Make good use of current low valuations

Promoters of sugar companies are consolidating their holdings, taking advantage of the current low valuations in a cyclical industry.

Among the groups that have hiked their stakes are Balrampur Chini Mills Ltd, Bajaj Hindusthan Ltd, Simbhaoli Sugars Ltd and DCM Shriram Consolidated Ltd (DSCL).

Highest holding

For the quarter-ended March 2012, DSCL and Oudh Sugar Mills Ltd reported the highest promoter shareholding of over 61 per cent each. Being cyclical in nature, the sugar industry had seen valuations hit a low in the recent quarters.

The sugar stocks had been battered in recent months and scrips of many companies had hit 52-week lows in the December quarter on poor performance and weak outlook for the sector. Stocks dumped by institutional investors and the public are being mopped up at regular intervals by the promoter and promoter groups.

“We have confidence in the performance of the company and have gradually increased our promoter stake over the years according to the norms set by the Government,” said Mr Ajay S. Shriram, Chairman and Senior Managing Director, DSCL. The company has seen its promoter holding go up from 57.57 per cent in quarter-ended March 2011 to 61.14 per cent in the latest quarter.

“It is not a year-on-year trend, but part of our family philosophy to consistently increase our stake as a long-term strategy showcasing our confidence in the company,” Mr Shriram added.

Despite rising output for three consecutive years, many sugar companies continue to reel under losses as the sector is still heavily controlled by the Government. The cane arrears or the payment to be made by the companies to growers continue to rise as the cane pricing is not linked to the returns on sugar sales.

Long-term prospects

The industry continues to demand decontrol of the sector and the Government has set up a high-level panel to look into the issue. “The long-term prospects for sugar are definitely good. The capacity, which has come up in the past few years, is getting absorbed. Hopefully, with the new crop, sugar prices may see a correction,” said Mr Kishor P.Ostwal, CMD, CNI Research.

“The promoters have made good use of the low prices to buy their shares in the open market and I expect this trend to continue,” Mr Ostwal said.

However, other major sugar producers such as Shree Renuka Sugars Ltd, Mawana Sugars, Sakthi Sugars, Bannari Amman and Dharani Sugars have not seen any changes to the promoter holdings.

“It (promoters hiking stake) is company specific and cannot be generalised as a trend because of the cyclical nature of the industry,” said Mr Jagannadham Thunuguntla, Strategist and Head of Research at SMC Global Securities.

vishwa@thehindu.co.in

(This article was published on May 13, 2012)
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