Sugar firms set to reap big harvest

Profitability of companies estimated to grow by 32%.

The profitability of sugar companies is expected to grow by 32 per cent in 2006-07 against the estimated 17-18 per cent.

With the sugar season expected to start in mid-October, sugar mills have already begun procuring sugarcane from farmers on a regular basis.

Mid-October is the ideal time for sugar mills to begin production as cane supplies are in full swing by this time. Sugarcane harvesting starts in mid-September for both one-year and 18-month crops.

Farmers are expecting bumper sugarcane crop this year as the monsoon was good throughout the country. "As a result, mills would run full season throughout the year," an industry source said.

Bumper sugarcane output is expected from Uttar Pradesh and Maharashtra, the two major cane producers in the country, and the industry estimates total sugar production during this year at 23 million tonne. With a carry forward stocks of about 4.5 million tonne, the total availability of sugar would rise to 27.5 million tonne as against 24.5 million tonne with a carry over stock of 5.5 million tonne during the previous year.

Though sugar producers are embarking on major expansion plans, there would be no shortfall in sugarcane supplies throughout the season, said C S Nopany, president, Indian Sugar Mill Association (ISMA).

Moreover, the abundant availability of cane would ensure that there would be no price war for sugarcane procurement.

Last year, 40-45 per cent sugarcane supplies in Uttar Pradesh was diverted to jaggery and khandasari resulting in a shortfall of cane supplies to sugar mills. As a result, the premium offered by mill owners was high throughout the season.

"There will be no price war for sugarcane procurement this season as the companies that paid a premium for sugarcane procurement had incurred huge losses last year. The recovery on early crop was just 8 per cent as compared with the industry standard of 9.5 per cent in Uttar Pradesh," said Jagdishkumar Banka, chief general manager (Corporate Affairs), Dwarikesh Sugar Industries.

Denying the allegation that sugarcanes were smuggled to neighbouring states from Uttar Pradesh last year, Nopani said smuggling was not possible as freight costs were too high.

"During the current year, procurement would become easier and perhaps, all plants would run with full capacity throughout the season due to bumper sugarcane output throughout the country," an industry source said.

Maharashtra was the largest producer of sugar last year with 73 lakh tonne followed by Uttar Pradesh which produced 72 lakh tonne sugar. Cane output stood at about 85 million tonne and 80 million tonne for Maharashtra and Uttar Pradesh respectively.

Fresh capacities of 110,000 TCD are likely to come up in 2006-07 in Uttar Pradesh alone. Some of the leading UP-based sugar companies like Bajaj Hindustan, Balrampur Chini, Dwarikesh Sugar, Mawana Sugars and Simbhaoli Sugar are spending a total sum of Rs 48 billion on expansion plans spread over 2004-05 to 2007-08.

According to a study, a total of Rs 8.1 billion has been mobilised through Indian and overseas markets for funding the expansion plans of the sugar companies.