The Hindu Business Line : Sugar stocks looking up on buoyant prices

Chennai, June 29 Sugar company shares are in the rise reflecting the buoyancy in sugar prices, which are driven by the strong signals of support from the Union Government. On the exchange, share prices of leading sugar companies gained around 10 per cent, even as sugar prices started creeping up in response to the measures taken by the Government to support the mills and farmers.

According to sugar industry watchers, the announcement last week by the Government hiking the buffer stocks to 50 lakh tonnes (lt) from 20 lt earlier, the tight control on sugar release mechanism to ensure regulated supplies in the market to shore up prices and the withdrawal of some of the subsidies announced by the State governments like Maharashtra have contributed to increase in prices.

Industry sources say the sentiment in the industry is to ensure sugar prices in the open market range at least around the levy price of Rs 13.50 a kg, the price mills get for supplying to the public distribution system. Now, the open market prices are lower than the levy price at about Rs 12 a kg.

Over the last two days the situation has improved, say industry sources. In Maharashtra, sugar prices are around Rs 1,200 a quintal compared with about Rs 1,150 a week earlier. In Tamil Nadu, prices have gone up about Rs 30 a quintal to about Rs 1,250.

Sugar prices will increase at least up to the levy price levels, if not more, to touch about Rs 14 a kg in the coming days, predict industry observers.

With the Government announcing an additional 30-lt to the buffer stock last week, over the 20-lt announced in April, the mills would benefit from improved cash flows.

The Government bears the carrying cost of the sugar stocks kept in buffer, which is estimated about Rs 950 crore. Further, the mills can avail themselves of increased bank credit because they do not have to meet the 15 per cent margin on the sugar in buffer stock – the additional credit flow to mills is estimated at Rs 1,050 crore.

The Government has cut back on sugar releases to the open market. The open market release in July is 10 lt against 16 lt in June.

It is a far cry from the optimism in the industry in the last season, when sugar prices touched Rs 20 a kg. Even the share prices at the current levels are just a shade of the value they fetched at the best of times over the last one year, industry sources point out.

However, the improvement is a benefit that the industry has been looking forward to for long.