Costlier cane to weigh on sugar mills’ earnings
Despite buoyant production, earnings of sugar mills on an average are expected to fall by 200 to 250 basis points during the current sugar year (October 2017-September 2018), because of the increase in cane prices, a Crisil Research report has said.
“High prices in SY 2016-17 and higher production in SY 2017-18 is of little cheer to mills because the differential between sugar prices and cost of cane continues to narrow. Cane costs are set to rise by 11 per cent, even as sugar prices moderate marginally in the current year,” the report said.
Input costs
Raw material accounts for over 70 per cent of the cost of sugar mills. So, the more the gap between sugar prices and cane cost, the better the margins for mills.
The wholesale prices of sugar increased 13 per cent in the previous sugar season. They hit a peak of ₹40 per kg in February 17, riding mainly on depletion of inventory in sugar season 2015-16.
“Sugar prices and closing inventory have an inverse relationship. As inventories remain stable in the current season, sugar prices would correct only marginally,” it said.
Region-wise output
Crisil Research said the integrated sugar mills in North India were expected to do relatively better than those in the South. Rise in production will be limited to the southern States.
Mills in Maharashtra, which along with those in south India witnessed a 16 per cent fall in production in the previous season, were projected to recover in the current season.
The overall production in 2017-18 was expected to increase by nearly 30 per cent, aided by higher production in Uttar Pradesh and Maharashtra, it said.
Source: thehindubusinessline:Published on 2017-12-26