Shares of sugar companies shot up by 14 per cent in the stock market on Monday, amid buzz of a partial decontrol of this sector, an old demand of the industry.
Sakthi Sugars jumped 14.4 per cent to close at Rs 24.60. Rana Sugars, Dwarikesh Sugar and Triveni Engineering surged 12.25 per cent, nine per cent and 7.5 per cent, respectively. Industry leaders Shree Renuka Sugars and Bajaj Hindusthan recorded a jump of 7.3 per cent and 6.4 per cent, respectively.
“Our meeting with finance minister Pranab Mukherjee was scheduled for tomorrow and is now happening on January 16,” said Abinash Verma, director-general of the Indian Sugar Mills Association (Isma), without specifying the agenda.
Union food minister K V Thomas had, late last month, said the government would consider the demand for partial decontrol after the Parliament session got over. He’d also assured the industry of allowing an increase in exports of the sweetener at an “appropriate time”. In November, the government allowed a million tonnes of additional export under Open General Licence.
The decontrol demand includes a scrapping of the levy quota system under which the industry mandatory supplies a tenth of mills’ output at half the production cost, for the ration shop system. The loss to the industry is estimated at Rs 3,000 crore in a year.
“We would suggest our investors wait for a full-fledged policy decision from the government before making any investment decision in the sector,” said Girish Jain, executive director of KJMC Capital.
According to a report by Angel Broking, a favourable decision on export would help sugar mills take advantage of competitive global prices and offset a rise in input costs. Further, exports would help reduce mills’ inventory, the cost of carrying extra sugar and check the chances of distress sale, beside improving cash flows of mills, helping these make timely payment to farmers during the crushing season.
The government says it is trying to create a consensus among a large number of stakeholders — farmers, mills, states and consumers — on decontrol and removal of the levy quota. The industry also wants scrapping of the system under which the government decides when mills will release supply into the market and by how much.