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Suresh P. Iyengar

`Recent fall in price realisation is major concern'

Mumbai June 22 The Government decision to raise sugar buffer stock and extend concessions has apparently not delighted the capital market.

Sugar stocks on the BSE have been on the slide for the last few months due to fall in price realisation.

On Friday, Thiru Arooran Sugars closed down 4.05 per cent at Rs 116; Dhampur Sugar Mills was lower by 2.75 per cent at Rs 62, Balrampur Chini Mills fell 2.73 per cent to Rs 67; Shree Renuka Sugars dipped 2.18 per cent to Rs 602 and Bajaj Hindustan dropped 2.12 per cent to Rs 161.

Sugar stocks continued its downtrend during the week. Over the week, Oudh Sugar Mills fell 5.68 per cent; Thiru Arooran Sugars dropped 5.69 per cent; Dhampur Sugar Mills dipped by 5.42 per cent; and Balrampur Chini Mills closed lower by 4.11 per cent.

The Government on Thursday decided to increase the sugar buffer stock from earlier 20 lakh tonnes to 50 lt. The buffer will be maintained at the company godown with the Government bearing the storage cost.

Additionally, sugar companies can avail themselves of additional bank credit of about Rs 630 crore by getting their 15 per cent margin money released against the pledged buffer stock (average valuation of Rs 14,000 per tonne).

Earlier on April 20, the Centre notified the creation of a 20-lt buffer for a one-year period from May 1, 2007 to April 30, 2008.

Need export concession

"The increase in buffer stock limit by 30 lakh tonne to 50 lakh tonne was more or less expected.

Apart from fall in domestic price realisation, rising rupee has taken a heavy toll on exports. Sugar companies need some export concessions," said an analyst.

Sugar mills are expected to produce over 280 lakh tonne in sugar season (October-September) 2006-07, while the domestic consumption is pegged at 195 lt. For the year 2007-08, the output is projected even higher at 300 lt.

"The next sugar season may be as bad as this year or even worse with opening stock for year 2007-08 pegged at 110 lt and a production of 300 lt. We don't see a major jump either in domestic consumption or export demand. At most, the rise in buffer stock would provide a temporary relief," said a company official.

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