Earnings growth fears crush sugar stocks

MUMBAI: Sugar stocks slumped on Monday, after Shree Renuka Sugars, India’s largest sugar producer by volume, posted a second quarter net loss hit by unrealised foreign exchange losses, at a time the industry is already reeling under an increase in sugarcane prices.

A rise in prices of raw material sugarcane in one of the major cane growing states of Uttar Pradesh will dent margins and profitability of sugar companies and this is weighing down investor sentiment, said analysts. Shares of Shree Renuka Sugars closed 26% down at Rs 38.40, Balrampur Chini Mills ended 11% down at Rs 45.20 and Bajaj Hindusthan ended 6% down at Rs 29.70.

The Sensex ended the day down 0.4% at 17,119 points. After market hours on Friday, Shree Renuka Sugars posted a consolidated net a loss of Rs 615.80 crore for the quarter ended September compared with a net profit of Rs 128.10 crore a year ago. The company incurred an unrealised forex loss of Rs 569 crore.

Though its loans are due in 2013, the company included the loss in its second quarter earnings in keeping with accounting norms. Last week, UP raised the state’s benchmark sugarcane rate or socalled State Advised Price by Rs 40 per quintal to Rs 230-240 for the current crushing season.

The other large sugarcane growing state Maharashtra followed suit by raising the price for the first installment of cane to Rs 180-205 per quintal, though it did not revise its SAP. “Sugar producers based in UP such as Bajaj Hindusthan and Balrampur Chini will be negatively affected,” said Manish Mahawar, analyst at Prabhudas Lilladher.

Bajaj Hindusthan and Balrampur Chini are based in UP while Shree Renuka has mills in Maharashtra and Karnataka. “The Shree Renuka stock is down, because its major subsidiary in Brazil is in a region that reported drought. The subsidiary reported losses and downgraded crushing estimates for next year. This will affect profitability on a consolidated basis,” said Mahawar.