Sugar mills face cash crunch

Seek a 15-day extension for February non-levy quota.

Most sugar mills in the country are facing a widening gap between their return and cost of production.

With an upward revision in cane prices, the cost of sugar production has risen to Rs 2,900 a quintal and Rs 2,750 a qtl in Uttar Pradesh and Maharashtra, respectively. But the realisation is Rs 2,800 a qtl and Rs 2,600 a qtl, a loss of Rs 100-150 per qtl produced.

Admitting a working capital crisis, Narendra Murkumbi, president, Indian Sugar Mills Association (Isma) and managing director, Shree Renuka Sugars, said, “Large-scale cane arrears are imminent in the current season, if the loss-making trend for mills continues.”

Cane arrears are farmers’ unpaid dues from mills for crushing. At present, mills are paying Rs 205-210 a qtl for cane.

Industry sources deny any significant arrears noticed in the four months of crushing, due to rolling over of cane procurement and regular payment of previous dues. “The final assessment is likely to be clear towards the end of the crushing season. But it may remain huge this year,” said Sageraj Bariya, an analyst with Angel Broking.

Since lifting of output takes place through the year, while payment is restricted to the supply season, mills face huge blockade of working capital in payment. It is likely to impact the financials of crushing companies, at least in the first half of the season ending March, Bariya added.

The worst impact would be on refineries, which imported raw sugar at high prices last year, in anticipation of a recovery in sugar prices this year. Prices have continued to soften, due to the government restriction on exports. Angel Broking estimated the industry’s carryover stock in the beginning of the current season at 4.4 million tonnes.

Besides, the industry is facing non-lifting of allocated quota by traders. Since prices are falling, traders are abstaining from fresh booking, amid expectation of a further decline. TheNational Federation of Cooperatives Sugar Factories (NFCSF) has urged the government to grant a 15-day extension, as it did in January, for sale of 1.62 mt of the non-levy quota of February, as the quantity is higher than the estimated lifting by traders during the month.

The industry fears that mills will have 500,000 tonnes of unsold sugar in February if the monthly sales period is not extended. So, they will be forced to sell the unsold quantity in February under the compulsory levy quota, at below-market price. A quantity of 300,000 tonnes was carried forward from January.

“Amid uncertainty in exports, traders distance themselves from fresh booking around the annual Budget,” said Vinay Kumar, managing director, NFCSF.

Isma has lowered its output forecast for this season to at 25 mt, due to the late season rainfall. It had earlier estimated 25.5 mt.