Sectoral Analysis of Sugar Sector:- (January 2018)

Sectoral Analysis of Sugar Sector:-

Avoid Sugar Companies for sometime as we are facing over capacity and quite under utilization of capacity. India needs max 25 million tons sugar while it has current capacity of 40 million tons. Moreover, even the cost of sugar manufacturing is too high to make even the export of sugar as unsustainable. Hence, avoid sugar sector itself for sometime now.

Pls note the following points:-

1. When the manufacturing cost price of sugar stands at much higher than the sugar prices world over, it hardly matters what's the export duty is and whether it has been reduced or not. Probably a export subsidy, if given, would have helped but it has not been provided.

2. Many factories are actually running at less than 50% of their capacities currently which effectively means less cash for paying the farmers from whom sugarcanes have been procured till now which is going to make things even more difficult.

3. Lack of enough water across tamilnadu and many southern regions and Maharashtra has also led to lesser production and lesser utilization of capacities leading to not even break even for many sugar factories.

4. Due to huge NPAs with the banks, they have almost stopped lending to sectors like sugar, telecom etc now.

5. Similarly when our own production is much more than our sugar demand, it's practically futile to increase the import duty as it does not require great intelligence to understand that why anyone will still import sugar now when our rates themselves are falling quite a bit.

6. Only thing which has helped is restricting the sales of sugar to not more than 10% of all sugar available for one month which has just differed the fall for few more days and then will make the fall much faster actually.

Now a days, it seems lack of expertise in understanding and resolving economic issues on a long term basis, has led to patch up work, more from the prospective of being seen as acting than actually solving the problem is the order of the day.

Fundamentally, we feel sugar sector may be avoid at least for 2-4 quarters, if not more.

Hope it helps.