Mumbai: Shares of sugar companies surged on Wednesday after reports that the Cabinet Committee on Economic Affairs (CCEA) has cleared a corpus of interest-free loans for these companies.

A sum of 6,000 crore has been set aside for interest-free loans to sugar mills for making payments to cane farmers, PTI reported.

Shares of Bajaj Hindusthan Sugar Ltd and Shree Renuka Sugars Ltd gained as much as 14% each on the news.

Balrampur Chini Mills Ltd gained as much as 13.31%, Dhampur Sugar Mills Ltd 11.5%, Triveni Engineering and Industries Ltd 9.09% and EID-Parry India Ltd gained 9.11%.

At close, shares of Bajaj Hindusthan Sugar rose 10.05%, Balrampur Chini Mills 2.69%, Shree Renuka Sugars 7.61%, Dhampur Sugar Mills 4.50%, while EID-Parry India gained 5.88%.

Sugar mills have been under stress due to strong output in the domestic market and subdued prices domestically and globally.

“As compared to about 240.49 lakh tonnes of sugar produced between 1 October 2013 and 31 May, 2014, in the last 2013-14 sugar season, the Indian sugar industry has produced a record 279.57 lakh tonnes of sugar in the current 2014-15 sugar season between 1 October 2014 and 31 May 2015," said the Indian Sugar Mills Association in a release on 3 June.

Sugar prices in the open market, meanwhile, have fallen by about 20% over the past year, which puts pressure on the earnings of sugar mills. The industry association added in its release that global and domestic sugar prices were at their lowest in 6-7 years.

While sugar prices in the open market have been under pressure, the price to be paid to sugarcane farmers remains government determined.

Sugarcane prices in India are controlled by the central as well as state governments. Each year the central government fixes a fair and remunerative price to be paid to sugarcane farmers for procurement of sugarcane by sugar mills. Additionally, states fix up a state advised price.

In the last one year, shares of sugar companies have been under pressure.

Bajaj Hindusthan lost 54%, Shree Renuka Sugars lost 64.41%, Balrampur Chini Mills lost 49.31%, Dhampur Sugar lost 50.63%, Triveni Engineering lost 50.43% and EID-Parry lost 27.47% over the past 12 months.

At least 12,000 crore in loans given to sugar companies have gone for restructuring over the past year, Mint reported in February.

According to data available on the CDR cell website, 17 cases with loans worth over 5,294 crore are undergoing recast through the CDR mechanism as on 31 December 2014.

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