The profitability of local sugar industry is expected to remain subdued as the sector is facing high input costs in the form of increased sugarcane prices, said market observers. Moreover, they said, the withdrawal of inland subsidy of Rs1.75 per kg on export is also discouraging the export of sugar resulting in further downward pressure. The government had set an export target of 1.2 million tonnes of sugar for the current season. The total sugar export till April end 2013 remained at 0.78 million tonnes, leaving a shortfall of 0.42 million tonnes. “Furthermore, the expected stock of 6 million tonnes is sufficient to meet the local demand of 4.3 million for the current season and this further reduced the chances of a sugar price hike,” InvestCap analyst M Irfan Saeed said in his report issued on Friday. The topline of the sample companies, he said, had increased by 15% year-on-year (YoY) to Rs 30.82 billion during the second quarter of financial year 2013 (2Q13) ended March’13 as compared to Rs 26.9 billion in the corresponding period last year. “The main reason behind the rise in sales is increasing off-take of the sector,” the analyst viewed. During the said quarter, he said the rise in topline was due to better off-take as most of the sugarcane was crushed during the first quarter and sold during the second. The analyst based his analysis on the sample of 24 listed, out total 28, sugar mills. However, the decline in average sugar prices, 6% YoY, to Rs 52.70 per kg during the second quarter suppresses the topline growth, he said. A massive surge in the sugarcane purchase price (16% YoY) paid by sugar mills (Rs 174 per 40 kg as compared to Rs150 per 40 kg during last season) was the major reason behind the phenomenal decline in gross profit of the sector, he said.
