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Sugar Industry: Gearing up to tap future opportunities
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Saturday, 11 March, 2006, 08 : 00 AM [IST]
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to their 52-week peak level on account of better prospects in the international market, rising sugar prices in the domestic market, implementation of expansion plans, enhanced use of ethanol doped fuel and focus on co-generation of renewable power. The Indian sugar sector has passed through some structural changes in terms of improved cane utilisation, capacity expansion, cane acreage and production. Better climatic conditions, improved transportation facilities and strong fundamentals have made favourable impact on overall sentiment.
Though the sugar industry is known to be cyclical in nature, the Indian sugar companies are gearing their resources to tap the existing as well as future opportunities. The sugar companies are getting higher realisation from the changing demand-supply scenario. The Union Budget 2006-07 has merged the additional excise duty (AED) of 4 per cent on sugar with the basic excise duty to generate additional revenue for the Central Government. Uptill now the basic excise duty on sugar, which went to the Centre, was Rs 17 per tonne and AED, which went to the states, was Rs 21 per tonne.
However, it is expected that the state governments may bring sugar under 4 per cent VAT to compensate for the revenue loss and the price is likely to go up for the retail consumer in due course.
The FOOD & BEVERAGE NEWS study of major 20 sugar companies revealed that the net profit for the quarter ended December 2005 went up sharply by 40 per cent to Rs 272.51 crore from Rs 194.71 crore in the corresponding period of last year. Based on the Bombay Stock Exchange figures, the net sales of 20 companies moved up sharply by 48.9 per cent to Rs 2,822 crore from Rs 1,894 crore in the same period of last year. According to analysts, sugar companies are likely to display a similar trend in the remaining part of the current year on account of firmness in sugar prices in domestic as well as international markets and higher returns from by-products. The strong financial performance in the quarter helped the scrip to touch the yearly highest level.
Currently, Bajaj Hindusthan scrip is moving at around Rs 400 on the Bombay Stock Exchange as against its 52-week lowest level of Rs 123. Bannari Amman shares touched Rs 1406 on March 5, 2006, as against its yearly low of Rs 440. Shree Renuka scrip crossed the Rs 1000 mark and touched its highest level at Rs 1098 recently as against its lowest level of Rs 256. Further, shares of Simbhaoli Sugar, Sakthi Sugars, Upper Ganges Sugar and Oudh Sugars also appreciated recently. Dwarikesh Sugar entered the capital market with IPO of 50-lakh share of Rs 10 each with a premium of Rs 55 during November 2004 and currently its share is moving around Rs 250 on the BSE. This shows that the investors are getting hefty returns on investment.
An analyst pointed out that the strong FIIs and Mutual Fund buying support gave necessary upward push to several sugar scrips and the short-term as well as long-term outlook seem to be positive with better margins. The sugar prices increased to Rs 1900 per tonne in Maharashtra and Rs 1950-1960 in Uttar Pradesh and are likely to firm up further in coming months. Even the global prices are likely to touch dizzy high level with short supply. The sugar production in India is likely to touch 180 lakh tonnes in 2006 as against the expected domestic demand at around 185-190 lakh tonnes. The government has announced various initiatives and imported 20 lakh tonnes of sugar in 2004-05.
The government largely influences the dynamics of the sugar industry, the analyst (?) added. Being an essential commodity, the government controls the sugar industry end-to-end from the raw material price stage to the finished product price stage. The Central Government declares a mandatory Statutory Minimum Price every season. Further, the levy and the release order mechanisms keep some control on prices. The Tuteja Committee had submitted several recommendations to the government in December 2004 regarding free sugar release, levy sugar quota, sugarcane pricing, distance between two sugar mills, financial package, imports and excise duty. The government has taken several steps to remove the anomalies in the sugar sector.
The shortage in cane production during the 2003-04 and 2004-05 seasons pushed the prices of by-products significantly. The Central Government paid highest ever Statutory Minimum Price (SMP) of Rs 79.50 per quintal to farmers in 2005-06 to improve the plantation of sugarcane. State governments are announcing higher State Advised Price (SAP) than the SMP to improve financial position of the farmers and ensure more acrerage under sugarcane cultivation. For instance, the UP Government has declared SAP of Rs 107 per quaintal for the year 2004-05 as against SMP of Rs 74.50 per quaintal
Prices of molasses, used in alcohol have risen sharply from a level of Rs 1,000 per tonne to Rs 3,100 per tonne. Further, several sugar companies are earning hefty revenues from co-generation and investing more funds for expanding capacities.
The use of ethanol in petrol is likely to go up in the coming years. The government has made it mandatory to blend 5 per cent ethanol with petrol in various parts of the country and it is likely that the same will be increased to 10 per cent in the near future. The Indian companies will be benefited with the worldwide success in the use of ethanol over gasoline in petrol. Indian sugar mills are selling ethanol to oil companies. These positive developments generated investment opportunities for investors in sugar segment. The major companies like Bajaj Hindusthan, Bannari Amman Sugars, Dhampur Sugar, Kesar Enterprises, Oudh Sugar Mills, Sakthi Sugars, Shree Renuka Sugars and Ponni Sugar Erode performed well during the quarter ended December 2005. The net sales of Bajaj Hindusthan moved up by 136 per cent to Rs 261.78 crore from Rs 110.98 crore in the corresponding period of last year. The company's net profit also moved by 137.9 per cent to Rs 24.24 crore from Rs 10.19 crore. Similarly, the net sales of Bannari Amman, Dhampur Sugar, Kesar Enterprises and Shree Renuka Sugars increased by 131.6 per cent, 72.7 per cent, 224.9 per cent and 136.8 per cent respectively.
The net profit of Bajaj Hindusthan moved by 137.9 per cent to Rs 24.24 crore from Rs 10.19 crore and that of Bannari Amman Sugars increased by 187 per cent to Rs 22.01 crore from Rs 7.67 crore. The net profit of other companies like Kesar Enterprises, Oudh Sugar Mills, Rana Sugar, Shree Renuka, Sakthi Sugars increased by more than 100 per cent. Some companies like Balrampur Mills, J K Sugar, Simbhaoli Sugar, Triveni Engineering suffered minor setback in profitability due to the cyclical nature of the industry.
Several Indian sugar companies are expanding capacities to cater to the rising demand. Dwarikesh Sugar has set up a new project with capacity of 5,500tcd with 9mw co-generation unit. EID Parry, established in the year 1842, has acquired a 2000tcd sugar factory in Pondicherry and is now planning to invest Rs 291 crore for expansion. The company increased its cane planting area from 59,334 acres to 94,816 acres in 2004-05. After the proposed expansion its crushing capacity will increase to 14,500 tcd and power generation levels to 77mw. EID Parry launched branded sugar in the southern markets during 2004-05 and is now expanding to other parts of the country.Balrampur Chini Mills is setting up 7000tcd plant at Akbarpur in Uttar Pradesh. Triveni Engineering intends to become a large regional player. The company is planning to set up three new sugar manufacturing units with total capacity of around 7000 tcd. This will enhance i
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