Sugar mills of Uttar Pradesh are expected to post moderate operating profits in the 2012-13 marketing year, following the state government's decision to increase cane price by Rs 40 per quintal, rating agency ICRA said today.
The Uttar Pradesh government last week announced a Rs 40/quintal increase in the state advised price (SAP) of sugarcane for the marketing year 2012-13 (October-September).
The cane price for the normal varieties has been raised from Rs 240 per quintal to Rs 280/quintal. The rates for early maturing varieties has been increased from Rs 250 to Rs 290 per quintal. For the rejected varieties, the SAP has been raised from Rs 235 to Rs 275 per quintal.
Based on current prevailing prices and costs, ICRA said that the "operating margins for UP based sugar mills will moderate from the levels seen in the second half of 2011-12 sugar year unless supply-demand dynamics permit sugar mills to pass on cost increases".
ICRA said the landed cost of cane (inclusive of basic SAP, purchase tax, society commissions and inward freight costs) to be around Rs 290-295 per quintal.
The rating agency expects UP-based sugar mills to benefit from higher prices in 2012-13, higher crushing volumes and higher recovery rates, but said the higher cane costs are likely to substantially offset the positive impact of the aforesaid.
According to ICRA's estimates, with the new cane prices, the cane cost of production for sugar is likely to increase by around Rs 3500/MT and stand at Rs 30500-32000 per tonne, given that the recovery rates for most UP-based sugar mills range between 9 per cent and 9.5 per cent.
ICRA said the price of sugar for most UP sugar mills would be around Rs 33,000/tonne for 2012-13, and at these levels, most efficient and integrated mills are likely to report modest operating profits.
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