INDIA: Sugar mill equities down as much as 75% in a year

Published: 03/13/2018, 9:59:16 AM

Shares of sugar companies have fallen by up to 75% over the past year, due to a sharp fall in prices of the commodity in physical markets, according to India's Business Standard newspaper.

Mills have been making distress sales since the beginning of the current season in October 2017 to clear farmers' cane payment arrears. A minimum storage limit and lack of export initiatives have been other problems in coping with overproduction.

The share price of Riga Sugar is down 74% to INR10.2 (US$0.16) since its peak of INR39.9 in April last year. Simbhaoli Sugar, Mawana Sugars and Dwarikesh Sugar have lost 66.8%, 65% and 64.6% since their respective peaks last year. Industry leader Bajaj Hindusthan posted a 46.5% decline in its share price as of Monday, at INR10.08. Shree Renuka Sugars has lost 31.2% in stock value to INR15.4.

Record cane yields in Maharashtra and north Karnataka have boosted output estimates for sugar and depressed prices. "Sugar output is expected to remain surplus even in the next season. The government needs to allow export of 1.5 million tonnes of white sugar for the current season and over four million tonnes of raw sugar for the next one," said Abinash Verma, director-general, Indian Sugar Mills Association.

The industry body's estimate of India output was 25.1 million tonnes of sugar at the start of the crushing season, revised to 26.1 million tonnes in February and to 29.5 million tonnes this month.

In 2016/17, the country's sugar production was 20.3 million tonnes. Estimated domestic consumption is about 25 million tonnes. There is also four million tonnes of carryover stock from the previous season.

"This means five million tonnes of surplus sugar is expected (at the start of) next year as well. This needs to be reduced by all means for survival of the industry and smooth payment to cane farmers," said an industry veteran.

One immediate result of the hike in output estimates and liquidation of stocks, especially by several cash-strapped mills with limited access to working capital, to meet cane payments, has meant a slide in prices. From INR3,700-3,750 a quintal in October 2017 to INR3,400 in December and further to INR3,150 a quintal in February 2018. At the wholesale market in Navi Mumbai, the M-sugar variety was INR3,300 a quintal on Monday, compared to INR4,076 a quintal at the beginning of April 2017. And, cane payment arrears had risen to INR140 billion by end-January.