ICRA sees a profitable season for UP sugar industry

Sugar industry in second biggest sugar producing state Uttar Pradesh are expected to turn profitable in the next sugar season beginning October, rating firm ICRA has said in a statement today. Top sugar companies like Bajaj Hindusthan, Balrampur Chini and Triveni Engineering have their businesses in the state.

The domestic free sugar prices were subdued and range bound between Rs 28,000-Rs. 30,000 per tonne during October 2010 to March 2012 mainly because of domestic sugar surpluses. Prices have however started showing an uptrend since April 2012, which was especially marked from July 2012 onwards, and currently stand at around Rs 35,000 per tonne.

This uptrend followed significant export of sugar, which relieved pressures on domestic stocks, lower sugar releases but most importantly concerns over delayed and weak monsoons affecting sugar output in the coming sugar season 2012-13. “With production likely to decline next year and prevailing international prices and import duty deterring imports, ICRA expects sugar prices to be supported at the current level in the next 12 months,” it said.

According to Sabyasachi Majumdar, Senior Vice-President, ICRA, as far as financial performance for season 2011-12 is concerned, the operating profits for mills in most parts of the country barring UP have been supported by higher volumes and improved conversion margin, however the impact at the net level has been moderated by higher interest costs. However, for UP mills, profitability indicators and cash flows for sugar mills in the first nine months of SY 2011-12 have been impacted severely because of reasons mentioned earlier.

“Although the profitability is likely to recover significantly in the last quarter following recovery in sugar prices in Q4 of 2011-12 sugar year, overall the profitability numbers for UP sugar mills are likely to remain stressed in season 2011-12. For season 2012-13, while sugar mills are likely to benefit from steady sugar and by product realizations, fixation of cane prices will be the key variable,” he said.