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

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

  • MyStocks

MEMBER'S LOGINX

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

Sugar Sector: Turning sweet II

Apr 28, 2008

In the last article, we had given a perspective on the recent demand supply scenario and the happenings in India in the sugar sector. In this article, we shall provide more highlights on the sector. Other crops - More attractive: As seen from the table, wheat and paddy cultivation would lead to higher earnings than the sugarcane crop. While sugarcane earnings as percentage of cost was around 60% last year, earnings from wheat and paddy stood at around 132% of cost (1 wheat and 1 paddy crop can be grown in a year). Delay in payment of cane in the last season and uncertainty over cane prices is resulting in cane farmers switching to wheat or other attractive crops. This would reduce the availability of cane by the next crushing season due to high diversion from cane to other attractive crops and under utilisation of capacity in sugar mills.

Crop Yield
(Qtl/Acre)
SP
(Rs/Qtl)
Total Earnings
(Rs/Acre)
Cultivation Cost
(Rs/acre)
Net Earnings
(Rs/ acre)
Earnings
(as a % of cost)
Sugarcane 250 110 27,500 17,215 10,285 60%
Wheat 20 1000 20,000 7,029 12,971 185%
Paddy 20 800 16,000 8,500 7,500 88%
1 Wheat+1 Paddy 36,000 15,529 20,471 132%
Source: Bajaj Hindustan presentation

Capacity expansions: The sugar companies had taken up major expansion plans in the last two to three years. On account of attractive sugar investment policy in UP, the sugar majors have increased capacities. This has resulted in huge capacity additions in the state. While Balrampur Chini has increased its capacities from 47,500 TCD to in 73,000 TCD, Bajaj Hindustan's FY08 estimated capacity is 1,36,000 TCD, up by 142% from FY06.

Delay in crushing: Normally, the sugar season i.e. crushing starts in October and ends by April-May. However, the crushing this year started by mid November. This was on account of the dispute between the mills and the government regarding the cane prices. UP mills had appealed to the central and state government to cut the price of cane to Rs 900 per quintal from Rs 1,100 per quintal fixed by the government before commencement of the crushing season. But the government was reluctant to materialize this appeal, which ultimately resulted in the mills staying away from crushing. Hence, the production is expected to be around 26 MT, as compared to the earlier estimates of 31 to 32 MT.

Huge demand potential: Based on the Tuteja Committee Report (Dec 2004), headed by Shri S.K. Tuteja, the demand for sugar is expected to grow from 24 MT in 2009-10 to 41.6 MT by 2023-24. Currently, the per capita consumption in India is very low as compared to Brazil, Russia and the US.

Going forward...
The situation for the sugar sector seems to be improving on account of late crushing, lower yield per hectare, switching of crops, higher exports thereby reducing the surplus stock in the country. Also, with higher crude prices and diversion to ethanol in Brazil, the global output is expected to be on the lower side. This has led to the rising trend in the sugar prices in recent times after having bottomed out in the last 18 months.

Production in SS08 is likely to be 26 MT, which is 7% below SS07. As per Industry estimates production in SY09 would be down to 21 MT, lower by 19% YoY due to huge crop diversion from cane to alternate crops across India. This would lead to higher realisations and higher cane costs. Also, the pain for the sugar industry is not yet over for the current season, as the mill owners are still not able to recover their cost of production from the current prices. Further, the decision on the cane prices from the Supreme Court is still pending. Though the demand scenario is robust, political regulations and the commodity cycle will have implications for the sugar sector.


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

  

More Views on News

BANNARI AMMAN Announces Quarterly Results (3QFY20); Net Profit Up 78.6% (Quarterly Result Update)

Feb 14, 2020 | Updated on Feb 14, 2020

For the quarter ended December 2019, BANNARI AMMAN has posted a net profit of Rs 361 m (up 78.6% YoY). Sales on the other hand came in at Rs 4 bn (up 19.2% YoY). Read on for a complete analysis of BANNARI AMMAN's quarterly results.

BALRAMPUR CHINI Announces Quarterly Results (3QFY20); Net Profit Down 41.8% (Quarterly Result Update)

Feb 12, 2020 | Updated on Feb 12, 2020

For the quarter ended December 2019, BALRAMPUR CHINI has posted a net profit of Rs 700 m (down 41.8% YoY). Sales on the other hand came in at Rs 12 bn (up 27.1% YoY). Read on for a complete analysis of BALRAMPUR CHINI's quarterly results.

DALMIA BHARAT SUG. 2018-19 Annual Report Analysis (Annual Result Update)

Sep 23, 2019 | Updated on Sep 23, 2019

Here's an analysis of the annual report of DALMIA BHARAT SUG. for 2018-19. It includes a full income statement, balance sheet and cash flow analysis of DALMIA BHARAT SUG.. Also includes updates on the valuation of DALMIA BHARAT SUG..

BANNARI AMMAN 2017-18 Annual Report Analysis (Annual Result Update)

Mar 14, 2019 | Updated on Mar 14, 2019

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

More Views on News

Most Popular

How the 8-Year Cycle Can Help Identify Multibaggers (Fast Profits Daily)

Sep 11, 2020

This is how you can apply the greed and fear cycle in the market to pick stocks.

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.

This Could Be the Best September for Auto Stocks (Profit Hunter)

Sep 11, 2020

Here's why I think this month could be a great for auto stocks.

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...

More

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

COMPARE COMPANY

MARKET STATS