Sweeter days ahead for sugar companies

Many cut losses as price stabilises at higher levels

Sugar mills’ finances turned around in the March quarter, on a sharp increase in prices of the sweetener after a forecast of lower output this season. The June quarter is expected to be even better.

Most companies announced a substantial rise in net profit. That of Upper Ganges Sugar, for example, was nearly Rs 60 crore for the quarter, from Rs 0.8 crore for the same period last year. That of Parry Sugar Mills was almost Rs 20 crore, from Rs 5.3 crore for the March 2015 quarter. Mawana Sugars and Triveni Engineering's net profits were Rs 64.9 crore and Rs 44.1 crore; they had losses for the same period a year before, of Rs 68.4 crore and Rs 85.6 crore, respectively.

“Profitability is likely to remain up in the June quarter. We expect the average ex-factory sugar price to remain elevated at Rs 33–33.5 a kg for that quarter, as against Rs 31–31.5 a kg for the March quarter. The increase in price would proportionately raise margins for mills,” said Abinash Verma, director-general, Indian Sugar Mills Association (Isma).

After a low of Rs 19 a kg in August last year, the ex-factory price was Rs 33-34 a kg by end-March; the average rise in the quarter was 15 per cent. They stabilised thereafter and rose only one per cent more until this month.

“The industry’s viability improved in the second half of FY16 with increase in sugar prices and lower cost of production, a result of higher sugar recovery. The governments at the Centre and states have evolved more rational policy frameworks in respect of cane pricing, ethanol and exports. It is desirable that the same approach continues for restoring the industry's health over the medium term,” said Ajay Shriram, chairman, DCM Shriram.

Mills are also benefiting from the policy on ethanol, for blending with petrol. The government HAD announced a higher ethanol price payable by oil marketing companies (OMCs) at Rs 48.5–49.5 a litre.

“Domestic ex-mill sugar prices hit a three-year high (crossed Rs 34/kg) during the fortnight ended March 31, due to a continuous fall in domestic sugar production and tightness in the global market (global agencies have raised deficit expectations to five to seven million tonnes, on dryness in the top three producer countries). Resultantly, global prices scaled to a one-year high during March (raw sugar at $0.16/lb),” said Achal Lohade, an analyst with JM Financial.

Global firm Kingsman has forecast India’s sugar production at 25.1 million tonnes, about 11 per cent lower than the 28.3 mt last year. An ICRA report estimates India’s closing stock at 7.6 mt this year, as against 9.5 mt last year.