Sugar stocks hit by steep hike in sugarcane prices
Vidrum / 11 Nov 2011
The Uttar Pradesh government has hiked the State Advisory Price (SAP) for sugarcane by 19%. SAP is the minimum price at which the sugar mills purchase sugarcane from farmers. Sugar mills will now have to pay Rs 250 a quintal for the early variety, Rs 240 for normal varieties and Rs 235 a quintal for rejects.
The move came in after the input costs of producing sugarcane increased and farmers were demanding SAP price of Rs 275-290 per sugarcane quintal. The mill owners opposed this, as the cane prices were revised last year to Rs 205-210 per quintal. This has affected sugar companies like Bajaj Hindusthan, Balrampur Chini, Dhampur Sugar, etc. that have plants in Uttar Pradesh.
The following table shows the Impact on Profit with sugarcane borrowing cost increasing by Rs 35 per quintal:
The move came in after the input costs of producing sugarcane increased and farmers were demanding SAP price of Rs 275-290 per sugarcane quintal. The mill owners opposed this, as the cane prices were revised last year to Rs 205-210 per quintal. This has affected sugar companies like Bajaj Hindusthan, Balrampur Chini, Dhampur Sugar, etc. that have plants in Uttar Pradesh.
The following table shows the Impact on Profit with sugarcane borrowing cost increasing by Rs 35 per quintal:
| Sugarcane Quintal Purchased (As on Sept 10) | ||
| Name | Purchase of Sugar Cane Quintals (in Cr) | Impact on Profit With Price hiked by Rs 35 per quintal (In Cr) |
| Bajaj Hindusthan | 8.47 | 296.45 |
| Dwarikesh Sugar | 1.89 | 66.15 |
| Triveni Eng | 4.59 | 160.65 |
| Balrampur Chini* | 12.31 | 430.85 |
| Dhampur Sugar* | 6.52 | 228.2 |
| * 18 months from Oct 09 to Mar 11 | ||
The move has had a negative impact on the sugar stocks, which are down by more than 5% in the last 3 trading sessions. Bajaj Hindusthan moved down 7.67% to Rs 31.90, Balrampur Chini went down 5.69% to Rs 50.50, Dwarikesh Sugar is down 5% at Rs 39, and so on.
We, at DSIJ, feel that the sugar stocks would be under pressure for some time, and would recommend that investors stay away from the counter.
We, at DSIJ, feel that the sugar stocks would be under pressure for some time, and would recommend that investors stay away from the counter.
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