Sugar companies' profit set to rise on firmer prices

The profit of sugar companies is expected to improve with prices firming up on the back of lower sugar production. Domestic sugar production for sugar season started in October was revised downwards by 7.8 per cent to 26 million tonnes from the earlier estimate of 28.2 mt.

This apart, exports are expected to be 3.5 mt which is likely to improve demand and support the sugar prices in the near term. Sabyasachi Majumdar, Senior Vice President, ICRA Ratings, said closing sugar stocks has been revised to 10-10.5 mt against 12.5 mt post downward revision of the sugar production estimate.

The domestic demand-supply situation would relatively be better, supporting the sugar prices to hover at current level of Rs 33-34 a kg. Moreover, farmers remunerative price fixed by government for Sugarcane procurement has been retained at last year level of Rs 275 a quintal. Retaining the FRP at last year's level will be a saving grace for the sugar industry in the face of the supply-induced pressure, he said.

Sugarcane output down

Sugarcane production is likely to be lower by 21 per cent in this season compared to 32.9 mt logged in last season. The cane availability in Maharashtra and Karnataka was adversely impacted last year due to drought, while this year heavy rainfall and water logging will hit output in Maharashtra and North Karnataka.

In Maharashtra and Karnataka, the production is likely to decline by 42 per cent and 28 per cent to 6.2 mt and 3.2 mt, respectively. The production in Uttar Pradesh will be closed to last year's higher level of 12 mt. ICRA expects sugar consumption to increase to 26.7 mt this season outstripping production by about 0.7 mt.