Some good news for sugar stocks

In a meeting held on Nov 22, 2011, the Empowered Group of Ministers (EGOM) approved sugar exports of 1 MT under the Open General License scheme for 2011-12 (Oct-Sep), and also lifted the stock holding limit on sugar from Nov 30, 2011. The decision will further improve the cash flows of the sugar companies, and enable them to make timely payments to farmers.

The move came in response to the demand from millers after the sharp rise in cane prices earlier. India’s export production for 2011-12 is expected to be approximately 25-26 MT, as against 24.36 MT in 2010-11.

Indian sugar exports are carried out using the Open General License (OGL) and Advance License Scheme (ALS). OGL is a permit that the govt. gives to the mills to export sugar without any restriction and condition. In 2010-11 (Oct - Sept), the govt. had allowed 2.6 MT of exports, out of which 1.5 MT was through the OGL in 3 equal tranches. The remaining 1.1 MT was exported through the ALS. Going forward, with the limit raised from 0.50 MT to 1 MT, we expect the exports under OGL to be up to 3 MT over 3 equal tranches.

Currently, the stock holding limit for traders of sugar is of 500 tonnes. The stock holding limit on sugar will also be removed from Nov 30, 2011. With this, the burden on traders will also be reduced.

The move will bring some relief to the sugar companies, which suffered a setback in the past from the news of the cane price hikes. The rupee's depreciation will be an added advantage in the current environment.

Sugar stocks are trading in a mixed bag, as the broader market is down by 2.27%. Stocks like Eastern Sugar and Empee are trading in the green, while Bajaj Hindusthan, Balrampur Chini, Shree Renuka Sugar, etc. are trading in the red, in line with the market.

The following table compares the Indian supply and demand position of sugar: