India’s sugar output is expected to reach a record 35-35.5 million tonnes during the upcoming season beginning October, around 10 per cent more than this year. According to preliminary estimates by the Indian Sugar Mills Association (ISMA), sugar production in 2018-19 could touch a new record if monsoon remained normal.
According to ISMA sugar output in Uttar Pradesh, the country’s leading producer, is estimated to increase to 13-13.5 million tonnes in 2018-19 from 12.05 million tonnes 2017-18.The production in Maharashtra, the country’s second-largest sugar producer, is pegged higher at 11-11.5 million tonnes against 10.71 million tonnes, while in Karnataka, it is expected to rise to 4.48 million tonnes from 3.65 million tonnes.
Why is this important
A consecutive second year of good harvest could again pull down the sugar prices in retail markets, which has shown some signs of revival following a series of steps taken by the government.
A correction in the retail sugar prices could again put pressure on the sugar mills and require the government to intervene and provide financial assistance in the future like the one announced recently of Rs. 70 billion.
Stocks to be impacted
Good harvest for the second consecutive year would have a negative impact on the earnings of the sugar companies as it would impact their realisations thereby impacting the margins.
Dwarikesh Sugar (CMP: Rs. 15.8, MCap: Rs. 300 crs, 2.9x FY18 PE)
Balrampur Chini (CMP: Rs. 63, MCap: Rs. 1441 crs, 6.7x FY18 PE)