Indian sugar sector hopes better margins to clear a fifth of debt

HYDERABAD: Indian sugar industry expects better profitability this year and clear at least a fifth of its debt of around Rs 10,000 crore in the backdrop pf improving domestic sugar realisations for nearly a year and stable cane prices.

Top industry body representatives claim, which was also corroborated by the sectoral analysts, to achieve higher recovery rates that will help them improve margins and clear substantial portion of cane dues.

Of the Rs 51,000 crore odd debt accumulated over the last five years, the industry hopes to clear Rs 10,000-15,000 crore over the next 12 months, said Tarun Sawhney, president of the Indian Sugar Mills Association (ISMA).

"We expect the average price realisations to be better this year that will help in clearing the dues to farmers, bank debt and other repayments towards plant modernisations," Sawhney, who is also the vice chairman and managing director of Triveni Engineering and Industries, told ET.

The debt, which rose by Rs 40,000 crore in five years by 2016, in fact stood at Rs 11,000 crore in 2011.

Spot price refers to the price at which sugar millers sell the produce in the wholesale market.

While spot price till July last year was hovering around Rs 22 per kg, much below the cost of production leading to losses for the millers, they reached around Rs 33-34 per kg this year, helping industry gain profits.

The sugar industry’s production and sales volumes (including exports) during sugar year 2015-16 (Oct 2015-Sep 2016) are likely to be around 25 million tons and 27 million tons respectively, says rating agency ICRA India’s senior vice president Sabyasachi Majumdar.
"Given the prevailing sugar prices, the industry would generate revenues of close to Rs 80,000 crores from sale of sugar alone. And that apart, the industry would also generate substantial revenues from by-product sales," said Majumdar.

"In our opinion the revenues would, apart from meeting current expenses, also generate surpluses to clear off substantial chunk of past cane arrears as well as a proportion of short-term working capital loans availed from banks."

Further, the ICRA analyst said the volume sales would be higher than production, which help not just meeting domestic demand of 25-26 million tons and also help the industry export around 1.6 million tons of sugar.

The Rs 90,000 crore industry is fragmented and largely characterised by presence of larger players with capacity of over 5,000 tons of cane crushed per day. While larger players owe around 70% of loans towards the banks, the smaller players have higher outstanding towards the farmers.

T. Sarita Reddy, ISMA’s vice-president and also the executive director of Gayatri Sugars, said, "The industry expects to clear dues towards farmers and banks on better realisations. However, it shouldn’t be construed that the industry is reaping undue benefits as prices go up."

Several years of sluggishness amidst low price realisations had led to mounting of debts and subsequent closure of sugar mills, she said.

During the last 5-6 years, only 500 out of 642 sugar mills were functioning. "However, despite expectations of a profitable year, the industry would not go for any expansions," said Sarita.