Don't see complete sell-off in sugar stocks today: Udayan

Sugar stocks came under pressure on Monday, after the Uttar Pradesh (UP) government increased state advised price (SAP) for sugarcane procurement to Rs 275-290 a quintal for 2012-13. The price is higher than what most people were expecting, particularly Rs 290 per quintal, says CNBC-TV18’s Udayan Mukherjee. At that price, sugar companies at current market prices do not make money. So the sugar divisions of most of these companies will probably be mildly loss-making during the year if this is a final price which sticks.

There will be some kind of reaction and that is warranted. Everybody will go back and try and rework the number saying, "Okay, now at this price, what should I factor in, in terms of earnings for Balrampur Chini and some of the other big Bajaj Hindusthan and UP (sugar) companies."
The fall may not be very sharp. There will be a knock but people will still hope that this might be offset by some kind of concessions by way of levy quota released mechanism scrapping. That might alleviate some of the problem; better still if some of the issues which Dr Rangarajan have put forward, they have some even partial acceptance from the government and they are able to implement that.
But even if you do not expect big things from that report in terms of implementation, you just say at this SAP but with levy quota gone and released mechanism gone is the picture quite so dire and maybe you will find that we are coming close to breakeven for the sugar divisions of these companies. So I guess some of the policy expectations might offset some of the pessimism today.
"You probably will see a knock of 5-7 percent in some of the sugar companies but a complete sell-off? I doubt that will happen because over the next few days, there is hope that there would be some mitigating policy action for these companies," Mukherjee says.