Sugar sector: Bitter-sweet outlook - 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: Bitter-sweet outlook

Jul 23, 2008

With the sugar-crushing season nearly coming to an end, in this article we given an update on the recent happenings and our outlook on the sugar sector.Indian scenario: Domestic production in the sugar season October 2007 to May 2008 touched 25.4 MT, lower by 6% YoY. Fall in the area under cultivation on account of lower prices, mounting arrears and higher prices of other crops have been cited as the main reasons. The sugarcane crop output is projected to fall to as low as 21 to 22 MT next year as farmers will be encouraged to switch to grains and oilseeds.

Sugarcane output in India was an all-time high at 28.4 MT last year leading to fall in prices. This delayed the start of the crushing period and thereby lower production in the current period. Earlier, most industry players and the government were expecting India's sugar production to be at least 30 MT in FY09, 2 MT more than last year, which is now pegged at 26.3 MT (crushing is still on in Tamil Nadu, Maharashtra and Karnataka), lower by 7% from 28.5 MT in last season.

  • State wise prodcution: The 2 largest sugar producers Maharashtra and Uttar Pradesh are witnesing lower prodcution in FY09. As seen from the table, the output in Maharastra has declined by 1.2%, while Uttar Pradesh witnesed a fall of 13.7% for the Octobler to May period.

    States/ MT2006-072006-07*2007-08*% change
    Uttar Pradesh8.478.467.3-13.7%
    Tamil Nadu2.652.492.7912.0%
    Andhra Pradhesh1.681.651.3-21.2%
    All - India28.327.125.4-6.3%
    * Oct - May period.
    (% change calculated for Oct- May period)

  • Exports: India exported about 3.6 MT of sugar in the current season till May 2008 as compared to 1.7 MT in the previous year. The government had banned sugar exports in July 2006 to rein in the spiraling prices. However when the ban was lifted in January last year, the record output added to woes of the sugar mills. In recent times the government has offered the export assistance to liquidate the surplus stock in the overseas market. Indian sugar exports are likely to touch record 4.2 MT this sugar season, overtaking previous estimates of 3.5 MT.

Sugar Sector: Turning sweet?

Global scenario: Sugar exports from Australia, the world's third-largest shipper, is expected to decline this year on account of the closure of a CSR, a sugar mill, which produces about 12%, of the company's annual sugar cane crush. Further, weather changes have also led to a decline in the production. In the case of Brazil, the heavy rainfall and higher crude prices (sugar being diverted to ethanol) has led to the sugar production go down by 25% YoY. Yields per hectare on an average were down 8.9% YoY from the same period last year, while sugar yield per ton of sugarcane declined by 21.3% YoY. The sugarcane diverted towards ethanol production has increased from 58% last year to 64% in FY08.

Sugar prices: The price of sugar in India has witnessed volatile trends in recent times. While the prices rose in March 2008, on account of lower production, they declined in the subsequent months with partial removal of government aid for carrying buffer stock. The government has been compensating sugar factories the carrying cost of 5 MT of buffer stock since October 2007. However, in month of July 2008, the price increased by 8% from June 2008, on account of supply shortages and higher exports.

Cane prices: The Allahabad High Court, in July 2008, fixed the state advised price (SAP) for sugar at Rs 125/quintal in Uttar Pradesh. In other states except Uttar Pradesh, statutory minimum price (SMP) announced by central government forms the basis of pricing, which is lower than SAP. However, in Uttar Pradesh the sugar mills have been contesting for lower SAP due to their inability to pay high SAP. The high prices have affected the margins of sugar companies and led to losses in the last fiscal. The final order of the Supreme Court is awaited and may come by end of August 2008.

To conclude...
Talks are on regarding the removal of the government quota on the quantity of sugar sold by mills, which would bring some relief to the sugar producers. Also on account of lower production, prices may rise. However the higher cost of cane would continue to affect the companie's performance. Further, with the ethanol-blending programme not yet taking off, the companie's revenues would largely continue to depend on the sugar sector.

Equitymaster requests your view! Post a comment on "Sugar sector: Bitter-sweet outlook". Click here!


More Views on News

SHREE RENUKA SUGARS 2020-21 Annual Report Analysis (Annual Result Update)

Nov 3, 2021 | Updated on Nov 3, 2021

Here's an analysis of the annual report of SHREE RENUKA SUGARS for 2020-21. It includes a full income statement, balance sheet and cash flow analysis of SHREE RENUKA SUGARS. Also includes updates on the valuation of SHREE RENUKA SUGARS.

TRIVENI ENGG 2020-21 Annual Report Analysis (Annual Result Update)

Nov 3, 2021 | Updated on Nov 3, 2021

Here's an analysis of the annual report of TRIVENI ENGG for 2020-21. It includes a full income statement, balance sheet and cash flow analysis of TRIVENI ENGG. Also includes updates on the valuation of TRIVENI ENGG.

E.I.D. PARRY Announces Quarterly Results (1QFY22); Net Profit Up 117.1% (Quarterly Result Update)

Aug 16, 2021 | Updated on Aug 16, 2021

For the quarter ended June 2021, E.I.D. PARRY has posted a net profit of Rs 3 bn (up 117.1% YoY). Sales on the other hand came in at Rs 44 bn (up 5.1% YoY). Read on for a complete analysis of E.I.D. PARRY's quarterly results.

Why Did Sugar Stocks Surge Today? (Views On News)

Jun 3, 2021

A look into the factors contributing to the rally in sugar stocks.

BALRAMPUR CHINI Announces Quarterly Results (1QFY22); Net Profit Down 46.0% (Quarterly Result Update)

Aug 11, 2021 | Updated on Aug 11, 2021

For the quarter ended June 2021, BALRAMPUR CHINI has posted a net profit of Rs 719 m (down 46.0% YoY). Sales on the other hand came in at Rs 11 bn (down 20.3% YoY). Read on for a complete analysis of BALRAMPUR CHINI's quarterly results.

More Views on News

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

India's Top 5 Monopoly Stocks to Watch Out for (Views On News)

Nov 30, 2021

These 5 companies dominate their sectors with a huge piece of the pie.

The Biggest Winners and Losers in India's Transition to Electric Vehicles (Profit Hunter)

Nov 26, 2021

How India's EV transition could be a major headwind for the incumbents.


Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms