Better realisation results in improved profits after several years; debt reduction of 19.6% since Aug 2016 is the largest among all sectors, says RBI.
The Indian sugar industry is seeing profits improve after a gap of several years with impressive realisations in the past one year resulting in debt burden shrinking by at least a fifth.
This substantial reduction in debt burden has helped the industry post its highest ever profitability in recent past, which in turn could bolster profitability in more quarters to come, said industry representatives and sector analysts. While some domestic sugar mills saw profit margins more than double, a few other ailing sugar producers reported profits for the first time after several years.
The latest Reserve Bank of India data on deployment of gross bank credit shows the domestic sugar industry has reduced its debt burden by 19.6%, from Rs.34,800 crore in August 2016 to Rs.28,000 crore in August this year the highest debt reduction among all sectors. “We have seen substantial reduction in our long-term debt and are seeing improved profitability,“ says Tarun Sawhney, vice chairman and managing director of one of India's largest sugar producers, Triveni Engineering and Industries. “Besides, it has also helped improve our credit rating, which in turn has helped us negotiate interest rates with banks.“
Triveni Engineering BSE -0.37 % saw its operating profit margin more than double to 19% in FY17 from 8% in FY16. Others like Balrampur Chini Mills BSE -0.98 %, Sakthi Sugars BSE -0.59 % and Dhampur Sugar Mills BSE 0.14 % were among the top 20 sugar producers reporting operating profit margins of 26%, 15% and 21% respectively in FY17, significantly up from 16%, 9% and 10% in FY16. Hyderabad-based Gayatri Sugars, which was incurring losses from 2010-11, reported a profit for the first time in 2016-17. It has registered a profit of Rs.10 crore compared to a loss of Rs.13.52 crore in the previous fiscal.
“It has been a result of stable sugar prices in the past one year which has helped the companies reduce debt and improve liquidity. Also, this is the most aggressive debt reduction by the sugar industry in the past five years and would auger well for the industry,“ said Sabyasachi Majumdar, senior vice-president at ratings agency ICRABSE -1.25 %.
According to the Indian Sugar Mills Association, ex-mill prices were hovering at a comfortable range of Rs.36-37 a kg in the past one year against Rs.21-24 a kg in 2014-15 which helped improve profitability . “This will also kickstart the investment cycle, mainly into ethanol, which was on a halt since the past couple of years due to industry wide losses,“ said Sawhney of Sugar Turns Sweeter Triveni Engineering.