Sugar stocks surge on rise in import duty

Govt believes move would help clear Rs 9,000-cr cane payment arrears but industry says it won't, much more needed

Sugar stocks moved up in “value buying” following the government’s decision to raise import duty on raw and refined sugar by five per cent to protect the interest of domestic industry.

While the industry said the increase was insufficient, investors added some sugar stocks in their portfolio, amid expectations of a change in fortune. The share price of Balrampur Chini rose 4.8 per cent to close at Rs 41.15. That of Dhampur Sugar and Bajaj Hindusthan jumped 3.7 per cent and 2.7 per cent, to close at Rs 38.80 and Rs 15.70 apiece, respectively.

The government issued a notification on Tuesday, implementing a rise in tariff on sugar (both raw and refined) to 15 per cent from the earlier 10 per cent. The increase is set to benefit domestic mills. However, port-based refineries like the one of Shree Renuka Sugars are going to suffer a setback.

“Sugar stocks have underperformed for the past 18 months, with some witnessing a 50 per cent decline. The current appreciation in stocks, therefore, is just value buying,” said Harish Vasudevan, strategist, SVS Securities.

Food Minister K V Thomas had earlier said the rise in duty would help increase realisations for mills, thus helping these clear the Rs 9,000 crore in payment arrears to farmers. The Street doesn’t think this will happen.

“The ground reality is going to remain unchanged due to higher carryover stocks. Also, a favourable monsoon has raised the prospects of higher output this year, which will continue to pressurise the sector in India,” said Vasudevan.

Also, sugar stocks have remained lower ahead of a state or general election. Since, some state elections are due this year-end and general election in the middle of next year, the government will make all efforts to keep prices of sensitive commodities like sugar under control. Hence chances of a recovery in sugar stocks seem unlikely.

“Currently, port-based refineries are importing raw sugar at 16.41 cents a pound. After conversion & transportation charges, exchange rate and all other costs, the ex-factory price at 10 per cent import duty works out to Rs 3,100 a quintal. With import duty at 15 per cent, the ex-factory price goes up to Rs 3,250 a quintal, which makes no practical difference. The duty should be much higher on raw sugar to protect the interest of domestic industry,” said an expert.

The Indian Sugar Mills Association (Isma) believes the rise in tariff is too little and should have come earlier. Said an expert there: “With falling prices in global markets, imports will not become unviable. Though the rupee has depreciated with regard to the dollar, the Brazilian real has fallen similarly. Therefore, raw sugar import from Brazil hasn’t become unviable, with the small increase in duty. There is so much sugar within the country that the duty needs to be raised to 30-40 per cent to totally check any import.”

Isma notes the tariff on other agricultural goods such as coffee, tea and milk is between 30 and 100 per cent.