ICRA pegs domestic sugar production at 24 MT in 2013-14 marketing year

Decline driven mainly by a reduction in the cane crushing in key producing states

Sugar production in the country is expected to decline to 24 million tonnes (MT) during sugar year 2013-14, due to reduced cane crushing in Uttar Pradesh, Maharashtra and Tamil Nadu, a ratings agency said in its latest report.

Sugar year (SY) runs from October to September.

"Notwithstanding the decline, domestic production during SY'14 is expected to marginally outstrip domestic consumption for fourth year in a row," ICRA said in its latest report on sugar.

The production of sweetener in the sugar year 2013-14 stood at 25.14 MT, according to industry body ISMA's data, while for the ongoing year it has pegged the production to be at 24.3 MT.

"Domestic sugar production is expected to decline during SY14 to 24.0 MT," ICRA said in its report.

Elaborating the reason for fall in production, the report pointed that the decline was driven mainly by a reduction in the cane crushing in key producing states - Uttar Pradesh, Maharashtra and Tamil Nadu.

On financial performance of the sugar mills, ICRA in its report said that the revenues of sugar mills are likely to get impacted due to lower cane crushing.

The report also added, there would be continued pressure on profitability performance for sugar mills in sugar year 2013-14, given the high cost of production.

"Profitability of sugar mills based in Uttar Pradesh and Tamil Nadu has been affected due to the high cane costs and lower recovery rates when compared to other regions across the country," the report said.

Speaking on the finances of sugar mills, ICRA Senior Vice- President Sabyasachi Majumdar said, "The improvement in the sugar prices since April 2014 coupled with the interest subvention loans provided under scheme for extending financial assistance to sugar undertakings for payment of cane arrears and the various incentives provided by the state governments towards cane price is likely to provide some relief to the mills during H2 SY14."

Majumdar also added that linkage between cane price and sugar prices is critical for the long-term sustainability of the industry.

ICRA in its report also noted that Karnataka and Maharashtra have formed a separate sugar control board and UP is planning to form a board in order to fix the cane prices from next sugar season onwards.