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Sugar stocks: Sweeter medium-term prospects

This article was posted on Dec 12, 2013 and is filed under Market News

Centre’s financial package will only provide short-term relief; profitability boost, led by market-based cane pricing, only after a year

For the bleeding sugar sector, the recommendations of a financial package and doubling of ethanol blending in petrol to 10 per cent provided some respite. However, the real gains would accrue once the committee to link the prices of sugarcane with those of sugar brings out its recommendations and these are implemented.

Analysts say the benefits for sugar producers would accrue only after a year. Given the financial performance, business model and debt levels of sugar companies, they prefer Balrampur Chini and Shree Renuka Sugars, from a medium-term perspective.

In Uttar Pradesh, unpaid cane price arrears from sugar year 2012-13 (October-September) stood at Rs 2,400 crore. With the state government maintaining cane prices at Rs 280 a quintal for sugar year 2013-14, the arrears were estimated to exceed Rs 12,000-13,000 crore in March-April 2014, according to Indian Sugar Mills Association (Isma).

The Centre’s decision to provide Rs 7,200-crore loans to the sugar sector for paying cane arrears with 12 per cent interest subsidy (seven per cent to be paid from the sugar development fund and five per cent by the government) bodes well. This has led to cane crushing by sugar mills in Uttar Pradesh, which was delayed by about a month. The industry would also be provided a moratorium of two years on repayment of loans. The government is also considering restructuring existing loans, which should provide further relief to the sector, which has debt of about Rs 20,000 crore.

Source: Business-Standard

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