 KL/day. Interestingly, more than 100% capacity of the existing capacity of 720 KL is being utilised, almost around 125%. So, we are operating at around 900 KL per day and I feel that our expansion project will be operational from the next September to October, so, we will be able to start the expanded capacity from the new season of crushing. So, I think, we are on a right track and would also like to share something that we also have a sugar brand, named 'Madhur', and I think it is the market leader in the packaged category in India. In it, we are seeing that the consumers' preference is changing a lot after the COVID. People do not want to buy loose and are willing to buy products that are hygienically packaged and are safe. We are seeing good traction in the segment and our growth in the segment stands at almost 25% plus at present. So, overall, we are on a right track. Secondly, as far as funds are concerned, then I have earlier mentioned that our parentage is Wilmar, which is one of the biggest agri companies in the world and raising funds is not an issue for us. As far as expansion of Ethanol is concerned, then as the government of India provides Interest Subvention, we took a long-term term loan locally. It reduces the interest and we have already raised the funds for the purpose.

Q: You have talked about the molasses for enhanced capacity. What impact it will have on the margins? Going forward, what is your outlook on the company's margins and what would be a range for it? 

A: It is quite difficult to talk about the kind of margins that we will have but definitely we are looking that there will be an improvement in the margins in the coming days. As far as offseason is concerned, the molasses, as well as the B-heavy molasses that we are producing today, will be stored and used during the off-season. Currently, we have seven mills and out of those, we have distilleries in just three mills. So, the molasses and B-heavy molasses that is generated at other plants as well are stored 

to ensure that the off-season is not like an off-season and we are able to produce ethanol as it is produced during the season. So, this will definitely improve our margins as we already have molasses in our stores. I feel, the plant which used to shut down completely during the off-season will not shut completely as the distillery will continue to run.

Q: If you are expecting an improvement in margin, then what could be its range and what would be the timeline for it?

A: As per the guidelines of the SEBI, I cannot talk a lot about it but would like to say that this year's result will be better than the last. And I expect that it will continue to do better in the coming years as well as because our interest is gradually decreasing due to the sugar inventory we used to carry will reduce, which means there will be a decline in the interest budget. As far as debt is concerned, we are taking certain actions - I cannot share them with you - that will reduce our debt, which is a legacy issue for us. So, all these factors together give a sense that it is a healthy time and sugar seems to be in a sweet spot.

Q: What about farmer arrears? How much has been cleared and what is the pending amount for your company?

A: We do not have any pending dues of the farmer payments and things are happening as per our normal payment system. In fact, I can go to an extent to say that there are no such issues of farmer dues in Karnataka and Maharashtra, whatever issues are there are related to Uttar Pradesh. There are no issues related to the farmers' dues here and I don't think that there is any issue related to farmers' dues in our company.

Q: One complaint of the sugar industry in the past has been the long distance between sugar production centres and Ethanol Blending centres of OMCs. Has there been any middle ground on this as far as keeping freight costs under control is concerned? Also, what kind of cost-saving will be the resultant for the companies?

A: The company will not save much cost saving from it. It just saves the cost that the company would have spent on it. I feel that the government has developed thinking in which the states that are surplus in terms of Ethanol should permit Ethanol blending of upto 11% and all the states, that are surplus are reaching around 10%. For the deficit states, the government has taken a very proactive decision for them in which freight subsidy will be provided on extra freight cost. So, I think, the goods will start reaching even to the non-blending states of Ethanol like the North East States among others and it must not face any issues. It is neutral for the industry.

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