Sugar Stocks Gain On Debt Restructuring

Dynamic Equities | June 8, 2017, midnight

In trade today, FMCG Sugar saw a collective upward movement. Stocks like Upper Ganges, Sakthi  Sugar, Dalmia Sugar, Mawana Sugar, Ugar Sugar, Dwarikesh Sugar, Dhampur Sugar, KM Sugar and Oudh Sugar gained anywhere from 3 per cent to 10 per cent. And here’s why-

The rise in the sweet sector:

The gain in the sector has been mostly due to the plans of Debt Restructuring by Union Finance Ministry. The Union finance ministry is deliberating a proposal to restructure sugar mills’ debt, which is under severe pressure due to lack of capacity utilization. While sugar crushing started two months ago, some mills in Maharashtra and Karnataka don’t have sufficient sugarcane to crush and are said to be closing operations. The sugar sector’s total debt is projected at Rs 50,000 crore.

In a meeting with sugar sector representatives on Tuesday, Finance Minister Arun Jaitley emphasized on the need for debt restructuring. T Sarita Reddy, president of Indian Sugar Mills Association (Isma), said the Finance Minister gave them a patient hearing. He sounded positive. The Finance Minister said that the main issue is debt restructuring. He marked a copy to the finance department to take it further.

Isma appealed the government to restructure sugar mills’ debt under a scheme similar to S4A (Scheme for Sustainable Structuring of Stressed Assets), which is for major industries having exposure of Rs 500 crore and above. As the majority sugar mills individually will not have exposure of Rs 500 crore, they requested to modify the scheme specifically appropriate for the sugar industry by modifying the exposure to Rs 100 crore and taking internal cash growth of one year period as the basis since sugar is a seasonal business.

Sugar prices have started increasing but the industry is unable to make money because capacities are not completely utilized owing to lower availability of cane. In the meeting with the Finance Minister, the subject of lower production was also discussed. Isma’s estimate for October-September 2016-17 sugar season is 23.4 million tonnes (mt) as compared to the Government's 22.5 mt. Last year, sugar production was 25.2 mt. Among the other things, demands of Isma are keeping the industry under the lowest goods and service slab, which could be 5%.

Declining Export prospects:

According to industry body ISMA, exports have stopped since a 20 per cent export duty was imposed in June as shipments from India are no longer feasible in the Global market. India, which is the world’s second major sugar producer after Brazil, exported 1.6 mt of the sweetener till May in the 2015-16 marketing year (October-September). The export duty imposed in June this year has managed to hold exports and ensure adequate availability of the sweetener in the domestic market for the present. The idea behind imposing the export duty of 20 per cent in June this year was that if there are no exports then the sugar stock might be managed without imports. Right now there is no urgent need to encourage imports as with production estimated at 22-23 mt in the 2016-17 sugar season that began in October, the shortfall of 2-3 mt could be managed by the carryover stock if exports don’t happen.

With no exports happening, India could manage with a sugar output of 23.4 mt , as estimated by the industry, with a carryover stock of 7.7 mt as on October 1, 2016 as it would result in total sugar availability of 31.1 mt against estimated consumption of 25.5 mt.

However, things could change if the estimates go wrong. There is no accurate system of data collection for agriculture. Now that crushing season has begun, after two-three months different data could appear on production. But as of now, there are no intentions to import according to the officials.

Sugar prices are ruling at about Rs. 40/kg in the open market, about the same point as was in June this year, but there have been fluctuations following the Government’s decision to demonetize high-value notes in November.

Stock gains on debt restructuring:

Dwarikesh Sugar Share price leaped 10.27 per cent and traded at the day’s morning high of 329.50. The stock had opened at Rs. 302.40 while it had closed at Rs. 298.80 on the previous day.

Andhra Sugar share price gained 5.81 per cent at Rs. 215.50. It had opened at Rs. 205.95 against its previous close of 203.65.

Oudh Sugar share price surged 10.67 per cent t the high of Rs. 109.90. The stock previously closed at Rs. 99.30 and today it opened at Rs. 100.90.

Dhampur Sugar share price hiked 6.58 per cent at Rs. 134.75. Dhampur Sugar opened today at Rs. 129.70 while yesterday it had closed at Rs. 126.10

Mawana Sugar share price went up by 8.80 per cent to trade at the morning high of Rs. 48.40. The stock opened right at its previous close price of Rs. 44.85.

Upper Ganges Sugar share price hiked 10 per cent at Rs. 314.25. The stock opened higher at Rs. 288 than its previous close price of Rs. 285.70.

Dalmia Bharat Sugar share price gained 8.08 per cent and traded at the morning high of Rs. 139.65. The stock had closed at Rs. 129.20 the previous day and today it opened at Rs. 131.

KM Sugar share price traded at the day’s morning high of Rs. 29.50 up by approximately 4 per cent. The stock had opened a tad higher than its previous close price.

Balrampur Chini share price gained 3.62 per cent at Rs. 127.15. It opened at Rs. 124 while it had closed at Rs. 122.70 the previous day.

Triveni Engineering share price also witnessed some movement gaining over 2 per cent in trade today at Rs. 62.25.

KCP Sugar share price gained approximately 4 per cent while Sakthi Sugar surged approximately 8 per cent.

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