UP sugar mills to post 'moderate operating profits' in 2012-13: ICRA

The Uttar Pradesh government last week announced a Rs 40/quintal increase in the state advised price (SAP) of sugarcane for the marketing year 2012-13 (October-September).

The cane price for the normal varieties has been raised from Rs 240 per quintal to Rs 280/quintal. The rates for early maturing varieties has been increased from Rs 250 to Rs 290 per quintal. For the rejected varieties, the SAP has been raised from Rs 235 to Rs 275 per quintal.

Based on current prevailing prices and costs, ICRA said that the "operating margins for UP based sugar mills will moderate from the levels seen in the second half of 2011-12 sugar year unless supply-demand dynamics permit sugar mills to pass on cost increases".

ICRA said the landed cost of cane (inclusive of basic SAP, purchase tax, society commissions and inward freight costs) to be around Rs 290-295 per quintal.

The rating agency expects UP-based sugar mills to benefit from higher prices in 2012-13, higher crushing volumes and higher recovery rates, but said the higher cane costs are likely to substantially offset the positive impact of the aforesaid.

According to ICRA's estimates, with the new cane prices, the cane cost of production for sugar is likely to increase by around Rs 3500/MT and stand at Rs 30500-32000 per tonne, given that the recovery rates

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