Turning Sour?

The Sugar industry is being weighed down by political considerations that primarily drive the sector.

- Joe C. Mathew

The domestic sugar industry with its 530 operational sugar mills that produce 25 million tonnes (MT) of sugar and in the process pays ₹65,000 crore as sugarcane price to 50 million Indian farmers every year, is not in the pink of health. Half of the 54 Indian sugar companies, whose financial figures (for FY 2017) reflect in the corporate database Ace Equity, have an interest coverage ratio lower than 1.5, the generally accepted safe level when it comes to a company’s ability to service interest costs. Over 20 of them have a debt to equity ratio higher than 2, which, again, reflects a not-so-healthy balance sheet.

These revelations should be of concern to the industry, the government and the sugarcane farmer today. Here’s why. The country’s sugar production is estimated to set a new record during the current sugar season (October 2017 – September 2018). The surplus stock is already pulling down sugar prices, indirectly impacting revenues of sugar mills. The arrears that sugar companies owe to farmers are also piling up – the latest count being approximately ₹15,000 crore. The weak financial position of sugar companies, as projected by Ace Equity, makes the situation gloomier.

Sugar Rush

Ajay S. Shriram, Chairman and Senior Managing Director, DCM Shriram, an integrated player in the sugar sector, says in the last two months, his company had to write down the value of its sugar stock by almost ₹65 crore. “The selling price of sugar has been going down. We don’t know what it will be by March 31, when a view will be taken for the full year,” he says.

If DCM, one of the healthiest companies in the Ace Equity list, is feeling the heat, one can imagine what the industry situation in general is. Especially since most sugar mills are managed by privately-held and cooperative entities across the country.