Sugar industry is expected to post losses of over Rs 1,000 crore in 2012-13 marketing year ending September on higher input cost vis-a-vis output prices, according to a research report by Crisil.
The report revealed that the average price paid by sugar mills for sugarcane rose by 14 per cent annually, while prices of sweetener gone up by only 3 per cent annually during 2010-11 and 2012-13 marketing years (October-September).
“CRISIL Research expects the Indian sugar industry’s net losses to increase to over Rs 10 billion (Rs 1,000 crore) in sugar season 2012-13 (October to September) due to the widening gap between sugarcane and sugar prices,” the agency said in a statement.
Crisil forecast that the situation would deteriorate in the next marketing year.
“For sugar season 2013-14, the central government has announced a 24 per cent hike in the minimum price payable for sugarcane...whereas as per CRISIL Research’s estimates, the increase in sugar prices is likely to be only 8-9 per cent. The financial performance of sugar mills will, therefore, deteriorate,” the statement said.
The worst-hit will be mills in Uttar Pradesh and Tamil Nadu, where the state governments announce a State Advised Price (SAP) for sugarcane that is higher than the Centre’s Fair and Remunerative Price (FRP).
Crisil said the impact of this incongruity between the increase in prices of inputs and end-products is reflected in the balance sheets of 74 companies analysed by it.
“Together these companies account for about 50 per cent of domestic sugar production and nearly 40 per cent of them posted net losses in sugar season 2011-12,” it added.
The research firm suggested that sugarcane prices should be linked to the rates of sugar and other byproducts as recommended by the Rangarajan Committee report on decontrol of the sugar sector.
“In the last three seasons ending 2012-13, the ratio of sugarcane costs to revenues from the sale of sugar and its byproducts has soared to 76-79 per cent from an average of 67 per cent in the previous decade, pushing several mills into losses,” Ajay Srinivasan, Research Director - Industry Research, CRISIL said.