Operating margins of sugar millers could improve by 300-400 basis points (bps) in sugar season (SS) 2019 (October
\n1, 2018, to September 30, 2019) following a ~7% increase in the minimum support price to Rs 31 per kg from Rs 29
\nannounced by the government last Thursday.<\/p>\n
This will lead to incremental domestic sales realisation of ~Rs 3,300 crore, while higher export prices will facilitate another ~Rs 200 crore. That will help sugar mills reduce their cane arrears, which stands at Rs 20,000 crore now, by
\n~18% to ~Rs 16,500 crore. It will also cut the losses that millers have received because of excess supply and tepid
\nexports.<\/p>\n
Raw material cost as a proportion of sugar sales rose to about 90% in the current season following an uptick in
\nthe Fair and Remunerative Price (FRP) of sugarcane, and subdued sugar prices owing to oversupply both locally
\nand globally. Though the government took steps to arrest the losses of millers, non-integrated units continued to
\nbleed in this season.<\/p>\n
Says Gautam Shahi, Director, CRISIL Ratings, \u201cHigher minimum support price (MSP) would mean non-
\nintegrated millers could break even or report low single-digit operating margins of 2-5% this season compared with 1-2% in SS 2018, while integrated players could see that number up 13-15% compared with
\n9-12%. Integrated sugar millers will also continue to benefit by fast-tracking ethanol manufacturing.\u201d<\/p>\n
In global markets, sugar production is expected to decline nearly 5% to 185 million tonne. That should support a gradual
\nclearing of inventories and bolster prices in SS 2019. The recent, but modest, improvement in global prices, which
\nwill support exports from India, is evidence of that. Better realisations and profitability will also ease stretched working capital requirements and cane arrears of millers in the near term.<\/p>\n
Says Hetal Gandhi, Director, CRISIL Research, \u201cIncrease in MSP would definitely reduce arrears from current
\nhighs to Rs 16,500 crore by end of SS 2019, nevertheless they will continue to stay above the average of ~Rs
\n9,000 crore over the last 3 sugar seasons.\u201d<\/p>\n
CRISIL-rated companies account for about 25% of the sugar industry\u2019s revenue.
\nThe credit profiles of sugar mills have moderated compared with last fiscal because of continued losses at the
\noperations level, increasing capital expenditure intensity because of investments planned in distilleries, and stretched working capital requirements. This is also reflected in the sugar sector\u2019s credit ratio (or rating upgrades to
\ndowngrades) of 0.3 time in the first 9 months of fiscal 2019.<\/p>\n
With expected increase in profitability and cash generation, liquidity and debt metrics of millers are likely to improve
\nin fiscal 2020. For instance, the debt to EBITDA ratio of CRISIL-rated sugar mills is expected to marginally improve
\nto about 4-4.5 times in fiscal 2020 compared with the estimate of ~5 times for fiscal 2019.<\/p>\n","protected":false},"excerpt":{"rendered":"
Operating margins of sugar millers could improve by 300-400 basis points (bps) in sugar season (SS) 2019 (October 1, 2018, to September 30, 2019) following a ~7% increase in the minimum support price to Rs 31 per kg from Rs 29 announced by the government last Thursday. This will lead to incremental domestic sales realisation […]<\/p>\n","protected":false},"author":1,"featured_media":4155,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[1],"tags":[3431,3399,739],"class_list":["post-4154","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economy-and-politics","tag-agriculture","tag-commodity-markets","tag-crisil"],"aioseo_notices":[],"yoast_head":"\n