Loss to reverse in FY14 if sugar price rises: Sakthi Sugars

Shaheen Mansuri
Moneycontrol.com

After posting losses in FY13, most sugar makers believe that the trend may reverse only if production cost declines with a simultaneous hike in sugar cost.

Companies like Coimbatore-based Sakthi Sugars along with industry rivals have made several presentations to the government to look into the matter, but very little is done in this regard.

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"Sugarcane cost has gone up around 14 percent to Rs 210 per quintal whereas sugar price has almost remained same or has risen only marginally in last three sugar seasons," M Manickam, managing director, Sakthi Sugars told Moneycontrol.com in an exclusive interview.

However, sugar makers had asked to pay a minimum of Rs 170 per quintal for the current sugar season, but the central government has mandated companies to pay a price that is 23 percent higher that what they had requested for.

Even if cane price is brought down, it will not have significant impact because sugar price also has to go up in tandem for companies to improve margins. This issue can be resolved only by linking sugarcane prices to the prices of end-products, Manickam added.

He also complained that despite the central government fixing a uniform price for sugarcane, states like Tamil Nadu and Uttar Pradesh announce their own rate, which is generally higher than the government administered price. "The government should make it statutory for states to pay the set amount toward purchase of sugar," he suggested.

On the positive side, sugar mills are now given freedom from supplying subsidised sugar for state-run welfare programs, also know as sugar levy. The government has also scrapped the release order mechanism through which the government controls sugar sales in the open market.

"Total deregulation of the sector may take little time, but this partial freedom given to sugar makers certainly marks the beginning of liberating of the sector," Manickam pointed out.

Ongoing sugar sector woes are of concern to analysts too. "With sugar realisation not expected to witness significant upsides in FY14 but the spectre of further increase in sugarcane prices continuing to loom over profitability, we remain cautious on the outlook for the sector." ICICI Direct said in its recent report.

Research firm Crisil has in its recent report said that the industry may post around Rs 1,000 crore loss in sugar season 2012-13 on the back of steep rise in sugar cane procurement cost versus sugar price rise." Debt servicing ability of industry is likely to weaken due to high input cost," the report stated.

shaheen.mansuri@network18online.com