Sugar mills' EBITDA likely to fall to 4-6% on increase in cane SAP: Analysts

Stocks of sugar companies like Bajaj Hindusthan, Balrampur Chini, Dhampur mills, Simbhaoli and Triveni Engineering have lost 70-80% of their value since January 2010. ET Sugar Index has significantly underperformed the Sensex during this period. This development has further depressed their stock prices. The stock of Bajaj Hindusthan fell by 2.5%, Balrampur by 1.4%, Dhampur Sugar by 1.1% on Tuesday.

Most analysts expected an around 10% in SAP this year. With a 17% increase in SAP, sugar companies are likely to incur more losses than expected. Analysts expect the industry EBITDA (earnings before interest, tax, depreciation) to come down from 14-15% to 4-6% due to the increase in cane cost. On a segmental basis, the sugar division would incur loss for UP sugar companies. Hence, it is believed that the companies would not accept the price.

Bajaj Hindusthan, with a debt of Rs 6,350 crore on its books, is more precariously placed than its peers. The company recently raised over Rs 1,400 crore through a rights issue to cut its debt. With SAP raised more than expected, the companywould again take a hit.

Balrampur Chini's sugar business had posted a loss in the quarter ended June 2011. The company had generated negative cash flows of Rs 619 crore from its operations for the financial year ended March 2011. It has a long-term debt of Rs 680 crore.

A further increase in cane cost will only make things difficult for the company.Mills are struggling to pay the cost of procuring sugarcane. Higher cost of cane and modest realisations are not making it a profitable business.