Sugar stocks up on buzz of import duty hike, lower output

Shree Renuka tops list to close 20% higher; Bajaj Hindusthan, Simbhaoli Sugars are other big gainers

Sugar stocks moved up by up to 20 per cent on Friday on expectations of an increase in customs duty to curb cheap imports and estimates of lower production than previous projections.

The share price of Shree Renuka Sugars Ltd (SRSL) jumped the highest, rising 20 per cent to close at Rs 15.66. Stocks of Bajaj Hindusthan Sugar and Simbhaoli Sugars surged by 9.29 per cent and 7.34 per cent, to close on Friday at Rs 16.36 and Rs 31.45 apiece respectively. However, Balrampur Chini, Triveni Engineering & Industries, EID Parry and Dwarikesh Sugar Industries attracted little investor interest, with their share price rising between 1-2 per cent.

Apex industry body Indian Sugar Mills Association (Isma) in a letter to the Ministry of Consumer Affairs has reiterated its demand to increase import duty to 60 per cent from the existing 40 per cent. While the demand was made earlier also, experts believe the government might be considering the proposal to curb cheap import and thereby arrest the fall in sugar prices in domestic markets. Apart from that, the monsoon rainfalls have been sporadic in major cane growing areas prompting thereby analysts to forecast sugar output lower than previous estimates.

"We have written letter to the Ministry of Consumer Affairs and the Prime Minister's Office (PMO) reiterating our demand to increase import duty on raw sugar to 60 per cent from the existing 40 per cent," said Abinash Verma, Director General, ISMA.

While the government has allowed 500,000 tonnes of raw sugar import on tariff rate quota (TRQ) basis which, the industry believes, has already been achieved. Due to a sharp fall in raw sugar prices globally, its import with even 40 per cent levy is viable. Taking advantage of the situation, many Indian refineries have imported huge quantity of raw sugar from Brazil.

A letter addressed to the Principal Secretary to the Prime Minister of India, ISMA said that over 295,000 tonnes of raw sugar imported into India between June 1 and 15 alone. Raw sugar prices in global markets at cents 12.50 / lb (pound) provides Rs 5 a kg margins for refineries in India.

Meanwhile, the government has raised the Fair and Remunerative Price of sugarcane by 11 per cent to Rs 255 a quintal for the crushing season 2017-18 (beginning October 2017) which is set to raise cost of sugar production proportionately.

Rating agency Icra estimates India's sugar production to rise by 16-20 per cent to around 23.5 - 24.5 million tonnes for crushing season 2017-18 compared to 20.3 million tonnes for the previous year. Earlier, industry had estimated output to surpass 26 million tonnes on forecast of normal monsoon this season.

"Despite increase in sugar production, the same would at best be at the same level as our estimate of consumption of around 24.5 million tonnes in SY2018. Thus, the low closing stock levels of sugar (which declined to around 4.5 million tonnes in SY2017 from 7.7 million tonnes in SY2016) in the domestic market are likely to support the sugar prices in the near term. Any downside to sugar prices from the current levels is likely to be driven by the allowance of a further import of duty free sugar, which appears unlikely at this moment," said Sabyasachi Majumdar, Senior Vice President & Group Head, Icra Ratings.