Stocks

Low demand, high debt pull sugar stocks down

Suresh P Iyengar Mumbai | Updated on May 07, 2020

Top sugar companies are reeling under debt of about ₹11,000 crore

Sugar stocks have been hammered in the last few sessions due to expectations of lower demand from soft drink and confectionery makers on the back of Covid disruptions besides sharp fall in realisations from byproducts such as ethanol.

The demand for sugar from soft drink and ice cream companies have fallen sharply during this peak summer season despite overall lower sugar production this season (started October).

On Thursday, shares of Bannari Amman Sugars and Uttam Sugar Mills were down three per cent each at ₹860 and ₹59, KCP Sugar & Industries and Dalmia Bharat Sugar and Industries fell two per cent each to ₹12 and ₹62 and Shakthi Sugar and Shree Renuka Sugars dipped one per cent each to ₹8 and ₹5, respectively.

Top sugar companies are already reeling under debt of about ₹11,000 crore.

In fact, most of the sugar companies stocks are trading close to their 52-week low. With the falling revenue, corporates may find it difficult to pay farmers for the cane supplied.

Consumption to plunge

Sabyasachi Majumdar, Senior Vice-President, ICRA Ratings, said with nationwide lockdown, the ice cream, soft drinks and confectionary manufacturers have shut down their operations and this may pull down overall sugar consumption by at least one million tonne in the domestic market.

Usually, he said Q1 is a healthy demand season for sugar, driven by the demand for ice creams and soft drinks during summer season.

As of March end, sugar production in Maharashtra almost halved to 59 lakh tonne (lt) against 105 lakh tonnes in the same period last year, as already 118 mills have closed their crushing operations. Currently, only 28 sugar mills are in operation against 33 mills last year.

In Uttar Pradesh, sugar output was flat at 97 lt (96 lt) as of March-end while on Karnataka and Tamil Nadu it was down 33 lt (43 lt) and 4 lt (6 lt).

Despite lower sugar production for the fifth consecutive season, sweetner prices are kept under check due to high inventory and high minimum support price announced by the government.

Sugar companies started the current sugar season with an opening stock of 14.5 mt. Despite expectation of 20 per cent lower output this season, the closing inventory will be sufficient to meet six months demand of 14 mt.

Published on May 07, 2020

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