Sugar firms are reaping the benefits of rising sugar prices and low-cost cane stock. Most firms had carry-over stocks of sugar from the previous season, when cane was much cheaper than at present. While the Centre is trying to talk down sugar prices, the underlying supply shortage still remains. Sugar firms expect domestic realizations to rise to as high as Rs50 per kg by the end of the sugar year (in September) in Uttar Pradesh, from about Rs40 per kg at present.
In this backdrop, Shree Renuka Sugars Ltd reported a 3.6 times jump in sales to Rs1,444 crore in the three months ended December. The firm has followed a strategy of having stand-alone refining capacity in addition to cane crushing capacity to refine raw sugar in the off season. At the start of the quarter, it had 390,344 tonnes of sugar, of which about one-fifth was imported white sugar and one-fourth was raw sugar stock. The firm’s sugar revenue during the quarter rose by 3.5 times to Rs926 crore, against the same period last year. Apart from higher realizations, which were up by 76%, higher capacities enabled it to produce and sell more sugar during this period, against the previous year.
Profit margins in sugar were at 20%, against about 10% in fiscal 2009. The ethanol and cogeneration plants underperformed during the quarter due to lower sales of ethanol and lower realizations for power exported to the grid. Cane crushing during the quarter was lower against the same period last year, due to a late start to crushing. Lower crushing and a fall in recoveries (sugar realized per tonne of cane crushed) also affected output. The firm made up for the shortfall in sugar made from cane, by processing raw sugar and by importing white sugar.
Shree Renuka’s net profit during the quarter stood at Rs261 crore, which is higher than the previous full year’s (October-September) profit of Rs225 crore. At the end of the quarter, it had a white sugar inventory of 324,395 tonnes, which it will sell in the coming quarters. In addition, it has 329,006 tonnes of raw sugar and will produce sugar by crushing cane too. Though it has substantially higher sugar inventory for the March quarter, against the December quarter, its cost will also be higher since cane costs are higher and raw sugar prices, too, have been rising.
Going forward, margins are likely to be lower than current levels, as the differential between its cost of production and market realization may narrow. It had acquired a Brazilian sugar firm recently that raises some uncertainty in terms of the effect on consolidated financials. The positives are already factored in its share price, which recently touched its 52-week high, but the uncertainty on future sugar price trends is preying on investors’ minds. The stock closed down 1.5% on Monday. The firm announced after market hours that it will consider a bonus issue. While this has no effect on valuations, it may boost sentiment temporarily.