Profit surge leads sugar firms to cut debt overhang
Ajay Modi / New Delhi Aug 13, 2009, 00:30 IST
Riding on all-time high realisation and a sharp jump in profitability, domestic sugar companies are looking to strengthen their balance sheet by reducing debt. Prices are at an all-time high and companies expect it to remain firm for at least the next four-five quarters.
Companies like Bajaj Hindusthan, Balrampur Chini and Triveni Engineering, among others, had borrowed in a big way in 2005-06 and 2006-07 to undertake capacity expansion. However, the country saw two record years of sugar production that led to a crash in prices and companies saw huge losses. They found it difficult to repay debt.
With improved outlook and the certainty of handsome profitability for the next four-five quarters, most companies would now cut their debt. The industry is in no mood to invest in expansion, since sugarcane availability is significantly low and mills are operating at 50-60 per cent of capacity.
SWEET WAY TO REPAY LOANS
Company
Net sales for the
quarter ended
June 30, 2009
Net profit for
the quarter
Debt as on
June 30
Bajaj Hindusthan
399.33
60.08
3,000
Balrampur Chini
538.07
66.29
980
Triveni Engineering
518.61
39.81
750
All figures in Rs crore
With domestic output touching a three-year low of 15 million tonnes in the current season (October-September) against the consumption of 22 million tonnes, prices have been on an uptrend. Most companies have reported a sharp jump in profitability. Shares of most sugar companies are touching a new 52-week high every day.
Bajaj Hindusthan, the country’s largest sugar producer, reported a net profit of Rs 60.1 crore for the quarter ended June 30 as against a loss of Rs 35.4 crore in the corresponding quarter of the previous year. Balrampur Chini, the next largest, reported a 294 per cent jump in net profit to Rs 66.3 crore. The profit rose even as net sales dipped.
“We have a debt of Rs 980 crore as on June 30. The earnings from improved realisation would be used in debt repayment and cutting down working capital borrowings,” said Kishor Shah, director and chief financial officer at Balrampur Chini.
Triveni Engineering, which has a debt of Rs 750 crore and a working capital loan of Rs 250 crore, also plans to use the money to cut such borrowings. “We had borrowed to fund our expansion plans and meet working capital requirement. The cash flows will be used in bringing down this debt,” said Nikhil Sawhney, executive director.
Most companies are selling sugar at an ex-factory price of Rs 3,000 a quintal, almost double last year’s. “There is no sugar in the system. International prices have also jumped and imports have become unviable. More imports would happen only if realisation moves to Rs 35 a kg,” said Shah.
The country is estimated to have contracted raw sugar imports of three million tonnes. With the entry of India, the biggest sugar consumer, international sugar prices have also touched a 28-year high. Domestic output prospects in the next season beginning October also seem bleak, as insufficient rain is likely to impact sugarcane yields, even though cane acreage is marginally better than last year.
“Our balance sheet was skewed due to high debt burden and interest liability. Our focus will be on strengthening the balance sheet,” said Sanjay Tapriya, director (finance) at Simbhaoli Sugars, which has a debt of Rs 350 crore.
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