Sugar mills' net profit to rise 3% on partial decontrol

The govt on Thursday decided to abolish 10% mandatory levy mechanism & buy sugar from the open market for selling it at subsidized rate through PDS

The average net profit of sugar mills would increase by 3% during the current financial year with the government’s decision of partial decontrol of the sector on Thursday.

With the government deciding Thursday to abolish the 10% mandatory levy mechanism and buy sugar from the open market for selling it at the current subsidized rate through the public distribution system (PDS), mills are set to generate 10% of additional income.

Under the levy mechanism, sugar mills were mandated to sell 10% of their annual output of the sweetener at Rs 19 a kg against the prevailing market price of Rs 28-29, similar to the cost of production. Hence, mills were incurring losses by Rs 10-11 a kg for supplying the sweetener to the government for its sale to poor families under the PDS.

“This will be our additional income to be added to our annual profit,” said Sanjay Tapriya, chief financial officer of Simbhaoli Sugar Industries, one of the largest sugar mills in Uttar Pradesh.

Sugar mills have not sold any quantity under the mandatory levy mechanism this year. Hence, the profitability would be for the entire sugar year (October 1, 2012 – September 30, 2013).

The apex industry body the Indian Sugar Mills Association (ISMA) has estimated an annual savings of Rs 3,000 crore in addition to a reduction in inventories and insurance of better cash flows.

“Apart from that, the industry will be able to clear arrears with around 3% of additional cash flow,” said Kishore Shah, Chief Financial Officer of Balrampur Chini.

Meanwhile, shares of sugar manufacturer have rallied up to 20% in opening deals. Bajaj Hindusthan, Shree Renuka Sugars, Balarampur Chini Mills, Mawana Sugars, Oudh Sugars and Dhampur Sugar Mills are trading higher in the range of 10 to 20% on the Bombay Stock Exchange (BSE).

While, Oudh Sugar Mills rallied 20% to Rs 23.20, Uttam Sugar, Simbholi Sugar, and Sakthi Sugars surged by 15% each on BSE.

Bajaj Hindustan, Shree Renuka Sugars, Balrampur Chini Mills and Dhampur Sugar Mills too trading higher by more than 10% each.

Most of Agricultural Produce Marketing Committee (APMC) mandis in Maharashtra remained closed due to “bandh”, prices elsewhere were trading rangebound in the late afternoon. In futures, however, sugar contracts were marginally up.

Tapriya further said that consumers need no worry as retail price of sugar would remain lower due to surplus availability.