Shree Renuka Sugars has drawn an ambitious turnaround plan after negotiating a solution for its debt in Brazil. The company plans to mop up over ₹1,420 crore from the sale of 6 million tonnes crushing capacity in Brazil to halve its debt, leaving it with 4.5 mtpa crushing capacity there. As the company negotiates the next tranche of investment from its existing foreign partner Wilmar (International), and a reduction in debt, Renuka Sugars is in a sweet spot, said Narendra Murkumbi, Managing Director, in an interview with BusinessLine .

What is your plan for the remaining capacity in Brazil?

We intend to keep it running. It will be a debt free unit. At the moment there is good visibility on sugar prices in Brazil and the production outlook appears good. Last time, when the world sugar price hit a high it was due to problems in Brazilian weather and crop. Even our subsidiaries got affected. This time the shortfall in production is largely in India, China and Thailand while the output in Brazil will be normal. However, in the medium term we have kept all options open. At the moment we believe this is the right structure to get rid of one unit and keep the other plants running.

Will the trouble in Brazilian economy impact business?

Well, the Brazilian economy was under severe pressure and currency has gone below four to the dollar. There has been a lot of change since the new government came in. I think the economy has stabilised. The stock market is up 34 per cent from its bottom when the change of guard was implemented in January. The currency has strengthened over 17 per cent. I believe the worst is over.

Is ethanol pricing still an issue in Brazil?

When oil prices were high the previous government had a policy to keep petrol prices artificially low. In Brazil the main fuel is ethanol. Almost 50 per cent of the cars there run on ethanol, but they can also run on petrol. So if you keep petrol prices lower then people will prefer it over ethanol. The choice between ethanol and petrol should be market driven. Sugar and ethanol sector in Brazil had the same problem like oil companies had in India when oil prices were high. When you do not allow prices to move as per market forces then you make losses. The world sugar outlook is better now. The new government is following a free market pricing policy and there is no pressure on Brazilian companies to produce more sugar. Moreover, ethanol prices in Brazil have also improved.

What is the progress of ethanol blending in India?

The Modi government has a broad vision on energy security; it saw ethanol blending touch 4.5 per cent in the last two years. However, an excise duty incentive, which was to lapse by the end of this sugar season (September), was prematurely withdrawn. It was adding almost ₹5 to the net realisation. India does not have enough distillery capacity to meet the mandated 2.5 million litres or 10 per cent blending target. It is a bit of disappointment for people who are putting up new distillery capacity. We would supply 8 crore litre ethanol like last year. We cannot increase it because the crop output is lower. We have built sufficient molasses stock as a precaution. The blend ratio may come down this year as ethanol supply will be lower compared to last year.

Do you have plans to reduce domestic debt?

Our earnings have been better. We had two profitable quarters. Right now a possible divestment of some of our Brazilian holding is being considered in the medium term. We need time to ramp up capacity utilisation at the remaining two Brazilian units from 70 per cent to 100 per cent. We will the look for various other options to pare debt in India.

Your sugar refineries are running at full capacity?

Our two port-based refineries at Kandla and Haldia are based entirely on the Make in India business model and the production is done without any government support. We import raw material from wherever it is cheap and export white sugar to other markets. Our export turnover will be about ₹4,000 crore. In the first quarter, we exported 2.80 lakh tonnes (lt) and this quarter we will do over 3 lt because both our refineries are working. We expect to touch a run rate of 4 lt per quarter soon. We will generate additional revenue of ₹1,300 crore per quarter. The value addition is about 10 per cent and turnaround time is 3-6 months.

Do you see sugar prices in India rising during the festival season?

The inventory as of September end would be 7 mt, which is equivalent to three months consumption. It is sufficient to meet the demand. The government is also vigilant and stopped exports by raising the duty. The situation is balanced. In the new season (starting October) the production is expected to be 3 mt less than consumption. Sugar prices, which tend to move in anticipation of supply shortfall, will start looking up early 2017.

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