Domestic sugar production is expected to decline during SY14 to 24 million MT, says ICRA in its latest study on sugar industry. Domestic sugar production has reported a decline of 3.5% during 7M SY14 to 23.7 million MT from 24.6 million MT during the corresponding period last year. This decline was driven mainly by a reduction in the cane crushing in key producing states - Uttar Pradesh, Maharashtra and Tamil Nadu. Notwithstanding the decline, domestic production during SY14 is expected to marginally outstrip domestic consumption for fourth year in a row.
Sector expert, Sabyasachi Majumdar, Senior vice-president, ICRA, says ''A decline in production coupled with exports of 1.45 million MT during this period backed by a subsidy on raw sugar exports, is likely to result in the closing stock of sugar for the current year being marginally lower than the previous year and further supply correction is expected during SY15. Delayed monsoons and lower than expected rainfall during 2014 is likely to adversely impact the cane yields and recovery rates resulting in a decline in the cane availability and hence sugar production during SY15.''
As far as the financial performance during SY14 is concerned, the revenues of sugar mills are likely to get impacted due to lower cane crushing. Further, ICRA expects continued pressure on profitability performance for sugar mills in SY14 given the high cost of production despite some benefit derived in the form of relatively lower cane prices while considering the subsidies and concessions announced by various state governments. Profitability of sugar mills based in Uttar Pradesh and Tamil Nadu has been affected due to the high cane costs and lowery recovery rates when compared to other regions across the country. Debt levels continue to remain on higher side, although availment of interest free excise duty loans availed by the sugar mills could ease pressures on coverage indicators and liquidity. ICRA also notes that cane dues continue to remain high in states such as UP, where the state government has initiated measures to ensure that defaulting mills expedite payment of cane arrears.
Majumdar says, ''The improvement in the sugar prices since April 2014 coupled with the interest subvention loans provided under scheme for extending financial assistance to sugar undertakings for payment of cane arrears and the various incentives provided by the state governments towards cane price is likely to provide some relief to the mills during H2 SY14.''
ICRA notes that Karnataka and Maharashtra have formed a separate sugar control board and UP is planning to form a board in order to fix the cane prices from next sugar season onwards. Majumdar says, ''Ability of the industry to secure a linkage between cane price and sugar prices, especially in SAP states will thus remain critical to the long-term sustainability of the industry.''