For most sugar mills in northern states, especially Uttar Pradesh, their dues are substantially higher than the value of their inventories, which poses a threat to their potential to raise working capital for the next season.

Data for the quarter ended March this year show Bajaj Hindusthan Ltd (BHL) had total loans of Rs 5,585.71 (short-term loans of Rs 3,073.1 crore and long-term borrowing of Rs 2,509.6 crore), against its total inventory worth Rs 2,673.5 crore. As of May 23, BHL, India’s largest sugar manufacturer, had total cane arrears of Rs 1,937.1 crore.

As such, short-term borrowings and cane arrears amounted to Rs 5,013.2 crore, 53 per cent higher than the value BHL’s inventories, as of May 23.

With sugar mills agreeing to give undertakings to the government to pay cane arrears, a mandatory clause to secure incentives, the government is set to notify a package for the revival of these mills.

“The incentives on production and exports, followed by restrictions on import, are likely to raise sugar prices in domestic markets and the realisation for sugar mills thereupon. The sentiment will further change in the industry’s favour after the Budget (scheduled for July 10),” said Harish Vasudevan, strategist, SVS Securities.

The payables of other companies, including Simbhaoli Sugars, Mawana Sugars and Rana Sugars, are also higher than the value of their inventories. For instance, the total payables (short-term borrowings and cane arrears) of Simbhaoli Sugars stand at Rs 1,315.9 crore, against its Rs 476.5-crore inventories. The total dues of Mawana Sugars and Rana Sugars stands at Rs 831.3 crore and Rs 697.7 crore, against their inventories worth Rs 530.2 crore and Rs 638.6 crore, respectively.

Recently, the government announced a number of incentives for sugar mills. In addition to increasing the import duty from 15 per cent to 40 per cent, the loan equivalent to excise duty was extended from three years to five years. These incentives helped raise sugar prices by Rs 2 a kg, resulting into higher realisation for mills.

“Anticipating higher prices, mills held sugar stocks. Sugar sales to open markets slowed since February, amid expectations of supportive measures, as suggested to the government, resulting in piling up farmers’ cane arrears to the tune of Rs 11,000 crore,” said a senior official.
 

A committee headed by C Rangarajan, former chairman of the prime minister’s economic advisory council, had recommended sugar mills pay at least 70 per cent of their realisations to farmers, something North-based mills failed to do. “Delay in the payment of arrears is bound to discourage farmers from sowing sugarcane for the next season,” said Vasudevan.

By contrast, companies such as Balrampur Chini and Dwarikesh Sugars have substantial inventories, worth more than the sum of short-term debt and arrears. Against its total payables of Rs 1,444.6 crore, Balrampur Chini has inventories worth Rs 2,092.3 crore, while Dwarikesh Sugars’ inventories stand at Rs 436 crore, against its payables of Rs 377.3 crore.