Sugar output to grow; mills operating profits to be hit: ICRA

Even as sugar production is estimated to grow by 33 per cent in the sugar year 2018(SY), beginning from October 1, the operating profits of mills are likely to take a hit this fiscal due to higher cost of cane production, ICRA said in a report.

"Based on current trends, domestic sugar production for SY18 is anticipated to increase by at least 33 per cent to around 27 million tonne against the earlier estimate of 26 million tonne, although it can even be higher," ICRA senior vice president and Group head Sabyasachi Majumdar said.

This has been driven principally by a recovery in production in Maharashtra, North Karnataka and Uttar Pradesh (UP), he added.
 

The domestic sugar consumption is expected to increase to around 25 million tonne in SY18 from 24.5 million tonne in SY17, he said.

"As the production will be higher than consumption in SY18, we expect a closing stock of around 66.5 million tonne," he said.

However, the upward revision in sugar production estimate, along with the liquidation of sugar stocks, has resulted in a decline in the sugar prices during December 2017 - February 2018, the report said.

Sugar prices declined from Rs 37,000-37,500 per tonne in October 2017 to Rs 34,000 per tonne in December 2017 and further to Rs 31,500 tonne in February 2018 (first week).

The prices of the sweetener picked up in the recent weeks following the government initiatives including doubling of import duty to 100 per cent and the imposition of limits on sugar sales by sugar mills and prices are currently hovering around Rs 34,500 - Rs 35,000 per tonne.

However, ICRA said, there might be renewed pressure on the sugar prices, especially if the final production would be higher than the current estimates of around 27 million tonne.

Meanwhile, Majumdar said, sugar mills are likely to report a decline in the operating profits in FY18 on account of higher cost of cane production (higher state advised price and fair and remunerative price for the current season) along with pressure on sugar prices during the final quarter of FY18.

However, the mills based out of Maharashtra and north Karnataka are likely to reap some benefits out of higher production and the UP-based mills could be benefited by continued healthy volumes and recovery rates in FY18, he said.

Given the increase in production levels and fall in prices, govt support will be critical for the financial performance of the sugar industry in the near-term, he pointed out.