This should get over fast..
Some info on the sugar industry and a possible case for investing in the same:
25 mn. tonnes industry...
Overdue payments to the sugar cane farmers in the range of 8000-10000 cr...highest on record...
Most sugarcane crushing companies have huge debts...and most of them are losing money on today's sugar prices of around Rs. 30 per kg...
Given this situation, government allowed exports to create some liquidity in the system and so that the overdue payments are made to some extent...
Incremental working capital debt should difficult to fund for the sugar companies...
Sugar production is expected to be in the same range as last year...but if sugar prices don't improve, sugar companies will not be able to pay farmers....overdue payments will rise even further....or maybe sugar production might decline...
Exports are likely to drain a reasonable chunk of the inventory....
The other problems facing the industry are the levy sugar, where the companies are required to sell 10% of their production at discounted prices thus incurring losses.....Ethanol that they make also seems to be under priced...
Looking at all this....it looks like higher sugar prices are required....and sugar companies will need to make a lot more money if the farmers need to be paid and banks are to be repaid....
Stock prices for these companies are at multi-year lows...investor interest is also abysmal...but the promoters are keen buyers in quite a few of the stocks...
Government interference has been a bane for this industry...and it continues to be the biggest risk....
SO IT IS NOT RISK FREE....
But at these market caps, the risk-reward ratio looks favourable....
That's it in short....hope the returns are sweet!!
Some info on the sugar industry and a possible case for investing in the same:
25 mn. tonnes industry...
Overdue payments to the sugar cane farmers in the range of 8000-10000 cr...highest on record...
Most sugarcane crushing companies have huge debts...and most of them are losing money on today's sugar prices of around Rs. 30 per kg...
Given this situation, government allowed exports to create some liquidity in the system and so that the overdue payments are made to some extent...
Incremental working capital debt should difficult to fund for the sugar companies...
Sugar production is expected to be in the same range as last year...but if sugar prices don't improve, sugar companies will not be able to pay farmers....overdue payments will rise even further....or maybe sugar production might decline...
Exports are likely to drain a reasonable chunk of the inventory....
The other problems facing the industry are the levy sugar, where the companies are required to sell 10% of their production at discounted prices thus incurring losses.....Ethanol that they make also seems to be under priced...
Looking at all this....it looks like higher sugar prices are required....and sugar companies will need to make a lot more money if the farmers need to be paid and banks are to be repaid....
Stock prices for these companies are at multi-year lows...investor interest is also abysmal...but the promoters are keen buyers in quite a few of the stocks...
Government interference has been a bane for this industry...and it continues to be the biggest risk....
SO IT IS NOT RISK FREE....
But at these market caps, the risk-reward ratio looks favourable....
That's it in short....hope the returns are sweet!!
6 comments:
Apprehension I always have : In a sector ( especially agrarian ) which is highly regulated by the Government ; the investor and minority shareholder is at the mercy of the Government dictat. Many at times the Government keep the matter lingering for weeks instead of concluding to any decision.
I agree govt interference is a problem....but what is also true is that it is bcos of govt that the sector is in such a mess...now the situation is such that sugar prices could go up whether or not govt acts....the only negative possibility being govt introduces another item on which it will give subsidy which is highly unlikely as of now....and the other thing is...we dont require sugar to go to 50 rs per kg....34-35 is good enuf...
Sugar on the move.
Government ...Government. See the prices down. Apprehensions are becoming true.
first what the government has not done is to increase PDS prices...which in any case has no effect on sugar companies...second they have not done anything on ethanol pricing which is not unexpected....lastly the most thing to track is the sugar prices in the market...as long they are not falling the story remains...
So now the state governments,after a delay of more than a month have finally decided the SAP for sugarcane...they have increased it by 40-50 rs per qtl...so the spread the sugar companies are making at present prices is wiped out...so now the call is that the prices will need to go up another 4-5 rs per kg of sugar to comeback to same profitability...if the analysis in the article is correct..that will happen not far in the future...else will have to rethink on the theme...
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