The lacklustre performance of sugar companies in the quarter ended June is likely to continue in the current quarter as well.
However, sector experts expect things to improve in the next season beginning October (the sugar year is from October to September), when sugarcane prices could be significantly lower to what mills paid in the current season. Ethanol price revision is another area that will bring better margins.
“The average realisation on sugar (excluding levy sugar) was Rs 2,860 per quintal during the quarter, while our cost of production was higher. The increase in levy sugar obligation (the portion of output mills have to give to the government at a price it decides, presently Rs 1,800 a qtl, for the ration shop system) to 20 per cent from 10 per cent in the corresponding quarter of last year also impacted realisation,” said Arhant Jain, president (finance), at Dhampur Sugar Mills, which owns four units in Uttar Pradesh.
The realisation of most sugar companies were affected during the quarter as the prices of the sweetener dropped by nearly 40 per cent since mid-January. In Delhi, for instance, retail sugar prices have come down to Rs 30 a kg from Rs 48 a kg in January. Sugar companies, especially in UP, paid high cane prices during the crushing period early this year, in anticipation of better returns. Prices, however, took a beating due to the government’s control measures. The average cost of production for UP companies such as Bajaj Hindusthan, Balrampur Chini and Triveni Engineering were Rs 2,800-2,900 per qtl. Mills paid Rs 240-250 per qtl of cane, way above the state advised price of Rs 165 per quintal.
UP mills will surely not pay the same price next season. So, their cost of production will be down. Also, the 20 per cent levy obligation is unlikely to continue next season. The revision in ethanol price from Rs 21.50 to Rs 27 per litre will also benefit them. However, the current realisation of Rs 2,650-2,700 per qtl (in UP) does not augur well for the current quarter.
| SWEET GONE SOUR | ||
| Company | Net profit (in Rs crore) in quarter ended June 30, 2009 | Net profit/loss (in Rs crore) in quarter ended June 30, 2009 |
| Bajaj Hindusthan | 60.08 | -14.91 |
| Balrampur Chini | 66.29 | 11.13 |
| Triveni Engineering | 39.81 | -14.23 |
| Renuka Sugars | 61.1 | 8.9 |
| Dhampur Sugar | 11.14 | -41.18 |
| Source-BSE | ||
Some companies also incurred losses in raw sugar imports, where these were contracted at high prices at a time when sugar domestic prices were rising. By the time these companies managed to bring in the shipments and process these, prices took a hit on government control measures.
Dhruv Sawhney, chairman and managing director of the third biggest producing company, Triveni Engineering and Industries, says: “It is ironical that though the fundamentals of sugar are still strong and sugar prices are at reasonably healthy levels (though much lower than the peak levels touched in January), the industry is coping with higher cost of production after having paid unrealistic sugarcane prices.” Sawhney added that even with the current year’s production estimates of around 19 million tonnes and with an estimated higher production of approximately 24-25 million tonnes in the next season, stocks at the end of the next sugar season will not be excessive.
“We hope the changed sugar pricing scenario would result in swift governmental action towards easing and reversing measures initiated earlier, such as stock holding limit, duty on imports, levy obligation, etc,” he said. The industry is also hopeful that the much-awaited decontrol of sugar will happen later this year.
