Firms may post higher profits on increase in levy sugar price

High levy price report fires sugar stocks.

The proposal to increase levy sugar prices by 30 per cent for the ongoing October-September season will help sugar companies report better profits in the current quarter in spite of not-so-good sugar prices. Most companies had reported lower profits in quarter ended March 31. Sugar companies shares were up 3-4 per cent in a dull market today.

The food ministry is learnt to have cleared a proposal to hike levy sugar prices by about Rs 400 a quintal. At present, the levy price is between Rs 1,275 and Rs 1,383 a quintal (100 kg) in Uttar Pradesh (UP), the country’s second-largest producer.

The proposal is waiting for Cabinet approval, which is expected shortly. Levy sugar is the sugar that mills are required to sell to the government for sale under the public distribution system (PDS). Currently, mills sell 20 per cent produce as levy. Mills can sell the remaining 80 per cent, known as free-sale sugar, in the open market, according to the government’s release mechanism. Current free-sale realisation is Rs 2,700 a quintal, down from Rs 4,300 in January.

Uttar Pradesh-based companies like Bajaj Hindusthan, Balrampur Chini and Triveni Engineering, among others, had accounted for a lower levy sugar price for the six months ended March 31. Most sugar companies follow an October-September financial year.

“We accounted for a levy sugar price of Rs 1,384 a quintal for the two previous quarters. With a revision, we will actually get Rs 1,826 a quintal. This will add Rs 40-45 crore to bottomline for the current year,” said Kishor Shah, director (Finance), Balrampur Chini.

Mawana Sugars, for instance accounted for a levy price of Rs 1,275 a quintal in the two preceding quarters. “An increase of Rs 400 a quintal will help us reverse a loss of Rs 22.50 crore on 56,000 tonnes levy sugar for the current season. This will help the bottomline,” said Sunil Kakria, managing director, Mawana Sugars.

Bajaj Hindusthan produced 970,000 tonnes sugar during the current season and has a levy obligation of 194,000 tonnes. Considering its wide presence in UP, the company had accounted for a levy sugar price range between Rs 1,275 and Rs 1,381 a quintal. With the revised levy price, the company stands to gain Rs 77 crore during the current season.

Share prices of all sugar companies rose sharply on the Bombay Stock Exchange. Bajaj Hindusthan gained 3.12 per cent to close at Rs 115.60, while Dhampur Sugar gained 3.16 per cent to close at Rs 63.65. Mawana gained 3.52 per cent to close at Rs 25.

Bloomberg adds: Sugar stockpiles in India will jump 53 per cent in the year ending September 30, according to a group of domestic producers. India will end the season with 4.9 million tonnes compared to 3.2 million tonnes a year earlier, the Indian Sugar Mills Association said on Monday.