After reeling under debt burden for long, sugar companies are expected to benefit from the rising prices amidst short supply in market. However, the absolute profit levels and net margins would continue to be weighed down by huge debt and cane dues, said ICRA.
Better days ahead Sabyasachi Majumdar, Senior Vice-President, ICRA, said better profitability trends are ahead for most sugar mills for the next 2-3 quarters driven mainly by improving sugar price trends seen since last August and fall in inventory.
Further, he said, the extent of profitability improvement will vary substantially across mills within a State depending on their operating and financial parameters such as sugar recovery rate, control over operating expenses, extent of forward integration into cogeneration and distilleries and control over interest expenses by appropriate leveraging.
ICRA estimates domestic sugar production at about 25.2 million tonnes during the sugar year 2016 (October-September), a decline of 11 per cent over the previous year.
Lower production along with exports of about 1.6 mt, is likely to bring down the closing stocks to 7.6 mt from 9.5 mt. The rating agency expects sugar production to decline by 4-8 per cent to the 23-24 mt next season.
Up 50% Sugar prices have risen close to ₹34,000 a tonne in May, almost 50 per cent higher compared to the low hit last July. While the cane prices in last sugar season were higher in Uttar Pradesh, the rise in sugar realisations is expected to improve the margins.
However, in Maharashtra and Karnataka the profit revival may be modest due to lower cane availability, coupled with the increase in cane prices.
Majumdar said the renewed focus on the ethanol blending programme and doubling of mandatory ethanol blending level to 10 per cent, increased price of ethanol and removal of central excise duty is expected to augur well for the industry as a whole.