Saturday, April 6, 2013

Sugar cos hail partial decontrol

NEW DELHI, April 6, 2013

The sugar industry, on Friday, said the partial de-control move would help the sector attract large scale investments, besides making business more viable.

The markets also cheered the move with shares of sugar manufacturers surging as much as 16 per cent intra-day, before ending up to 9 per cent higher on the Bombay Stock Exchange (BSE).

"It is an excellent move. The sugar industry has been going through a challenging and volatile situation over the past several years. It also has to bear the burden of levy sugar subsidisation," Wave Group Managing Director Rajendrakumar Panpalia, who oversees the sugar mills business, told The Hindu.

Open market

The decision to partially decontrol the sugar sectorwas taken by the Cabinet Committee on Economic Affairs (CCEA) on Thursday. This gives millers the freedom to sell in the open market, and removes their obligation to supply the sweetener at subsidised rates to ration shops.

Davangere Sugar Company Executive Director Abhijith Shamanur said, "It is definitely a welcome decision. Under the levy mechanism, manufacturers have to sell at least 10 per cent of their produce to the government at cheaper rates. The move will, hence, help in cutting down the losses industry was seeing."

Sugar subsidy

The decision will lead to government's annual sugar subsidy doubling to Rs.5,300 crore, while the industry will save about Rs.3,000 crore per year.

Echoing similar views, Dwarikesh Sugar Industries CFO V. S. Banga said, "Losses for the industry will certainly go down. We were selling sugar at about Rs.1,960 per quintal, while the market price was about Rs.3,200 per quintal."

The Indian Sugar Mills Association, which represents about 243 companies, said abolition of regulated release mechanism would reduce inventories and ensure better cash flows.

As suggested by the Rangarajan Committee, these decisions would help the industry to achieve its potential growth of 20-25 per cent per annum, it added.

"The reforms approved by the government for the sugar sector in India will make the industry more viable, attractive and bankable. It will attract large-scale investments from within the country as well as from abroad," ISMA said.

Rising prices

While some experts believe prices could remain volatile in the short-term, sugar companies said prices would not go up.

Minister of State for Food K. V. Thomas has also said the decision to decontrol the industry would not impact sugar prices.

G. K. Sood, an industry expert who was formerly with Renuka Sugar, said, "Prices are a function of demand and supply. The demand will not be affected due to this move and hence the prices will remain the same." Further, Mr. Banga said that while companies would now be in a position to optimise their sales and benefit more, the move "will not be a game changer."

"There are certain issues like cane prices which are yet to be solved. It would have been great if the Rangarajan Committee recommendations were accepted in total," he said.

Rangarajan committee

On similar lines, Mr. Sood said, "The Central Government, in terms of recommendations of Rangarajan Committee, has done what it could. Industry has been freed from marketing side, but cane prices are still administered by the state governments in an arbitrary manner.

"These should be related to output like in every other industry," he said.

Bajaj Hindusthan, which surged 16.19 per cent intra-day, closed 0.70 per cent up at Rs.21.45 apiece.

Shree Renuka Sugars after gaining 13.4 per cent intra-day closed at Rs.25.60, up 2.40 per cent.

Among others, DCM Shriram Industries gained 8.87 per cent, Balrampur Chini Mills climbed 3.24 per cent, Triveni Engineering & Industries (1.87 per cent), Dwarikesh Sugar Industries (2.64 per cent), EID Parry (1.83 per cent) and Eastern Sugar & Industries (2.09 per cent).

Venus Sugar was up 2 per cent at Rs.1,265.95, and Uttam Sugar closed with a gain of 19.16 per cent at Rs.22.70.

'To reduce cost by 4 %'

Lalatendu Mishra reports from Mumbai:

"The decision is a landmark for the sugar industry. In one stroke, the Government has dismantled the most onerous and archaic controls engulfing this sector," said Narendra Murkumbi, Vice-Chairman and Managing Director, Shree Renuka Sugar.

"Scrapping of controls on domestic sales (Release Mechanism) means that the domestic sugar market becomes more competitive, mills don't have to carry sugar stocks for excessive period of time and cost of financing sugar inventory will come down," Mr. Murkumbi told The Hindu.

He said farmers and the industry would benefit as sugar manufacturers would not have to cross-subsidise the public distribution system by being forced to sell levy sugar below cost. "This reduces overall costs of the industry by almost 4 per cent overall and will improve our ability to pay cane prices to our farmers," he said.

According to industry executives, the sugar industry will now have an open, competitive environment with no significant controls at the Central Government level.

The role of the state government will now become more important as its setting or otherwise of cane prices (SAP) will become a critical competitive factor.

It is expected that there would be rapid consolidation in the industry with cost efficiency, size, ability to manage price volatility and the right location in terms of state government policies being the key differentiating factors.
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