Partial sugar decontrol to boost millers' profits

At present sugar industry's average realization is Rs 29 per kg in open market sale

The government’s partial decontrol of the sugar industry will mean allowing the latter to sell nearly 2.4 million tonnes of stock at market price.

At present, the average realisation in the open market is Rs 29 a kg. For the levy sugar obligation which was removed today, the government was paying the industry Rs 18-19 a kg, depending on the location of the mill.

“Sugar mills’ total realisations on all sales will go up by Rs 1 a kg because of dismantling of levy,” said Sanjay Tapriya, director, finance, at Simbhaoli Sugar.

He said prices in the open market will not be much affected for now; this is also a year of output surplus and prices will remain under check.

Abinash Verma, director-general of the Indian Sugar Mills Associations, said, “Removal of the burden of levy sugar will give the industry an annual savings of Rs 3,000 crore.”

Is this a time to buy sugar stocks?

Deven Choksey, managing director of KR Choksey Shares and Securities, said: “Sugar decontrol is a directionally positive move and sugar stocks will get a sentimental boost in the near future. The move will be a reprieve for companies in the near term, as they will realise a higher price on 10 per cent of their production. However, this being an election year, if states increase sugarcane prices, then mills’ profitability will be affected to that extent. One should not be in a hurry to buy sugar stocks.”   

Due to falling open market sugar prices over six months, sugar stocks were also down. The Bombay Stock Exchange’s index of sugar shares is down 33 per cent from October, as most sugar companies realisations have fallen and many mills were selling at a loss.