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De-regulation is essential for improvement: Kushagra Nayan Bajaj, CEO, Bajaj Hindusthan.

The sugar cycle has been on an upswing. With the consumption too on a rise, Indian companies have been ramping up capacity. Sugar prices are also expected to remain firm at least for the next one-two years. Kushagra Nayan Bajaj, CEO, Bajaj Hindusthan tells Puneet Wadhwa about the future of this regulated industry and the company’s plans. What is your view on the way sugar prices have been behaving? Do you foresee a change in this trend? Sugar prices have been on the uptrend reflecting the demand-supply imbalances not only in India but also throughout the world. Factors such as the WTO embargo on subsidized exports from the EU, the high oil prices leading to increased usage of ethanol as a cost effective and cleaner fuel, Brazil’s increased usage of sugarcane for ethanol production rather than sugar production are all factors that will contribute to the long term price sustainability of international and Indian sugar prices. How will this impact the company? These factors and especially the reality that India is structurally changing form being self sufficient in sugar to becoming a net importer will have a favourable impact on domestic sugar prices (which incidentally are the lowest in the world) and will have a positive impact on BHL’s turnover and profitability. What is the demand-supply situation? Do you see that changing in the times to come? Sugarcane will have to increasingly fight for land along with other crops and I personally do not envisage any radical increase in area under cane cultivation. Moreover, yields are progressively declining and as per the Tuteja Committee Report, it is unlikely that sugar production in India will increase dramatically. With demand showing an unabated 4 per cent increase every year, India will need to import sugar to meet its growing domestic requirements. Unless sugar prices increase significantly and farmers also get attractive returns for their cane produce, I do not envisage a situation wherein India will have any sugar security of a reasonable measure in the future. In fact, all evidence seem to indicate to the contrary. What key reforms are needed to make this sector competitive? Sugar industry is a large industry and over 50 million farmers depend on it for their livelihood. A large section of the industry has sub-economic capacities and is incurring heavy losses. Further, the industry has been myopic in the past and apart forms a few players, it has not invested in modernization and or capacity augmentation and thus has eroded its competitive edge. As with any industry, liberalization and consolidation is very essential in order to improve the overall competitiveness, which, in turn, will benefit the end-consumer. A free market pricing mechanism for sugarcane and sugar, removal of quota system are perhaps the first steps. Reforms by way of privatization of state-government owned mills (mostly loss making) would attract private participation in a big way and provide a conduit for capital infusion, which is the most critical need in the Indian sugar industry. Lastly, the powers that be need to seriously rethink about providing subsidies and assistance to unviable units merely to keep them afloat without any hope of sustained survival. This is to the detriment of the industry as a whole and encourages inefficiencies. You expect consolidation to happen in the sugar industry? Consolidation has begun in a small way with us acquiring Pratappur sugar mills and other large players also having acquired smaller units. The fillip to consolidation will be when state governments take a practical view and seriously look at divestments in a big way. While a beginning was made in Uttar Pradesh, the divestment was derailed due to several time consuming legal and procedural delays. These hurdles need to be ironed out for consolidation to accelerate. The deadlock on ethanol pricing has been broken. What will its impact be on the sector and the company? India has lost quite a bit due to the ethanol policy delays. Ethanol is a cleaner and cheaper fuel and none can deny that. However, a sustained government policy towards bio-fuels and active support as provided by countries such as Brazil is very critical. Over the longer term, India will have to increasingly focus on bio-fuels for its energy requirements. We are way behind several countries and unless we take expeditious and consistent policy decisions and strictly implement them, India’s oil dependence at high costs and outflow of foreign exchange will only increase. I am not even looking at the inflationary impact. It seems inconceivable that the oil industry can be forced to de-link itself with the changes in global oil prices for long. What are the revenues you expect from the sale of ethanol blended fuel? What is its share in the overall revenue pie? Do you see that changing going forward? We are the largest manufacturer of ethanol in India apart from being the leader in the sugar industry. Unlike Brazil, we make ethanol form molasses, a by-product of sugar manufacture rather than form the primary cane juice. Hence, our ethanol revenues will naturally be significantly lower than our main sugar business. However, if in future, India’s ethanol programme takes off in a big way and is sustained, nothing prevents us form investing in distilling assets. Further, if the law provides the necessary environment, India could manufacture ethanol directly form sugarcane juice. Should this happen to us, the proportion of ethanol revenues and profits will increase. For the present, I think sugar will continue to be our main business. What are your views on the de-regulation of the sugar sector? How will it impact Bajaj Hindusthan? In the first place, I do not see much regulation apart from levy sugar quota and fixation of sugar cane prices. If one seeks consolidation and improvement in efficiencies in any industry, de-regulation is a prerequisite. What are your plans for the future? A sustained growth in revenues and profits through expansions, modernizations and acquisitions in a judicious manner. With the capability to manufacture 2 million tones of sugar BHL will rank amongst the top 10 global sugar producers. There are several other value-added products that one can make from molasses and ethanol, which can offer high growth opportunities. Out first task is to increase our presence in the sugar business and attain global scales. Even with 2 million tones production, BHL would only cater to 10 per cent of India’s demand. This in itself is an opportunity for our sugar business.

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