Government Support Critical for Viability of Sugar Mills: Icra
New Delhi: Government support would be critical for viability of sugar mills in marketing year 2014-15 that started in October in view of high cane prices and lower sales realisation, rating agency Icra has said.
The agency said the continuation of the export subsidy on raw sugar would be key to relieve pressure from surplus sugar stocks and also to support the domestic prices.
The agency expects the domestic sugar production to increase 3.3-3.7 per cent year-on-year (YoY) to around 25 million tonnes in 2014-15 marketing year (October-September).
"...the domestic sugar production is expected to outstrip domestic consumption for fifth year in a row," Icra said in its recent study on the sugar industry.
The rating agency noted that fall in the global sugar prices coupled with the expectation of higher sugar production in 2014-15 has impacted the domestic sugar prices in August and September.
Liquidation of sugar stocks by the mills following court action in UP has also affected the sugar prices in September, it added.
Icra expects pressure on sugar realisation in the near term due to surplus stocks.
"The continuation of the export subsidy remains critical to relieve pressure from the domestic sugar stocks and support the domestic sugar prices to an extent...Going forward, with the range bound realisations and high cane prices, continued government support remains critical for viability of the sugar mills in 2014-15," Icra said.
Profitability of sugar mills based in Uttar Pradesh and Tamil Nadu is most hit due to the high cane costs and lower recovery rates when compared to other regions across the country.
High cane price of Rs 280/quintal declared by the UP state government continues to impact the profitability of the UP sugar mills. However, the government has announced a provision of Rs 20/quintal, with around Rs 15.20 as reimbursement and remaining as exemption from levies.
India is the second largest producer of sugar after Brazil and is the biggest consumer.
