Difficult to pass on increase in cost, says Geojit BNP Paribas

Most of the sugar company stocks, especially from Uttar Pradesh, fell sharply. Balrampur Chini and Dhampur Sugar Mills were down 9 and 7 per cent each to Rs 55 and Rs 60. Shree Renuka Sugar dipped 2 per cent to Rs 33 and Bajaj Hindustan fell 1 per cent to Rs 28. Triveni Engineering plunged 5 per cent to Rs 20 and Dwarikesh Sugar Industries dipped 4 per cent to Rs 40.

Profit squeeze

The rise in sugar cane prices in Uttar Pradesh is likely to squeeze the profitability of sugar companies.

On Friday, the Uttar Pradesh Government increased State-advised price of sugar cane by Rs 40 a quintal for the current sugar year 2012-13 (October-September).

The order raises the cane price for the normal varieties to Rs 280 a quintal from Rs 240 a quintal paid last year and that of the early maturing varieties will go up to Rs 290 from Rs 250 a quintal.

For the rejected varieties, the SAP has been raised to Rs 275 from Rs 235 a quintal. At these prices, the landed cost of cane (including freight) cost to be about Rs 290-295 a quintal. Sugar cane production in Uttar Pradesh is expected at 6.8 million tonnes this year.

Gaurang Shah, Assistant Vice-President, Geojit BNP Paribas Financial Services, said it will be difficult for the sugar companies to pass on the increase in cost as the sugar price is controlled by the Government by calibrating supply on a regular basis to maintain prices.

The cane cost for UP sugar mills is expected to increase by about Rs 3,500 a tonne to Rs 30,500-32,000 a tonne.

Crushing may offset

The impact of higher cane cost may be partially offset by increase in crushing volumes (about 15 per cent growth) and jump in recovery rates (an improvement of about 0.3 per cent), said an ICRA report.

With the expected sugar price (ex mill, net of excise) for most UP sugar mills at about Rs 33,000 a tonne this year, most efficient and integrated mills are likely to report modest operating profits, it said.

Suresh.iyengar@thehindu.co.in

(This article was published on December 10, 2012)
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