Higher cane prices may dent the profitability of sugar mills, but those in Uttar Pradesh and Maharashtra may still benefit from higher volumes of sugar production, rating agency ICRA said on Monday.
But luck may not favour sugar mills in Tamil Nadu and South Karnataka — still recovering from low rainfall — as they continue to smart under low cane availability and higher fair and remunerative price (FRP), ICRA senior vice-president Sabyasachi Majumdar said.
The rating agency said it expected sugar production in the current sugar year (October 2017-September 2018) to be 25 million tonnes (mt) — up 23 per cent from the previous year’s 20.3 mt.
UP to gain
According to ICRA, the major beneficiary State this year would be UP — where production is expected to grow by 18 per cent year-on-year — close to 10 mt, thanks to higher acreage under better variety, healthy cane volumes and higher recovery rates.
Though mills in Maharashtra would witness the highest 71 per cent year-on-year growth in production, this would largely offset steep falls in their production levels last year. Total sugar output expected from Maharashtra mills is 7.2 mt. Mills in Karnataka, on other side, would have around 24 per cent increase in production to 2.6 mt.
“As far as UP-based mills are concerned, they are likely to be benefited by healthy sugar prices, along with continued healthy volumes and recovery rates, although that impact could be partly offset by moderately higher cane prices,” Majumdar said.
Prices may dip
But he did not rule out some short-term softening of sugar prices in the next quarter on account of the arrival of fresh sugar supply from the new crop.
Even then the margins and cash flow generations for mills with efficient operations, forward integrations and adequate stocks are likely to remain satisfactory, he said. “These (UP) mills have by and large seen significant de-leveraging over the last couple of years, which will help them withstand cyclical downturns better,” said Majumdar.
PTI adds: Sugar production in the country rose 30 per cent to 69.4 lakh tonnes (lt) during the first two and half months of the current marketing year on higher cane output, according to the ISMA.
Mills have produced 69.40 lt of sugar till December 15 of the 2017-18 marketing year as compared to 53.46 lt in the corresponding period of the previous year, ISMA said in a statement.
As on December 15 469 sugar mills were crushing sugarcane for the year 2017-18 against 449 mills last year same time, it added.
ISMA has pegged the output at 251 lt in 2017-18 against 203 lt in the previous year.
Mills in Maharashtra have produced 25.50 lt of sugar till December 15, up from 17.25 lt in the year-ago period. In Uttar Pradesh, production rose to 23.37 lt (17.66 lt). Sugar production in Karnataka stood at 11.5 lakh tonne, slightly higher than the year-ago period.
The association said buying interest is improving as well as the stock holding limit on traders has been removed, which should boost sugar demand and sales.