Bajaj Hindusthan’s Q2 net profit came in at Rs 81.4 crore compared with Rs 43.03 crore on year-on-year basis (YoY). Its net sales were at Rs 424.86 crore versus Rs 490.28 crore, YoY. Commenting on the road ahead for the company, Kushagra Nayan Bajaj, CMD, Bajaj Hindusthan, said the company is making efforts to keep interest costs in check in difficult environment. The company's debt stands at Rs 3,300 crore. Bajaj said the realisations in April have improved significantly by Rs 5-6 per kg. "However, Isee 13.5-14 metric tonne of sugar production this year." He believes that next year production will be weak and he expects maximum production of 18 mt. Bajaj said performance of distilleries and power will be subdued and only sugar will drive the growth.

Here is a verbatim transcript of the exclusive interview with Kushagra Nayan Bajaj on CNBC-TV18. Also watch the accompanying video.

Question: Before we talk about the three segments - sugar,distillery and power - take us through the balance sheet and what you are doing now because even when the operating numbers are good,your interest costs are so high that they dent your reported numbers quite significantly. By when do you think you can retire debt and get your interest cost substantially down?
Answer : Our average interest cost is about 8.6%, which was about 8.4% last year. So, we have been able to manage on the debt side even though in the last six months the world has gone through an upheaval and interest rates have gone up significantly, but in our case it hasn't been like that. This year's cash flow and next year's cash flow should considerably reduce interest, the debt as well as the interest component on that. So, next two years with the cycle looking favourable for the sugar industry including players in the Uttar Pradesh (UP) and Bajaj Hindus tan, that will mitigate quite a bit of problems.

Question: So when you step into FYlO where does your debt equity ratio stand at and what is the total debt on books right now for Bajaj Hindusthan?
Answer : The gross debt which includes working capital and working capital is a huge component in Bajaj Hindusthan or any sugar company as on March 31. Because we are holding on to a lot of inventory is about Rs 3,300 crore, so that includes inventory of about 6.1 lakh tonne sugar as on April 1.

Question : Sugar revenues are down 12% in the quarter largely because volumes are down;volumes are not expected to pick up substantially any time soon. By when do you see the jump in price realization offsetting the drop in volumes,where you can start reporting positive numbers from the sugar segment?
Answer: We think we have already started seeing that in April because we are selling sugar between Rs 25-26 ex-factory net of excise duty, which if you see last quarter the average is about Rs 20 per kg. So we have seen Rs 5-6 per kg expansion in April and sitting on huge inventory for almost an entire year's production, so that should get reflected in the bottom-line in the Q3 and Q4.

Question: Some of your peers have made bullish comments about where the sugar price is headed for the rest of this year. What is your own estimation of how much of a shortfall there is going to be this time and what that might lead price as to hover around?
Answer : That is a tough call to say and Rs 25-26 per kg, which we are selling at is a great price. It is a price which Ididn't expect to be hit even three weeks ago. So I think this is something which has caught me by surprise, even though we know that production in India is only going to be between 13.75 and 14 million tonne for the year that we are currently in. So the estimate is going down daily.
Now it is 99% accurate that will be somewhere between 13.75 and 14 million tonne this year. So with that carryover stocks on all-India basis will be virtually nil and with the allowing of import duties on raw side as well as on the white sugar side, you will be just about hand-to-mouth.
Next year's production is also looking tight compared to the consumption, because consumption would be anywhere between 23 and 24 million and although it is too early to say because monsoons have still to play out but the best guessed estimate on the optimistic side is about 18 million tonne. So there will be a shortfall of 5-6 million tonne even next year.
So theoretically keeping the balance sheet in view, on all India basis prices should be higher from where they are today, but Iwould say even at these prices, it will be a great business.

Question: What should one expect from distillery and the power divisions in the next few quarters because your distillery division performance has not been great in the current quarter do you see it shoring up profitability in the next few quarters?
Answer: No, I think profitability is driven primarily through sugar simply because we crush less cane; proportionately that much less molasses and therefore that much less alcohol to be made. If you are going to crush less, obviously the amount of power that you are going to generate is also going to be that much less. Now that this season is over, crushing is over, so we know how much molasses is there, how much alcohol we made and no power going to be made during the off season.
So, I don't think there is going to be any substantial move even this year because of lack of crushing - not only for us, but for everybody in general on the power and distillery side. Whatever profitability is going to be driven is going to be driven from the sugar business.

Question: This time around you have a huge forex loss reversal as well, why is it that you are choosing not to go with the AS11 norms?
Answer: we are following the AS11 norms and we have categorically disclosed that. Therefore if you see in the profit before tax on a consolidated basis of about Rs 180 crore for the quarter, good Rs 120 crore is because of forex reversal for this year based on AS11 and the rest is all from operations.