Sugar escalates Rs 70-90 in Mumbai

Published on 2009-05-02 15:14:17

Sugar escalates Rs 70-90 in Mumbai

Published on 2009-05-02 15:14:17

Sugar escalates Rs 70-90 in Mumbai

Published on 2009-05-02 15:14:17

BY S.P.Tulsian

As of now, 7 sugar companies have declared their financial results for the quarter ending March 09, of which, 5 companies are from U.P. while 2 are from south. These companies are Bajaj Hindustan, Balrampur Chini, Triveni Engg., Oudh Sugar, Upper Ganges, Shree Renuka Sugars and Thiru Arooran Sugars. Though this represents less than 25%  amongst listed peers of about 30 sugar companies, but in terms of capacity, it constitutes close to 70%.

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We have been taking a bullish call on sugar sector with a view of 12-18 months. This is mainly due to lower estimated production of about 15 million tones(mt) in India, during season 08-09, which is far below the original estimate of 22 mt and about 45% lower then the last years production. If we take opening stock of 8 mt, as also import of raw and white during the year of about 2 mt, we would have total sugar availability of about 25 mt for season 08-09, against our annual domestic consumption of 23 mt. This will result in low carry forward inventory in next season on 30-9-09. Even for next season 09-10, Indias sugar production is not likely to exceed 18 mt.

 

Even globally, sugar is heading towards its first deficit in four years in 08-09, with global production estimated to be lower at 157 mt, a decline of over 9 mt from previous season, against global consumption, estimated to rise by 2.5 mt to 161 mt. With India importing sugar, global prices should remain firm and landed cost of sugar in the country will act as a floor for the domestic sugar prices.

 

However while looking to the results of the 7 companies declared so far, optically either they look flat or little disappointing. For example, Balrampur Chini had sales of Rs.357 crores with PAT of Rs.66.20 crores for quarter ending March,09, against income of Rs.311 crores and PAT of Rs.65.65 crores in the corresponding quarter of the previous year. This means, absolutely flat results. Same trend was seen in Triveni and Renuka while decline in PAT was seen for Oudh and Upper Ganges. PAT of Bajaj Hind doubled to Rs.81.39 crores for March 09 quarter, thanks to forex losses write back, provided earlier. Thiru Arooran PAT improved to Rs.5.50 crores from Rs.2.42 crores, mainly due to a lower base.

 

So  can we really call these results as good ones?

 

Yes. To understand it better, one must look at the segment results of sugar, where, EBIT from segment has shown a good rise. The average realization of sugar, ex-mill in U.P., in December 08 quarter was at Rs.1,752 per quintal which rose to Rs.2,082 in March 09 quarter and now ruling over Rs.2,400 per quintal, ex-mill.

 

So, one needs to look at the increase in inventory, between October 08 to March 09, as, since inventory is valued at cost or market price, whichever is lower, it has an unreleased gain of about Rs.5 per kg. Apart from this, Renuka Sugar and Sakthi Sugar have imported raw sugar of over 40 lakh bags, each, at an average cost of sugar at Rs.21 per kg., after refining, so even this will have an unreleased gain of Rs.4 per kg.

 

It may be  seen that Renuka had maximum increase in inventory of Rs.336 crores during March 09 quarter, while it is at Rs.578 crores for 6 months ending March 09. In case of Bajaj Hind it is Rs.224 crores and Rs.338 crores, respectively, while for Triveni, it is Rs.196 crores and Rs.346 crores. In case of Balrampur Chini, it is Rs.313 crores and Rs.354 crores. However this increase is not very significant for Oudh, Upper and Thiru Arooran.

 

Shree Renuka has been holding 5.12 lakh bag of sugar as at 31-03-09, on which unrealized of about Rs.250 crores would get made in the current and coming quarter.Similarly, Balrampur Chini is going to report its highest ever bottomline for the year ending September, 09.

 

So to correctly assess the results of a sugar company, is not to see the quarterly results, but, to see how much profit would get made on the inventory being carried on by the company. Since next season is going to be more critical, an ex-mill realization of Rs.27 per kg. is just a matter of time. This gives a clear visibility of growth in the bottomline of all the big sugar companies, over next 4-6 quarters. So, keep a bullish view on the sector, considering these parameters.

