Sugar Sector: Turning sweet? - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Sugar Sector: Turning sweet?

Apr 17, 2008

Over the last two years, the sugar sector has been witnessing hard times. Excess production across major producing countries has led the sugar prices to crash. Raw sugar prices were down 14% YoY till November 2007. However, in the last quarter, the sugar industry has been on an upturn given the lower production and depleting inventory. Global sugar prices have moved up by 30% in the past six months. After increasing by 7.2% in 2005-06, production was up by 10.4% in 2006-07. However as indicated by the table below, the production is expected to fall thereby bringing some relief to the sugar companies.

World sugar scenario
Sugar (MMT) 2006-07 2007-08e 2008-09e
Opening Stock 64.1 72.9 80
Production 166.9 168.9 160
Imports 51.8 51.1 52
Consumption 153.8 157.7 162
Exports 56.2 55.1 52
Closing Stock 72.9 80 78
Stocks as % of consumption 47.4% 50.7% 48.1%
Stocks as No. of Months 5.69 6.09 5.78
Production (%) 10.4 1.2 5.3
Consumption (%) 5.2 2.5 2.7
Source: Bajaj Hindusthan

The Indian side...
For SS06-07, the sugar production was estimated at 22 MT, while actual production was 28 MT. The previous year on account of deficit, the sugar prices were very high. This led to higher cane prices and massive crop switching from other crops to sugarcane. Also capacity expansions were taken. This all led to higher cane production in the sugar season 2006-07. Further, higher global production too added to the fury.

However in recent times, domestic sugar production may not be as abundant as previously estimated. It is estimated to be around 26 MT, as compared to the earlier estimates of 31 to 32 MT. Lower production is mainly on account of expected fall in sugarcane acreage and lower yield due to huge cane arrears of the last season. This lower production would leave inventory of 3.6 months at the end of season 2008/09. Lower inventories will lead to a rise in average domestic sugar prices over next two seasons.

Domestic sugar scenario
Sugar (MMT) FY06 FY07e FY08f FY09f FY10f
Opening Stock 4.6 3.7 7.7 7.7 5.2
Production 19.3 28 26 21 24
Imports 0 0 0 0 0
Consumption 19 22.5 23 23.5 24
Exports 1.1 1.5 3 0 0
Closing Stock 3.7 7.7 7.7 5.2 5.2
Stocks as No. of Months 2.2 3.9 3.6 2.7 2.6
Stock to use ratio (%) 18.4 32.1 29.6 22.1 21.7
Source : BHL. F10 demand based on Tuteja Committee Report (Dec 04),
headed by Shri S.K. Tuteja, the then Secretary, Department of Food and Public Distribution, Govt. of India

Also, recently some positive developments were announced in the favour of the sugar companies.

  1. Allahbad High Court Order: It quashed the SAP (State Government) price for 2006-07 and 2007-08 of Rs 125/qtl. Further, it has passed the order to form a Committee of Experts to re-fix cane price for 06-07 based on transparent norms. This Committee will recommend a mechanism for fixing a fair SAP within three months. Till then, the High Court has ordered sugar companies to pay the SMP declared by the Central Government for sugarcane, which is significantly lower at Rs 81.18 a quintal at a base recovery of 9%. Excess sugarcane payments made in 2006-07 will be adjusted against outstanding arrears and future cane payments if the ruling comes in favour.

  2. Supreme Court Interim Order: In an interim order fixing the price for crushing season 2006-07, the Supreme Court recently stated that sugar mills in Uttar Pradesh would have to pay cane-growers between Rs 115 and Rs 123 per quintal, depending on the quality of the produce. Also, for payments that had been made according to a price that was more than what was fixed recently, no recovery would be made by the mill-owners and no interest would be paid to the farmers for delay in payments. However, this judgement pertains only to arrears for 2006-07 whereas issues pertaining to arrears 2007-08 are still in court. The Supreme Court passed the order on a bunch of petitions filed by the farmers and the Uttar Pradesh government challenging an Allahabad High Court order quashing the government’s decision to fix the price at Rs 125 to Rs 130 per quintal.

  3. Ethanol Blending Program: 5% blending has been made mandatory from October 2007 at Rs 21.5/litre for two years. 10% blending would be made mandatory from October 2008. This would enable companies to diversify their revenues.

  4. Supreme Court Judgment on molasses sales: The order was passed in favour of the companies having sufficient captive consumption. These companies need not compulsorily sell 20% of molasses production to liquor manufacturers, which they were required to sell earlier. This would have a positive impact on revenues to the tune of Rs 150 to Rs 200 m.

Going forward...
Around 3 MT of raw sugar is likely to be exported in SS 2007-08. Lower production and exports would lead to lower sugar inventories. As a result, sugar prices would firm up and this is already being witnessed in recent weeks. Even the decision on molasses and ethanol seems to be positive for the companies. However, with elections likely to be held in the near future, the decision on cane prices would hold the key for the financial performance of sugar companies.

Equitymaster requests your view! Post a comment on "Sugar Sector: Turning sweet?". Click here!


More Views on News

BAJAJ HIND. SUGAR Announces Quarterly Results (4QFY19); Net Profit Up 256.1% (Quarterly Result Update)

May 28, 2019 | Updated on May 28, 2019

For the quarter ended March 2019, BAJAJ HIND. SUGAR has posted a net profit of Rs 2 bn (up 256.1% YoY). Sales on the other hand came in at Rs 21 bn (up 35.8% YoY). Read on for a complete analysis of BAJAJ HIND. SUGAR's quarterly results.

BAJAJ HIND. SUGAR Announces Quarterly Results (3QFY19); Net Profit Down 12.8% (Quarterly Result Update)

Feb 25, 2019 | Updated on Feb 25, 2019

For the quarter ended December 2018, BAJAJ HIND. SUGAR has posted a net profit of Rs 2 bn (down 12.8% YoY). Sales on the other hand came in at Rs 17 bn (up 49.3% YoY). Read on for a complete analysis of BAJAJ HIND. SUGAR's quarterly results.

BAJAJ HIND. SUGAR 2017-18 Annual Report Analysis (Annual Result Update)

Dec 19, 2018 | Updated on Dec 19, 2018

Here's an analysis of the annual report of BAJAJ HIND. SUGAR for 2017-18. It includes a full income statement, balance sheet and cash flow analysis of BAJAJ HIND. SUGAR. Also includes updates on the valuation of BAJAJ HIND. SUGAR.

More Views on News

Most Popular

Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

Sep 17, 2020

This leading household brand will profit big time in a post covid world.

My Top Stock to Buy in this Market Selloff (Profit Hunter)

Sep 22, 2020

The recent correction offers a great opportunity to buy this high conviction smallcap stock.

What Do the Charts Say About Buying Smallcaps Now? (Fast Profits Daily)

Sep 18, 2020

Everyone seems to be excited about buying smallcaps now...but is it the right thing to do? What do the charts tell us? Find out in this video...

Can the Nifty Fall to 10,200? (Fast Profits Daily)

Sep 24, 2020

The Nifty has reached an important support level today. If it breaks then we could see further downside.


Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms


Sep 25, 2020 (Close)


  • Track your investment in BAJAJ HIND. SUGAR with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks