Sugar companies did well in the quarter ended March. They have reported 29 per cent growth in revenue from sale of sugar and a 182-basis points (bps) improvement in operating margins over a year. Aided by co-generation and distillery units, the operating margin jumped 440 bps over the December 2010 quarter. The net profit is up around two per cent, as against a 71 per cent decline in the quarter ended December.
The study is based on 13 major sugar companies that have declared unaudited financial performance for the quarter ended March. The revenue from sugar, co-generation and distillery units moved up 30.1 per cent, significantly up from 24.2 per cent in the December quarter, but marginally lower than the quarter ended September and June 2010. Thanks to a 50 per cent rise in operating profit in the sugar business, the overall operating profit jumped 30.7 per cent.
The aggregate performance is significantly better if one excludes the second largest company, Renuka Sugars, from the sample. The remaining sample has reported a 42 per cent rise in revenue from sale of sugar and the growth in net profit has been significantly higher at 114 per cent. Shree Renuka Sugar’s net profits tumbled 74 per cent, with interest expense rising by Rs 160 crore to Rs 186 crore. Its sugar sales were down 18 per cent due to lower price realisation.
Bajaj Hindusthan, on the other hand, reported 129 per cent growth in net profit on account of a 107 jump in sugar sales. Though operating margins from sales declined 133 bps, margins from the sugar business expanded by 286 bps.
Interest cost rose by 101 per cent and depreciation rose 78 per cent due to expansion of sugar capacity in the past year. Among other companies, EID Parry reported 107 per cent rise in sugar revenue, but operating margins declined by nearly 200 bps due to high raw material cost.
OUTLOOK
According to Morgan Stanley Research, the outlook for sugar year 2012 (SY12/October-September) is still profitable. Factoring the five per cent increase in cane prices during the coming UP state elections in April-May 2012, the sugar segment is expected to be profitable, driven by tight balance.
The report indicates the domestic sugar balance is expected to be tighter than the market believes. The checks suggest SY2011 production of 24 million tonnes. The market is expecting 25 mt. While the market sees limited pricing power in a sugar surplus year(s), in view of the tight industry balance expected, a 10 per cent increase of sugar prices in the second half of SY11 and largely stable prices in SY12 is likely. However, prices correct if SY12 production hits 28 mt.
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