Source

Country liquor may push sugar prices to new high
27 Apr 2009, 0041 hrs IST, Nidhi srinivas, ET Bureau

If you think the sugar industry is on a roller coaster, you haven’t seen anything yet. The next season, that starts October 1, may well make several eyeba*ls start from their sockets. Country liquor will decide sugar’s fate. And the outcome will be a no-brainer. Men are willing to pay far more for their favourite tipple than their wives will pay for sugar.

The story hinges around gur or jaggery, made in kolhus across thousands of tiny villages and along the roadside in Uttar Pradesh, Maharashtra, Andhra and Karnataka. Gur is boiled, filtered and solidified cane juice without removing the molasses, which gives it the distinctive golden brown colour. Maharashtra, by the way, is India’s largest producer and consumer of gur, with even a dedicated agricultural export zone (AEZ).

Molasses are fermented to make alcohol. Since sugar mills separate molasses from the juice while making sugar, alcohol companies — large and small — have assured supply. When molasses is in short supply, the larger alcohol companies import it. The country liquor makers simply brew gur to get the same result. Rather like the way Russians brew potatoes for vodka.

Today almost all the gur being made is going into country liquor. Manufacturers in western UP’s Muzaffarnagar district put the figure at 92%. It is still being produced despite the intense summer heat because profits are crazy. Demand from country liquor has reduced gur stocks by 40%, emptied cold stores, pushed up factory gate prices 200% to an unprecedented Rs 26/kg (more than sugar actually), and allowed gur makers to pocket a profit of Rs 600/quintal.

No one living has seen this kind of money in gur, says Anurag Goel, managing director of large producer Rama Mustard and Food Products in Muzaffarnagar. “Prices have cooled down a bit in the past few days because liquor makers are facing a labour shortage.

All the men are being used to harvest wheat,” he says. Once the wheat is cut, and the men are paid, demand for alcohol and gur will jump. Now that gur manufacturers have tasted blood, the game has changed. When the new marketing season, gur kolhus are ready to pay Rs 16/kg for cane, up from Rs 9/kg they paid in October last year. By season’s end, kolhus could be paying Rs 20/kg for cane.

“If the cane crop is good, this will be the range. But if rains are poor in September-October and affect the crop, god knows where cane prices will go,” says a gur broker in Muzaffarnager. In short, the average price of cane in 2009-10 may well be higher than the maximum cane price in 2008-09.

For a sugar company CEO, this kind of talk means only one thing: time to stock up on anti-depressants. Mills, that usually start a few weeks later, will be able to buy cane only if they pay equal, if not more than kolhus. Since kolhus usually pay within 30 minutes of delivery, farmers use them like an ATM.

Sugar factories, on the other hand, are like fixed deposits. The money is safe but not available immediately. To keep in business, sugar companies across India will have to pay an average Rs 20/kg for cane. That means sugar will cost Rs 22/kg at factory gate, or not less than Rs 27/kg in the retail market.

Even if you set aside alcohol for a minute, the new season’s demand and supply balance sheet also points to a price of Rs 27/kg. India will start the season with leftover stocks of barely 2.5 million tonnes (mt). About 19 mt new sugar (less because of diversion to gur) may be produced, which would bring total local supply to 21.5 mt.

Since demand is virtually equal, India may have to import anything between 2 mt and 4 mt sugar to build up stocks and keep the pipeline moving. In short, the international market, that is already pointing $30-per-tonne higher by September, will set the price line in India.

The big question, of course, is will mills make money? Ideally they should. Crushing more cane means that while their sugar output will be 20% higher than last year, their overheads per unit would be lower than last year. As imports will happen only when there is price parity between local and overseas markets, there is a very good chance of domestic sugar prices becoming hugely attractive. In theory, that is.

For the sugar industry, life in the next season will be decided by the pincer effect of gur and government. The pickings look rich. Just remember not to celebrate with country liquor.

Abhi, got this:

"This means that the sugar mill complex is equipped to extract an entire range of the products, apart from sugar, from the primary raw material - sugarcane. This includes using bagasse, which is the sugarcane fibre, as fuel to fire the cogeneration plant, and molasses, a by-product, is used in the distillery to make alcohol and other downstream products."

Just google for "integrated sugar" for hits.

Though I wonder about livemint's distinction. Could you post that link or article here?