 "Sugar sector may see turnaround this year")
The sugar sector is likely to see a turnaround this financial year, owing to an estimated increase in cash flow, following the export incentive scheme for raw sugar being extended till September 2015.
For every tonne of raw sugar export, the government offers Rs 3,300 as subsidy to sugar mills. For this financial year, the Centre has set an overall export target of four million tonnes (mt).
Back-of-the-envelope calculation shows the proposed extension in export subsidy will increase the sugar sector’s cash flow by Rs 13,200 crore. Of this,Rs 1,200 crore is estimated to go directly to farmers, while the remaining Rs 12,000 crore will go towards sugar mills, depending on their subsidy-refund claims. “India’s sugar sector will turn around this year, provided mills are able to export the entire allocated quantity of four mt at prices higher than the prevailing rates in Indian markets,” said Abinash Verma, director-general, Indian Sugar Mills Association.
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Through the past few months, sugar prices have been volatile in global markets, making exports viable. After touching an eight week low of 16.67 cents, ICE raw sugar July futures rallied two per cent, while Liffe white sugar August futures surged two per cent to close at $465.2/tonne on Friday. Prices rose as the number of ships waiting to export sugar from the ports of major grower Brazil increased about 50 per cent from the previous week, indicating a rise in sugar demand.
At prices moderately higher than current ones, exports from India will be feasible. Data compiled by BS Research showed the sugar sector’s overall losses for the year ended March this year stood at about Rs 3,200 crore, against a profit of Rs 20 crore in the year-ago period. “India’s sugar sector is a beaten-down sector. The sugar sector has been an underperformer in the last few years due to unfavourable government policies. But with the extension in export subsidy scheme, the sector will blossom this year, with debt–free companies benefiting the most,” said Harish Vasudevan, strategist, SVS Securities.
This year, sugar mills’ dispatches are set to stand at the production figure of 24.2 mt. At the beginning of the new sugar season, India’s stock is estimated to be 1.8-2 mt less than last year’s. But a surplus of 1.5-2 mt can be exported.
The pace of sugar exports had slowed because of the unexpected reduction of export incentive—from Rs 3,300 a tonne to Rs 2,277 a tonne—by the food ministry. The government has, however, restored the incentive to Rs 3,300 a tonne. Vasudevan said the government had to implement reform measures to bring the sugar sector on track. Also, all cyclical sectors, including sugar, have seen favourable policy decisions after long, Vasudevan says, adding the sector will see surprises this year on the profit and share price fronts.