Sugar companies ask for hike in bank credit limit

A number of sugar companies are trying to get their bank credit limit raised in order to meet the gap in the working capital requirements caused by lower-than-cost realisation from sugar sale.

"We are trying to get the credit limit raised from Rs 600 crore to Rs 900 crore to ensure that our mills run comfortably for the whole season. If it is not raised, our paying capacity will get exhausted before the season and sugarcane price payments to the farmers may get impacted," said Kishore Shah, director, finance, at the Balrampur Chini Mills.

However, banks are apprehensive of the profitability of the sugar business and are, therefore, unwilling to lend an additional amount.

"Banks are not sure of the margin levels from the sugar business, where we are losing at least Rs 200 a quintal even at the cane price of Rs 110 a quintal," added Shah.

The price of Rs 110 a quintal (fixed by the Allahabad High Court through an interim order) is Rs 15 a quintal lower than the price of Rs 125 that mills paid in the 2006-07 (October-September) season.

"The cash flow is affected because of a lower-than-cost realisation from sugar. As a result, there is a gap in the long-term working capital requirement of the company. Therefore, we are making efforts to take additional borrowings from banks", said B J Maheswari, company secretary, Dwarikesh Sugar.

Simbhaoli Sugars has also requested its bankers to raise its borrowing limit by Rs 40 crore to Rs 250 crore for the season. Several other companies are making similar efforts.

All sugar mills have either got or are in the process of getting interest-free loans against excise payments made for two years under the central government scheme.

These loans will be used for making cane price payments. Companies such as Balrampur Chini, Dhampur Sugars and Simbhaoli Sugars among others have also raised funds by issuing warrants.

The pressure on cash flow had affected payments to farmers in the previous season and most mills, particularly in Uttar Pradesh, were unable to make timely payments to farmers.