Shares of most sugar companies on Friday rallied as the Government expressed intention to help companies’ pay back farmers their dues for buying sugarcane.

Shree Renuka Sugar and Bajaj Hindusthan were up 13 per cent each to ₹31, while Balrampur Chini increased 8 per cent to ₹84. Dhampur Sugar gained 15 per cent to ₹67.

Fall in prices helps

Sharp fall in international prices has made import of sugar more profitable. Most sugar companies import raw sugar, refine it at their port-based refinery and sell it in the domestic market. Food Minister Ram Vilas Paswan had said the Government may consider increasing the 15 per cent import tax on sugar to support domestic prices. Sugar companies are struggling to repay about ₹15,000 crore they owe to sugarcane farmers.

But analysts feel that the increase in import duty will benefit sugar companies only marginally. They, however, added that the realisations in domestic market have seen some improvement, which is positive for the sugar industry.

In December, the Government had approved ₹6,600 crore interest-free loans to the sugar industry exclusively for clearing sugarcane arrears. It decided to give loans via banks equivalent to the excise duty paid by the mills in the past three years.

Paswan also hinted at the possibility of providing additional interest-free loans of ₹4,400 crore to cash-strapped sugar mills to clear dues to cane farmers. This apart, he said, the Government may increase ethanol blending in petrol from 5 per cent to 10 per cent to boost liquidity of mills.

Besides, increasing the ethanol blending the Government should also address the pricing issue between the oil marketing companies and sugar producers. Sugar companies are demanding an increase in ethanol prices to ₹40 a litre against ₹39 offered by oil companies. Since alcohol fetches ₹41 a litre, sugar companies prefer to sell it to alcohol makers.

Oil companies make payment 45 days after receiving ethanol which needs an additional round of refining compared to what is supplied to liquor makers.

Paras Bothra, Vice-President, Ashika Stock Broking, said sugar company stocks have been beaten down in last two years and many of them are trading below their replacement cost.

“With the new Government taking measures to set things right, investors are showing renewed interest in this sector,” he added.