Red quarter for sugar companies

Higher production costs and lower prices have put many sugar companies, especially those based in Uttar Pradesh, in the red for the quarter ended June this year.

Leading sugar companies such as Bajaj Hindusthan, Balrampur Chini and Triveni Engineering have posted a loss in the quarter. Bajaj Hindusthan, the country's biggest sugar producer, ended the quarter with a loss of Rs 60.47 crore against a profit of Rs 63.88 crore for the corresponding quarter last year.

Balrampur Chini, which recorded a profit of Rs 83 crore in the June quarter last year, reported a loss of Rs 55 crore, while Triveni saw a loss of Rs 20 crore against a profit of Rs 32.40 crore last year.

The average price realisation on sugar slipped by 25 per cent to Rs 1,340 a quintal compared with the last year's corresponding realisation of Rs 1,800. However, the cost of producing a quintal stood as high as Rs 1,650, resulting in companies losing Rs 310 on every quintal of sugar sold.

While most of the mills registered a significant dip in their sugar revenues, their revenues from the cogeneration and distillery business showed growth.

Though the sugar revenues for the quarter dipped 11.8 per cent for Balrampur Chini (from Rs 373 crore to Rs 329 crore), the company's distillery revenues grew 75 per cent (from Rs 32 crore to Rs 56 crore) and cogeneration revenue doubled from Rs 26 crore to 52 crore.

Interestingly, the cost of materials consumed by the company went up from Rs 134 crore to Rs 304 crore during the quarter.

"This was due to the higher sugarcane price vis-à-vis the last season and the longer season, when the mills ran till June against the normal practice of April, owing to the higher cane availability. These resulted in a lower recovery rate," said Kishor Shah, director (finance), Balrampur Chini.

For most companies, the expenditure on interest had also moved up owing to the higher inventory cost and the interest component on capex by most mills.

However, sugar companies based in the southern states performed better, with the likes of Renuka Sugars and Rajshree Sugars posting profits, mainly because of a lower cane price and financial sops offered by state governments.

"The higher output does not augur well for sugar prices in the coming period. Prices are likely to fall further as production is estimated to rise from about 28 million tonnes this season to 30 plus next season, while consumption is estimated at just 20 million tonnes," said a sugar analyst.