This season may bring more profits on lower levy, better ethanol prices.
Sugar companies are expected to improve profitability in the current year beginning October (the sugar year is from October to September) on lower levy obligation, higher ethanol prices and improved cogeneration.
“With rise in cane production and recovery, we estimate lower costs and higher sugar production. With estimates of all-India and international production showing a deficit, the domestic fundamentals are expected to be much better, which along with better cogeneration performance will help to turn around the performance of the sugar business,” said Dhruv Sawhney, chairman and managing director of the third-biggest producer, Triveni Engineering and Industries.
The company’s net profit for the quarter ended September 30 declined 75 per cent to Rs 13.85 crore.
Triveni, however, performed better than companies like Balrampur Chini and Dhampur Sugars on account of its engineering business. Both Balrampur and Dhampur incurred huge losses (see chart).
The average realisation on sugar (excluding levy sugar) was around Rs 3,000 a quintal for most companies in the previous season while the cost of production was higher as these companies paid Rs 240-245 a quintal for sugarcane.
The increase in levy sugar obligation (the portion of output that mills have to give to the government at a price it decides, presently Rs 1,800 a quintal, for the ration shop system) from 10 per cent to 20 per cent also impacted realisation. The levy obligation for the current season is seen around 10 per cent.
“High inventory cost was the main cause of loss in the year ended September 30. The loss was augmented by a rise in the levy obligation. This year looks better. Even with a sugarcane price of Rs 205 a quintal, some margin is possible if sugar is sold for Rs 2,800 a quintal. Moreover, our profitability from distillery and cogeneration business will improve given higher ethanol price and more power generation,” said Arhant Jain, president (finance) at Dhampur Sugars, which owns four sugar mills in Uttar Pradesh.
The current realisation is in the range of Rs 2,800-2,900 a quintal.
A miller from the second-biggest sugar producing state said the industry would breakeven at a sugar price of Rs 2,800 a quintal provided cane recovery for the season improves to 9.5 per cent from current level of 8.2-8.3 per cent.
He added the only way sugar price would sustain at a level of over Rs 2,800 was through export of 1-1.5 million tonnes over and above the export of around 1 million tonnes under the advance licence obligation.
The country is expected to produce over 25 million tonnes sugar this year, up over 31 per cent from last year.
