Less Impact of Lockdown on Sugar Demand, Proposed Increase In MSP to Support Profitability

The industry was able to achieve good domestic consumption as well as record good exports in the 2019-20 season. Sugar production for SS20 is estimated to be 272 lakh tonnes.Meanwhile, the COVID-19 outbreak is likely to result in decline in demand by around 5 per cent in SS20, Ind-Ra said.

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Source: ET| 06 August, 2020 | 12:37 PM

Despite the lockdown, the Indian sugar industry has recorded sales close to the previous year and a proposed increase in minimum selling price of sugar is expected to keep cash ows healthy during 2020-21 sugar season beginning October 1.The industry was able to achieve good domestic consumption as well as record good exports in the 2019-20 season.

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According to India Ratings and Research’s (Ind-Ra) outlook for the sugar industry, the increase in MSP of sugar by Rs 2/kg is likely to support protability in second half of the scal 2021, with a potential to accelerate the cash ows of sugar mills by about Rs 50 billion.

“Despite the lockdown, consumption of sugar in 2019-20 has been similar to the consumption of 255 lakh tonnes in the previous year,” said Vivek Pittie, president, Indian Sugar Mills Association, speaking at a recent industry webinar; reported by ET.

Sugar sales were higher in the pre-lockdown period. In June, when the central government was mulling an increase of Rs 2/kg in the minimum selling price of sugar (MSP), trade sources said large quantities of sugar was sold in anticipation of booking profits

“Along with the cabinet note to increase sugar MSP, the ministry of consumer affairs floated a note to increase the fair and remunerative price of sugarcane by Rs 10/quintal to Rs 285/quintal for sugar season 2020-21.

However, Ind-Ra expects the realisations to increase by 6%-6.5% against an increase of 3.5% in the cost, resulting in a net cash inow of around Rs 25 billion,” Ind-Ra said in its report.

However, industry leaders say that the profitability of sugar mills will be dependent on factors other than the sugar prices.

“As India is expected to have excess sugar in the next two years, the profitability of the sugar mills will largely depend upon how much sugar they divert for ethanol production,” said Prakash Naiknavare, managing director, National Federation of Co-operative Sugar Factories.

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However, Ind-Ra has said that a large number of small/mid-sized companies have a stretched liquidity position that is likely to have been exacerbated by the working capital build-up due to slowdown in sugar/ethanol off take and stretch in payments from state discoms in first quarter of fiscal 2021.

“We have been taking soft loans to pay cane price to the farmers. Now, the smaller mills can survive only if they get one time subsidy to clear their balance sheets,” said Vijay Autade, a senior sugar industry consultant from Maharashtra, as reported by ET.