Stocks of UP-based sugar companies outperform peers in west, south
By Selene 0
Mumbai: The star performers in the one year ended 16 May were KM Sugar Mills Ltd (up 290.25%), Sir Shadi Lal Enterprises Ltd (208.52%) and Indian Sucrose Ltd (204.88%).
Others from the same region who performed well were DCM Shriram Industries Ltd (159.38%), Dhampur Sugar Mills Ltd (151.84%), Dwarikesh Sugar Industries Ltd (122.04%) and Mawana Sugars Ltd (105.35%)
Another 20 stocks (out of a total of 31 listed sugar companies) gained in the past year, while nine slipped. In the same period, the Sensex was up 19.22% and the Nifty 21.01%, while the BSE Midcap and BSE Smallcap indices were up 34.78% and 41.23% respectively.
“Higher production and recovery led to lower costs in the current season,” said Ajay Shriram, chairman and senior managing director at Delhi-based DCM Shriram Ltd. “The additional revenue and earnings are also attributable to higher sale of power due to higher crush as well as expanded power co-gen capacity. This season, the total crush was higher by 45% over last season, leading to higher production. Also, the recovery at 11.11% though in line with last season was higher than the sugar recovery level till 2014-15 in UP,” Shriram said.
Analysts said sugar companies based in Uttar Pradesh enjoyed better sugar realisations and are expected to see higher production this year, while drought and debt squeezed sugarcane production in the south and west.
Sugar mills in the south and west continued to suffer in FY16 due to unavailability of cane and low recovery levels, leading to high cane costs and consequently lower profitability, rating agency India Ratings and Research said. “The median net leverage deteriorated to 17.9 times in FY16 from 9.8 times in FY15,” it said in a report on 11 April.
“Sugar production in Karnataka is likely to drop to 2.5-3 metric tonnes (approximately 25% y-o-y lower) because of drought conditions. “In North, profitability of sugar segment excluding by-products may remain at Rs 4-5/kg in FY18. Although this is expected to be lower than FY17, but will be 15%-20% higher than southern and western players. Assuming a 10% increase in cane prices, spreads for southern and western millers are likely to be Rs 3-4/kg (excluding by-products) in FY18,” India Ratings said.
According to a 9 March report in The Financial Express, out of 150 mills in Maharashtra, only six mills are operational. The central government and Maharashtra government have also encouraged farmers in the state to shift to pulses from sugarcane, which is seen as a water-guzzling crop.
India Ratings expects northern millers to perform better, registering 15-20% higher EBIDTA in FY18 than their southern counterparts, even after assuming a 10% year-on-year increase in state-set prices.
It further said that production in Maharashtra is likely to take a hit and fall to 4-5 metric tonnes as acreage fell 23% year on year, despite normal monsoons, with an average recovery of 11%.
Ritesh Kumar Sahu, fundamental analyst (agri-commodities) at Angel Commodities Broking said sugar mills across Maharashtra, Karnataka and Tamil Nadu stopped crushing early this year due to shortage of sugarcane in those regions.
“Physical market players are expecting much lower production at 195-200 lakh tonnes on lower average sugar recovery for the sugarcane due to drought in the last two-years,” he added.
As per industry lobby Indian Sugar Mills Association (ISMA) Indian mills are likely to produce about 203 lakh tonnes of sugar during year 2016-17, the lowest in seven years, and 19% lower than last year’s production of 251 lakh tonnes.
Sugar futures on the National Commodity and Derivatives Exchange (NCDEX) touched an all-time high in February. Since then prices have fallen as sugar stocks at mills have surged, and reports of an year-on-year drop in sugar sale.
“NCDEX sugar hit the lowest level in 2017 at Rs 3,590 per quintal during second week of March, and then recovered about 5% in a fortnight on expectation of lower stock levels as there is possibility of increase the summer demand from the bulk and industrial buyers when market is expecting lower production for the second successive year compared to its consumption,” Sahu of Angel Commodities said.
First Published: Wed, May 17 2017. 03 35 PM IST