Stock prices of leading sugar companies have fallen since the July budget with leading producers such as Balrampur Chini Mills, Bajaj Hindusthan and Dhampur Sugar losing 27-35 per cent of their value in seven months. Though select companies did improve profits or shrink their losses in the April-September 2014 period, their performance in the December quarter has taken a turn for the worse.
Most sugar companies have reported strong revenue growth so far this fiscal, thanks to a sizeable improvement in the volume of cane crushed and better recovery rates compared with last year.
Revenues from byproducts such as alcohol and co-generated power have also been healthy. The profit picture, however, is dismal. For one, the rapid build-up of excess sugar stocks in the market has led to sugar prices in the open market tumbling sharply from the last quarter of 2014 (Prices of M30 are down from ₹31/kg-₹26/kg).
By one estimate, sugar production costs range between ₹32 and ₹36 a kg while current realisations are no more than ₹26-27. Two, mounting cane dues to farmers have added an interest cost burden to players’ balance sheets and highly leveraged sugar producers have borne the brunt of this trend.
Though the UP government offered to subsidise a part of the cane costs, there appears to be no reprieve for the sector at large. A sharp rise in sugarcane output in key producing states of Maharashtra and UP is expected to take domestic sugar output to 260 lakh tonnes for this season (October 2014-September 2015).
This is 7 per cent higher than last year’s output and with the opening stocks of 75 lakh tonnes, will take domestic availability to 335 lakh tonnes, well ahead of consumption of 248 lakh tonnes. This can exert renewed pressure on sugar producers’ margins.
In this backdrop, reforms in cane pricing (a link between cane and sugar realisations) and a hike in the sugar export subsidy to ₹4000/tonne so that surpluses can be shipped out, are seen as moves that can alleviate the situation in the upcoming Budget.