Package of Rs. 8,000 crore to be announced to bail out sugar industry
In a move to help sugar mills clear pending payments to sugarcane farmers, the centre is going to announce a ₹8,000 crore package which includes creation of a buffer stock, expanding ethanol production capacity and fixing a minimum sale price for sugar.
The latest package comes as dues to sugarcane farmers crossed ₹20,000 crore in the 2017-18 season following a production glut. Further, the move also comes close on the heels of ruling party BJP’s defeat in the Kairana Lok Sabha bypolls in UP where dues to farmers were a major issue.
Why is this important?
The proposed package is likely to be used to create a buffer stock which will not only help clear dues to farmers but also ensure regular supply of sugar in the market maintaining the demand supply balance. Further, the package will also include a scheme of over Rs. 4,400 crore for increasing the ethanol capacity which will help in diversion of sugarcane production for production of ethanol during surplus season.
Stocks to be impacted
The proposed announcement of the package will help sugar mills clear pending payments to sugarcane farmers and improve the financial health of the sugar companies. DCM Shriram (CMP: Rs. 263, MCap: Rs. 4375 crs, PE 5.7x FY2020E) and Dwarikesh Sugar Industries (CMP: Rs. 24, MCap: Rs. 460crs, PE 4.5x FY 2018).