With the UP cabinet likely to take up sugarcane pricing policy soon and announce better price parity for sugarcane, the shares of Triveni Engineering whose core competencies are in the areas of sugar and engineering, and is one amongst the largest sugar manufacturers in India has been rallying.

Tarun Sawhney, VC & MD, Triveni Engineering and Industries   said he is hopeful of sugar prices improving going forward since the government has laid out a very important precedence with respect to quasi linkage to prices.  The sugar prices until September were as low as Rs 23 per kilo but have substantially increased to around Rs 29-30/kilo on the back of export programme by the Central Government, and is hopeful of the prices going up by another Rs 2.5/kg, he added.

To liquidate surplus stock, the government has made it mandatory for sugar mills to export 3.2 million tonnes of sugar in the ongoing 2015-16 season (October-September). Sawhney, said he is hopeful that industry will avhieve export target of 3.2 million tonnes. It currently has contract of exporting 0.8 million tonnes.

The FRP has been set on basis of Rs 32/kilo and we some way away from that, so hope to reach that level, he said.

With regards to cane prices, he expects them to be in line with that of last year.

The company has 7 sugar mills, 6 co-generation units and 1 distillery spread over 8 locations in Uttar Pradesh.

Last year the UP government had provided subsidy of Rs 30 per quintal. The current State Administered Price (SAP) stands at Rs 280 per quintal and Fair and Remunerative price (FRP) at Rs 230 per quintal.

Below is the transcript of Tarun Sawhney’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.

Latha: Anything you heard from the Uttar Pradesh policy making circles that they will make good the kind of losses that sugar companies will suffer from that very low state advisory price (SAP)?

A: As far as the Uttar Pradesh government is concerned, as part of the industry, what we are anticipating is a cane price. Now, typically the cane price I announced in November or maximum in December, but we are now in January and we are eagerly anticipating this price. But, let me add at this point that the government last year had laid down some very important and historic presidency of a quasi linkage of sugarcane price to sugar price. Now, going forward, including for this sugar season, the industry anticipates and I certainly do that that policy will continue to go forward and will reach a better percentage that is workable for the industry as well as for the farmers.

Sonia: Coming to the sugar prices itself, we have seen a fair amount of improvement in sugar prices. What is the sense you are getting about how much higher it could go, the domestic prices and how much the realisations could improve further for companies like yours?

A: I think you have raised a very important point. The fact that we really need to focus on the sugar price, not just now, but going forward until the end of this sugar year, is the most important point.

Now, the increase in sugar price that we have seen over the last three to four months is very substantial. So, in August-September, we had touched lows of approximately Rs 23 a kilo and since then, we are now up at approximately Rs 29-30 a kilo. The significant reason behind this has been the export programme of the Central Government. Now, up to about a few days ago, we have entered into contracts for approximately 0.8 million tonnes. The anticipation is 3.2 million tonnes gets exported from India. Now, we are well on our way although there are certain challenges, there are certain hurdles. If we do manage to achieve a substantial portion of this, as of course you know that the government is pushing the industry, pushing the industry association and the cooperative sector in participating in this very important programme. If we do achieve great success in this, we will see an increase in pricing of Rs 2-2.5 from these current levels which is a very important point because even if we look at the fair and remunerative (FRP) which is the central government cane price. That has been set on the basis of Rs 32 per kilo. And we are still some way off from that. So, let us hope that if we achieve this export, we will be able to have realisations around that mark.                                       

Latha: Therefore, it was the Central Government underdog, Dr Rangarajan who clearly asked for this connection between sugar price and sugarcane price. The Uttar Pradesh government, only by implication appeared to have accepted it when they gave you that subsidy. What are you picking up from them, the current year? Will it be a slightly lower sugarcane price itself from last year levels and what are you picking in terms of the subsidy? Are you expecting that at all?

A: Let me be very candid and say that I would not want to be in the position to second guess the Uttar Pradesh government. My personal perspective is that we will see sugarcane pricing very much in line with what we saw last year. So, no increase and no decrease of course.

Sonia: The revenues for your business as a whole, the consolidated revenues were down about 5.5 percent last quarter, what is the expectation in the second half of the year?

A: Our results come out next week, so you will have that with you in about a week’s time. But let me just say that the quarter under question that you are talking about was Q2 for us. So, the July-September quarter and that was the quarter when sugar prices were at their very lowest. And so, strategically, we had decided not to sell that much sugar during that period.