A Sugar MSP Hike To Improve Mills’ Margin By 3.5%: Renuka Sugars Co-Founder

A Sugar MSP hike of Rs 2/kg of will lead to a 6% increase in Ebitda margin, Shree Renuka Sugars co-founder Narendra Murkumbi says.

Sugar sits for sale in a market in New Delhi, India (Photographer: Adam Ferguson/Bloomberg News)  
Sugar sits for sale in a market in New Delhi, India (Photographer: Adam Ferguson/Bloomberg News)  

A hike in minimum selling price of sugar will increase the margin across the industry, while improving efficiency through the supply chain, according to Narendra Murkumbi.

A one-time increase of Rs 2—recommended by a task force constituted by Niti Aayog on sugarcane and sugar industry—will lead to a 6% increase in Ebitda margin, the co-founder of Shree Renuka Sugars Ltd. told BloombergQuint. "Since the industry today is carrying 18-19 million tonnes of sugar [stock], there is also a large inventory gain on this of about Rs 3,600 crore.”

Murkumbi, however, expects cane prices to rise by Rs 100 a tonne. That included, the margin should rise by at least 3.5%, he said.

On June 18, Food Secretary Sudhanshu Pandey said the government is considering increasing Sugar MSP from Rs 31 per kg to help millers clear cane dues of about Rs 22,000 crore to farmers. Also, the Commission for Agricultural Costs and Prices has recommended raising the fair and remunerative price of sugarcane by Rs 10 a quintal to Rs 285 for 2020-21.

Murkumbi expects this to come through by Oct. 1.

For the last four to five years, the sugar industry has been regulated both on sugar and sugarcane price, which has stabilised the sector, he said. “There is a common interest between the government, the industry and the farmers in keeping the margin positive so that the farmers can be paid.” The industry, in the meantime, has increased its profits and lowered its leverage, he said.

India Now A Refining Norm

The country’s sugar industry has become the global refining norm, Murkumbi said, with two companies starting to replicate Reliance Industries Ltd.’s success in oil refining.

“Renuka Sugars and EID Parry (India) Ltd. are the two companies replicating as to what Reliance has done for oil refinery,” he said. “We have global scale, global equipment and capacities which are completely export-focused.”

At a time global sugar prices have fallen, the refining margin on sugar has hit a high of $135 per tonne. And just between the two companies, they have a capacity of 2 million tonnes.

Also, Murkumbi doesn't expect any new competition anytime soon. “Entry barriers are high and you can't build a global standard refinery for less than maybe Rs 1,200 crore today... I don’t really see any inkling for a third person to step in.”

Watch the full conversation here: