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Sugar price to remain elevated on global deficit, lower domestic output

Profitability prospects of sugar mills brighter in short term, say rating agency Icra in its latest report

Dilip Kumar Jha  |  Mumbai 

Conditions for sugar mills to avail subsidy eased

Lower domestic production estimates and a global deficit forecast are likely to keep prices elevated, brightening profitability prospects of mills in the short term, rating agency has said in its latest report.

Union Food Minister recently put the government's production estimates at 22.5 milion tonnes for season (SS) 2016-17, a marginal decline from 23.37 million tonnes forecast by industry body, Indian Mills Association (ISMA). Given that consumption is estimated at 23.5 million tonnes, India is likely to report a deficit year in production.

"Given the deficit situation in the domestic and international markets, prices are expected to remain firm in the near term. This, coupled with moderate prices seen for the current year across most states, augurs well for profitability in the near term," the report said.

Domestic prices remained firm, having increased from around Rs 31,500 per metric tonne in March this year to Rs 36,000 in August, sustaining that level in September. With the surge continuing in October, prices reached a five-year high of Rs 36,200 per metric tonne.

Prices continued to remain healthy in November, though there was a marginal dip to Rs 35,500 per metric tonne, following the demonetisation announcement.

"With recent government estimates pegging production to be 10 per cent lower as compared to last year, prices are likely to remain firm over the three or four quarters. This apart, moderate price hikes effected in most states, notably UP, bode well for the industry profitability outlook in the short term," said Sabyasachi Majumdar, Head, Corporate Ratings, Icra.

However, Indian consumers needn't worry as the industry has sufficient stock not only to meet the domestic deficit but also for market intervention in case of any eventuality. Data compiled by showed total carryover stocks at 7.7 million tonnes from SS2015-16. After meeting domestic deficit and exports, there would still be a carry over balance of 4.7 million tonnes for SS2017-18.

While the mills in Maharashtra and Karnataka are likely to benefit from the rising prices and relatively stable costs, several mills may see an adverse impact on volume sales arising out of lower production.

On the other hand, while a moderate increase in pricing for UP-based mills is expected to lead to a marginal dip in profitability from the levels seen in the previous two quarters (Apr-Sep 2016), absolute levels of revenues and profits are likely to be supported by higher sales volumes, given expectations of better crushing and sustained performance on recovery rates for UP-based mills.

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Sugar price to remain elevated on global deficit, lower domestic output

Profitability prospects of sugar mills brighter in short term, say rating agency Icra in its latest report

Profitability prospects of sugar mills brighter in short term, say rating agency Icra in its latest report

Lower domestic production estimates and a global deficit forecast are likely to keep prices elevated, brightening profitability prospects of mills in the short term, rating agency has said in its latest report.

Union Food Minister recently put the government's production estimates at 22.5 milion tonnes for season (SS) 2016-17, a marginal decline from 23.37 million tonnes forecast by industry body, Indian Mills Association (ISMA). Given that consumption is estimated at 23.5 million tonnes, India is likely to report a deficit year in production.

"Given the deficit situation in the domestic and international markets, prices are expected to remain firm in the near term. This, coupled with moderate prices seen for the current year across most states, augurs well for profitability in the near term," the report said.

Domestic prices remained firm, having increased from around Rs 31,500 per metric tonne in March this year to Rs 36,000 in August, sustaining that level in September. With the surge continuing in October, prices reached a five-year high of Rs 36,200 per metric tonne.

Prices continued to remain healthy in November, though there was a marginal dip to Rs 35,500 per metric tonne, following the demonetisation announcement.

"With recent government estimates pegging production to be 10 per cent lower as compared to last year, prices are likely to remain firm over the three or four quarters. This apart, moderate price hikes effected in most states, notably UP, bode well for the industry profitability outlook in the short term," said Sabyasachi Majumdar, Head, Corporate Ratings, Icra.

However, Indian consumers needn't worry as the industry has sufficient stock not only to meet the domestic deficit but also for market intervention in case of any eventuality. Data compiled by showed total carryover stocks at 7.7 million tonnes from SS2015-16. After meeting domestic deficit and exports, there would still be a carry over balance of 4.7 million tonnes for SS2017-18.

While the mills in Maharashtra and Karnataka are likely to benefit from the rising prices and relatively stable costs, several mills may see an adverse impact on volume sales arising out of lower production.

On the other hand, while a moderate increase in pricing for UP-based mills is expected to lead to a marginal dip in profitability from the levels seen in the previous two quarters (Apr-Sep 2016), absolute levels of revenues and profits are likely to be supported by higher sales volumes, given expectations of better crushing and sustained performance on recovery rates for UP-based mills.

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Business Standard
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Sugar price to remain elevated on global deficit, lower domestic output

Profitability prospects of sugar mills brighter in short term, say rating agency Icra in its latest report

Lower domestic production estimates and a global deficit forecast are likely to keep prices elevated, brightening profitability prospects of mills in the short term, rating agency has said in its latest report.

Union Food Minister recently put the government's production estimates at 22.5 milion tonnes for season (SS) 2016-17, a marginal decline from 23.37 million tonnes forecast by industry body, Indian Mills Association (ISMA). Given that consumption is estimated at 23.5 million tonnes, India is likely to report a deficit year in production.

"Given the deficit situation in the domestic and international markets, prices are expected to remain firm in the near term. This, coupled with moderate prices seen for the current year across most states, augurs well for profitability in the near term," the report said.

Domestic prices remained firm, having increased from around Rs 31,500 per metric tonne in March this year to Rs 36,000 in August, sustaining that level in September. With the surge continuing in October, prices reached a five-year high of Rs 36,200 per metric tonne.

Prices continued to remain healthy in November, though there was a marginal dip to Rs 35,500 per metric tonne, following the demonetisation announcement.

"With recent government estimates pegging production to be 10 per cent lower as compared to last year, prices are likely to remain firm over the three or four quarters. This apart, moderate price hikes effected in most states, notably UP, bode well for the industry profitability outlook in the short term," said Sabyasachi Majumdar, Head, Corporate Ratings, Icra.

However, Indian consumers needn't worry as the industry has sufficient stock not only to meet the domestic deficit but also for market intervention in case of any eventuality. Data compiled by showed total carryover stocks at 7.7 million tonnes from SS2015-16. After meeting domestic deficit and exports, there would still be a carry over balance of 4.7 million tonnes for SS2017-18.

While the mills in Maharashtra and Karnataka are likely to benefit from the rising prices and relatively stable costs, several mills may see an adverse impact on volume sales arising out of lower production.

On the other hand, while a moderate increase in pricing for UP-based mills is expected to lead to a marginal dip in profitability from the levels seen in the previous two quarters (Apr-Sep 2016), absolute levels of revenues and profits are likely to be supported by higher sales volumes, given expectations of better crushing and sustained performance on recovery rates for UP-based mills.

image
Business Standard
177 22

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