Is it time to look at sugar stocks?
With state governments considering the various proposals by the Rangarajan Committee on sugar decontrol, is it a good time to look at sugar stocks?
November 23, 2012 / 08:40 IST
Moneycontrol Bureau
With state governments considering the various proposals by the Rangarajan Committee on sugar decontrol, is it a good time to look at sugar stocks? According to a senior Food Ministry official, the Centre has sought the views of the state governments on the Rangarajan report by the month-end. The recommendations include giving the mills the freedom to source raw material, scrapping the levy quota (selling a portion of sugar to government at subsidised prices) and removing the barriers on exporting sugar. De-control of sugar industry, if implemented, will be positive step for the industry players as well as farmers, experts feel. CRISIL believes the profitability of sugar companies rated by it will increase by Rs 600 crore in 2012-13 (refers to the financial year from April 1 to March 31), if the recommendations of the Committee are implemented. Imports and exports of sugar are tightly regulated. The Committee has proposed that barriers on import and export be removed. Narendra Murkumbi, managing director of Shree Renuka Sugars says there is unanimity between state governments, central government, and the industry on this. "Even farmer’s organisations have supported this freeing up," he says. The Committee has also recommended withdrawing levy obligation of 10%. Murkumbi says in some states, a new procedure is recommended by the Committee, which removes the burden from the industry and passes it on to the general budget. “There are some issues of procedure there where there could be some feedback for changes from the state government. But otherwise we do not see that also being opposed,” he adds. As far as sugarcane pricing and sugarcane zone area reservation for farmers with factory are concerned, Murkumbi says, there is no unanimity on it. “There is an opposition from a lot of state governments in terms of giving up their control on fixing the cane price. On the raw material side, I do not expect any progress in the near future,” he explains. According to Way2Wealth, recommendations like withdrawal of levy sugar price are likely to get implemented first. However, linking of cane price to sugar price will require political will and state government consensus. Sector call: Abhilasha Satale of Way2Wealth is positive on the sector from a long-term perspective. "Production is stagnant at around 24-25 million tonne. We expect the production to remain stagnant for two years. However, demand is improving. If demand-supply gap reduces, the prices will increase," she elaborates. Also read: Sakthi Sugars sees Rs 25-26 kg as 'comfortable price' bandMurkumbi also sees a correction in global production for 2014. "I see a surplus in 2013, primarily triggered by high cost production, increased due to high sugar price in the last two years," he adds. Stock pick:Satale says sugar sector is bottoming out. Her top pick in the sector is Balrampur Chini Mills. (With inputs from agencies) Vini Amesar.
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