The stocks of sugar companies rallied as much as 10% on Monday after food and civil supplies minister Ram Vilas Paswan proposed an additional interest-free loan of Rs 4,400 crore for sugar mills and raising sugar imports duty from 15% to 40%.
Other proposals included extending the sugar exports subsidy of Rs 3,300 per tonne till September and raising the mandatory level for blending ethanol in gasoline to 10%. Ethanol is extracted from sugarcane molasses, a derivative of the sugar refining process.
Shree Renuka Sugars (10.32%), Bajaj Hindusthan (9.87%), Andhra Sugars (6.33%), Dhampur Sugar Mills (7.81%), Oudh Sugar Mills (4.91%), Rajshree Sugars & Chemicals (4.90%) and EID-Parry (4.78%) were the major gainers on BSE.
The decisions were taken after a high-level meeting on Monday. Paswan, however, said these decisions will be announced on condition sugar mills assure settling Rs 11,000 crore due on the cane growers.
Mills can avail additional interest-free loans of up to R4,400 crore from banks. This will improve their cash flow to make cane payments, said Paswan.
Sugar companies have been under stress with 46 sugar companies together posting a net loss of R3,808.46 crore in FY14, data collated from Capitaline show. Shree Renuka Sugars (R1,478 crore), Bajaj Hindusthan (R1,022 crore), Dhampur Sugar Mills (R78.35 crore) and Rajshree Sugars & Chemicals (R34.36 crore) have all posted losses in FY14.
The sugar industry has been facing cash crunch due to higher cost of production and lower selling prices in the wake of surplus output over the past few years. Currently, sugarcane arrears stand at R11,000 crore across the country, with the maximum of R7,200 crore in Uttar Pradesh.
Mills are facing a cash crunch as domestic prices have slipped below the cost of production, hurting their profits. They also fear domestic prices could fall further if cheaper imports are not curbed.
Most sugar stocks have outperformed the Sensex in the year-to-date. Bajaj Hindusthan (108.9%), Dhampur Sugar Mills (90.1%), EID-Parry (53.7%), Andhra Sugars (41.9%), Oudh Sugar Mills (47.9%) and Shree Renuka Sugars (46.27%) have been the major gainers in CY14. Sensex is up 18.2% in YTD.