Seven sugar companies have declared their financial results for the quarter ending March 09, of which, 5 companies are from U.P. while 2 are from south. These companies are Bajaj Hindustan, Balrampur Chini, Triveni Engg., Oudh Sugar, Upper Ganges, Shree Renuka Sugars and Thiru Arooran Sugars. Though this represents less than 25% amongst listed peers of about 30 sugar companies, but in terms of capacity, it constitutes close to 70%.
We have been taking a bullish call on sugar sector with a view of 12-18 months on account of following parameters :
1. Lower estimated production of about 15 million tones(mt) in India, during season 08-09, which is far below the original estimate of 22 mt and about 45% lower then the last year’s production. If we take opening stock of 8 mt, as also import of raw and white during the year of about 2 mt, we would have total sugar availability of about 25 mt for season 08-09, against our annual domestic consumption of 23 mt. This will result in low carry forward inventory in next season on 30-9-09. Even for next season 09-10, India’s sugar production is not likely to exceed 18 mt.
2. Globally, sugar is heading towards its first deficit in four years in 08-09, with global production estimated to be lower at 157 mt, a decline of over 9 mt from previous season, against global consumption, estimated to rise by 2.5 mt to 161 mt. With India importing sugar, global prices should remain firm and landed cost of sugar in the country will act as a floor for the domestic sugar prices.
3. Looking to the results of the 7 companies declared so far, optically either they look flat or little disappointing. For example, Balrampur Chini had sales of Rs.357 crores with PAT of Rs.66.20 crores for quarter ending March,09, against income of Rs.311 crores and PAT of Rs.65.65 crores in the corresponding quarter of the previous year. This means, absolutely flat results. Same trend was seen in Triveni and Renuka while decline in PAT was seen for Oudh and Upper Ganges. PAT of Bajaj Hind doubled to Rs.81.39 crores for March 09 quarter, thanks to forex losses write back, provided earlier. Thiru Arooran PAT improved to Rs.5.50 crores from Rs.2.42 crores, mainly due to a lower base.
4. In the Results of sugar industries ,EBIT from segment has shown a good rise. The average realization of sugar, ex-mill in U.P., in December 08 quarter was at Rs.1,752 per quintal which rose to Rs.2,082 in March 09 quarter and now ruling over Rs.2,400 per quintal, ex-mill.
It may be seen that Renuka had maximum increase in inventory of Rs.336 crores during March 09 quarter, while it is at Rs.578 crores for 6 months ending March 09. In case of Bajaj Hind it is Rs.224 crores and Rs.338 crores, respectively, while for Triveni, it is Rs.196 crores and Rs.346 crores. In case of Balrampur Chini, it is Rs.313 crores and Rs.354 crores. However this increase is not very significant for Oudh, Upper and Thiru Arooran.
Shree Renuka has been holding 5.12 lakh bag of sugar as at 31-03-09, on which unrealized of about Rs.250 crores would get made in the current and coming quarter.Similarly, Balrampur Chini is going to report its highest ever bottomline for the year ending September, 09.
So to correctly assess the results of a sugar company, is not to see the quarterly results, but, to see how much profit would get made on the inventory being carried on by the company. Since next season is going to be more critical, an ex-mill realization of Rs.27 per kg. is just a matter of time. This gives a clear visibility of growth in the bottomline of all the big sugar companies, over next 4-6 quarters. So, keep a bullish view on the sector.