Sugar prices to remain under pressure on surplus stock: Icra

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Chennai | Published: August 1, 2015 12:06:39 AM

The domestic sugar prices will continue to remain under pressure in near term owing to the continued surplus coupled with less possibility of exports...

The domestic sugar prices will continue to remain under pressure in near term owing to the continued surplus coupled with less possibility of exports in the face of falling international prices.

The domestic sugar production is expected to increase by 16%  year-on-year during SY15 (sugar season) to 28.3 million tonne and outstrip domestic consumption for the fifth year in a row, mainly driven by higher sugar production in key sugar producing states namely Maharashtra, UP and Karnataka.

Sugar mills are likely to liquidate their stocks at low prices following pressure from various state governments to clear the high cane arrears. Thus, in the domestic market, high cane costs along with low sugar realisations continue to weigh heavily on the profitability and liquidity of the mills, said a report by Icra.

While government assistance to sugar mills in the form of interest-free loans to the tune of Rs 6,000 crore provides some support in the short-term in clearing the cane arrears, the debt burden on the industry is expected to increase.

This coupled with pressure on profitability is likely to continue to impact the debt coverage metrics in the near term.

Despite higher export subsidy of R4,000/tonne during SY15 (R3,371/tonne during SY14) on raw sugar exports approved by Cabinet Committee on Economic Affairs (CCEA) in February 2015 and additional export subsidy of Rs 1,000/tonne from Maharashtra on exports for the mills in the state during SY15, exports have been limited at around 5.6 lakh tonne during 8M SY15 on account of two reasons.

Firstly, weak global prices which make exports less lucrative. Secondly, with the significant delay in announcement of the subsidy, which came only towards the end of crushing season, there is limited window of opportunity for sugar mills to produce raw sugar.

Sabyasachi Majumdar, senior vice-president, Icra, said: “Though major sugar producing states such as Uttar Pradesh and Maharashtra have come forward to support the mills by providing subsidy on cane prices and higher export subsidy respectively, which is expected to mitigate the losses to some extent, the quantum and timeliness of such subsidy support remains in uncertainty.”

“The current season has commenced with relatively high opening stock of 7.4 million tonne which coupled with the surplus production during SY15 and limited exports to result in continued sugar surplus scenario with the closing stock estimated at around 10 million tonne. This would be higher by 4 million tonne than the normative sugar stocks of around 6 million tonne,” he said.

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