The recent price hikes will boost profits of these companies by 30-50% for the sugar year October 2016 to September 2017, according to estimates. Analysts tracking the sugar industry expect prices to firm up further. “Prices may rise further due to supply shortage in Maharashtra and Karnataka," said Daljit Kohli, head of research, Indianivesh securities, who has been bullish on Balrampur Chini and Dwarikesh Sugar for some time now.
Balrampur, Dhampur and Dwarikesh are the three largest UP-based sugar companies with capacities of 76,500, 45,500 and 21,500 tonnes per day , respectively. With rising profits, these companies should become debt-free next year, unless they plan for further capacity expansion. This has boosted their stocks by 13-26% over the past week.
Why Sugar Prices are Rising?
However, the closing stocks of around 4.8 million tonnes in sugar year 2017, lower than the normative sugar stock level of around 6.4 million tonnes (based on the assumption of requirements of three months' domestic consumption), would be sufficient to meet the requirement of around only two months of domestic consumption, instead of usual three months.
However, some industry observers believe that two months inventory is sufficient to meet the demand.Abinash Verma, director general of sugar lobby ISMA explains that though the sugar year starts from October 1, sugar production from new season comes into full swing from November-end.
Therefore, carryover stocks are required to meet the domestic consumption needs for this intervening period of 2 months.Previously, the government had a norm of having opening balance of 3 months consumption.
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