A sharp increase in the realisation from sugar and ethanolhelped sugar mills post stellar profit for the April-June quarter this year. The trend is likely to continue in coming quarters as well on expectations of huge inventories of sugar and ethanol, the two sectors contributing over 90 per cent of sugar companies' turnover.
Uttar Pradesh-based Balrampur Chini posted a net profit of Rs 110.7 crore for the quarter ended June '16 compared with a net loss of Rs 70.4 crore reported in the corresponding quarter last year. Profit of Sakthi Sugars also shot up to Rs 79 crore in the April-June quarter of the current year from a loss of Rs 22.8 crore in the same period last year.
"Robust performance in the sugar companies in the Q1FY17 quarter was on the expected lines. It was due to jump in sugar realisations by over 35 per cent Y-o-Y to around Rs 35/ kg on an average plus the higher sugar recoveries in the SS15-16 also supported in the margins improvement," said Afshan Sayyad, Analyst, Dolat Capital Market.
Sugar mills have accrued an average 42 per cent increase in their average realisation from their core business i.e. sugar, which alone contributes nearly 75 per cent of their sales. The average sugar M 30 in the benchmark Vashi market jumped to trade at Rs 3,712 a quintal in April-June quarter of 2017 as compared to Rs 2,613 a quintal in the corresponding quarter last year.
A recent World Bank report said that world raw sugar prices rose by 30 per cent since mid-April, from 14.3 US c/lb to 18.8 US c/lb (basis July futures) till June, reflecting perceptions of a tightening global supply-demand balance.
While announcing the June quarter result, Ajay Shriram, Chairman,DCM Shriram Ltd, had said, "Sugar business' earnings recovered vis-a-vis last year driven by improvement in the margins. We are investing on value addition to the by-products and to increase cane availability to further strengthen this business."
The net profit of DCM Shriram jumped to Rs 33 crore for the quarter ended June 2016 as compared to Rs 1.6 crore loss in the corresponding quarter last year and Rs 24 crore profit in the March 2016 quarter.
Compared to previous quarter, however, over half of listed sugar mills posted a decline in their net profit on lesser availability of saleable stocks. It is worth mentioning that crushing season comes to an end with mills declare closure for the season in and around April resulting into manufacturing units go out of production. Since mills dispose of their inventory throughout the rest of the season till September, saleable quantity of sugar diminishes day-by-day. Also, distilleries call off the season concurrently with sugar mills due to the lack of raw material. So, production of ethanol also comes to an end.
Meanwhile, a recent study by the apex industry body Indian Sugar Mills Association (ISMA) estimates India's sugar output at 25.1 million tonnes for SS (sugar season) 2016 ending in September, 11 per cent lower than last year. Sugar output is estimated to be further lower by 8 per cent to 23.1 million tonnes for SS2017.
"July-September quarter is also expected to be good on a Y-o-Y basis due to high sugar realisations and sufficient inventories with the millers to capitalize on the same," said Sayyad.
Sabyasachi Majumdar, Senior Vice President, ICRA, expects sugar prices to remain firm for the next three - four quarters on forecast of lower production of 23-24 million tonnes in FY17 because of a decline in the availability of cane in Maharashtra and Karnataka.