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Our Bureau

Mumbai, Feb. 4 The current sugar season (October 2007-September 2008) will have a negative impact on companies, Rating agency Fitch has said.

Despite sugar prices gaining ground, uncertainty surrounding the issue of cane pricing and the reinstatement and terms of the Uttar Pradesh sugar policy will have a direct bearing on a producer’s profitability, the agency said.

The Supreme Court on December 19 stayed the Allahabad High Court order quashing the UP Government’s SAP (state advised price) of Rs 125-130 per quintal for 2006-07. The next hearing is on February 12.

With the ruling in force, private mills will have to pay the outstanding SAP cane arrears of Rs 900 crore. Cooperatives and State Government-owned factories account for Rs 130 crore and Rs 75 crore. Recovery certificates (RCs) issued by the State Government against mills that had not paid the SAP now stand revived.

The RCs empower the relevant district magistrate to seize sugar stocks, land, plant and machinery of the defaulting factories and put auction them to pay the growers, Fitch said.

In the coming season, it is estimated that India may produce 28 million tonnes of the sweetener compared with 31 million tonnes initially forecast.

In anticipation of lower production, domestic sugar prices in UP rose to Rs 1,480-1,500 per quintal in January from Rs 1,375 per quintal.

Global sugar prices touched $300 per tonne due to escalating crude oil prices that led to the demand for alternative bio-fuels and the diversion of sugarcane for ethanol production in Brazil.

However, Fitch believes the current price rise is more of a short-term.

The losses incurred by sugar companies in 2006-07 led to deterioration of their credit profiles.

However, companies in southern States, which pay SMP (statutory minimum price) of Rs 90 per quintal and expect sizable ethanol revenues over the next few years, would be in a better position.

In UP, integrated mills such as Balrampur and Bajaj Hindustan would benefit with ethanol production; and if SAP is closer to SMP.

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