Sugar stocks tumble again as excess supply weighs

Last Updated: Thu, Mar 08, 2018 13:22 hrs

Excess supply of sugar in the market and the resultant fall in prices continue to weigh on sugar stocks on the Indian bourses.

Several stocks in the sugar space have hit fresh 52-week lows, extending recent losses.

Balrampur Chini Mills tops the list of losers among sugar stocks, declining nearly 11%. Avadh sugar is down 10.5%, while Dalmia Sugar and Uttam Sugar are down by about 9.4%. KM Sugar Mills, Dhampur Sugar, Triveni Engineering, Dwarikesh Sugar, Dharani Sugars, Mawana Sugars, DCM Shriram, Thiru Arooran Sugars and Empee Sugars are down 4% - 9%. Sakthi Sugars, Rajshree Sugars, Ugar Sugar, Magadh Sugar, Bannariamman Sugar, Bajaj Hindustan and Simbhaoli Sugars are also down sharply.

According to data from Indian Sugar Mills Association, sugar production increased by as much as 42% to 23.05 million tonnes during the period March 2017 - February 2018, compared to the previous 12 months.

Among the reasons attributed to the surge in output are that crushing operations began at full capacity much earlier during this period and improvement in sugarcane acreage for the sugar year 2017-18. Higher rain fall levels in the year, compared to the previous year also contributed to the increased output of sugar in several states.

With demand-supply mismatch a bit wider, the spot price of sugar dropped by about 20% from its yearly high, resulting in losses for many sugar companies. Higher cane costs cut down operating margins of mills.

As the government controls sugar prices, the margins of the sugar mills have declined considerably in the midst of falling sugar prices.

In order to support sugar industry, the government imposed limits on sugar sales by mills during the period February - March 2018, aiming to support falling prices of sugar on account of excess supply. The import duty on raw and refined sugar has also been increased to 100% with a view to prevent dumping of heavily subsidized sugar from Pakistan and to protect domestic farmers.

Premier rating agency Crisil said last month that these restrictions would arrest the downtrend in sugar prices and lead to an 8-10% improvement in realisations, and thus help mills improve their profitability and to clear arrears.

But then, with output increasing, concerns remain with regard to falling profitability. And now, it is expected that the coming sugar season too would see high sugar output.

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