Sugar prices have risen further in the past few days, after the government allowed the industry to export one million tonnes of the commodity and removed stock-holding limits on bulk users. Wholesale sugar prices have reached about 34 a kg in Delhi, gaining 10% in November.

Sugar Cubes. File photo Bloomberg)

The company’s full year results show total sales rising 68.8% y-o-y to 4,850.4 crore, reflecting higher production, while operating profit rose by 45%. The sugar division’s profit rose 22%, but the real kickers to profit came from its distillery and power divisions; their profit rose 4.6 times and 27%, respectively. Still, a 28% increase in depreciation and a 71% increase in interest costs led to net profit declining 76.8% to 12 crore.

Bajaj Hindusthan’s interest costs in 2011-12 are expected to be lower. One, it has used 1,145 crore from its rights issue proceeds to fund working capital needs. Further, its opening inventories are far lower than last year. The company has preferred to write down inventory, and lower carrying costs, rather than wait for sugar prices to increase.

The company expects to produce about 1.1 million tonnes of sugar in the current season, which is about 10% higher than last year’s level. The cost of cane is expected to be higher, as the state advised price (SAP) has been hiked by about 17% y-o-y in Uttar Pradesh. The industry has said it needs sugar prices to be about 34-35 a kg to justify the current SAP. So, current price trends are encouraging.

At the consolidated level, Bajaj Hindusthan’s operating income (sales plus other operating income) rose 53% to 5,082 crore, while it earned a profit of 21 crore, nearly half of what it got in the previous year. In the current year, results will also reflect higher income from the power business, as investment in coal-based power units adjoining the sugar plants come on stream.

The single positive in the company’s favour is the firmness being displayed by sugar prices. If they hold up—which is uncertain given the trends of the past few years—its results should better last year’s numbers. The stock rose 5.3% on Thursday. If food inflation trends down in the next few months, the government may well look the other way. The risk is if it does not; as then the government may turn the screws on sugar prices again.

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