A bitter quarter for sugar firms

The April-June quarterly results of sugar companies are likely to see the bottom lines turning red for most players as sugar prices have continued to decline.

There has been over 30 per cent decline in the sugar prices since last year (to about Rs 1,330 a quintal) and a 45 per cent jump in annual sugar production to 28 million tonnes. While sugar constitutes the main business for most sugar companies, some derive 10-15 per cent of their revenues from the cogeneration and distillery business.

"We are expecting an 80-90 per cent (year-on-year) decline in profits for integrated players like Balrampur Chini which have power and distillery business. However, the non-integrated players are certain to register losses in the April-June quarter", said Vikram Suryavanshi of Karvy Stockbroking.

Companies like Dhampur and Oudh Sugars had registered a loss in the January-March quarter, while most companies saw a sharp dip in profits.

Beginning this week, sugar companies will announce their quarterly results. JK Sugar will announce it on July 19 while KCP will announce it on July 20. Most of the companies will declare results in the following week.

In Uttar Pradesh, which has top players like Bajaj Hindusthan, Balrampur and Dhampur, the extended crushing (beyond May) season led to a drop in recovery from the season's average of 10 per cent to less than 9 per cent. The drop meant a higher cost of sugar production and more losses.

The impact of cancellation of the 2004 sugar policy in UP will also show on the profits of companies like Bajaj Hindusthan, Triveni Engineering and Industries, etc, which had factored the gains from the incentive-based policy in their balance sheets.

"The April-June quarterly performance on a year-on-year basis will be largely negative. Companies like Bajaj Hindusthan and EID Parry may even post losses. But companies like Bannari Amman and Sakthi Sugars are likely to register profits," said S P Tulsian, an investment advisor.

Lower realisations coupled with relatively lower sugar recoveries and higher cane prices have severely impacted the sugar margins of companies. Though the companies will continue to have stable profits from the cogeneration and distillery business, the surplus scenario in both the domestic as well as global markets will continue to put pressure on the sugar prices in the future.