Most sugar companies follow the October-September period as their financial year, in line with the crushing season, and this time around Bajaj Hindusthan has reported an adjusted loss of about Rs47 crore, compared with a loss of Rs9 crore in the previous year.

According to a report by India Infoline Ltd’s institutional research desk, the company’s high leverage (long-term debt-equity ratio stands at 2:1) could weigh heavily on earnings, even if sugar prices rise from current levels.

Besides, there has been a recent high court ruling that sugar manufacturers would have to buy cane at the statutory advisory price set by state governments. This price is about 50% higher than the statutory minimum price fixed by the Central government, and is expected to lead to losses for sugar mills.

Accounting for both these factors, India Infoline has revised its earnings estimates for the next two years downward by 21% and 31%. Besides, the ethanol story has lost some strength thanks to a sharp drop in crude prices.

In Bajaj Hindusthan’s case, the fact that nearly half of the debt is denominated in foreign currency adds to investors’ woes.

Currently, this has led to non-cash losses, but if the exchange rate remains at current levels, the rupee depreciation could lead to a large jump in outgo for debt servicing. It’s no wonder sugar stocks such as Bajaj Hindusthan have declined sharply this year.

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