Date:27/03/2007 URL: http://www.thehindubusinessline.com/2007/03/27/stories/2007032703461500.htm

Back Sugar stocks rise as Govt plans incentives for sector

Suresh P. Iyengar

Proposals good only for short-term

Mumbai March 26 Sugar stocks went up even as the Sensex went down 161 points on news of a sugar buffer scheme and export incentives to the industry.

Shares of Bajaj Hindusthan were up 4.06 per cent to Rs 175.40 while Sakthi Sugars climbed 6.92 per cent to Rs 63.60; Balrampur Chini Mills saw prices moving forward by 3.62 per cent to Rs 64.35 followed by an 8.90 per cent rise in Shree Renuka Sugars to Rs 430.

The Government on Monday cleared a proposal to build a 20-lakh-tonne sugar buffer at the factories, besides providing an export incentive of Rs 1,350 per tonne for coastal States such as Maharashtra, Tamil Nadu, Karnataka and Gujarat and Rs 1,450 per tonne for Uttar Pradesh and the northern states.

The export incentive will partially cover the costs of local transportation, port handling and ocean freight.

"The Government incentive to sugar companies looks good in the short term provided the Election Commission clears the proposal given that Uttar Pradesh elections are fast approaching. However, in the long term there is no structural change in the sugar story with companies trying hard to protect their bottomlines," said Mr Vikram Suryavanshi, research analyst, Karvy Stock Broking Ltd.

Production this season (October-September) is likely to touch a record 230-240 lakh tones (lt), and if the inventory at the mills are added, total sugar availability could be around 270 lt.

Sugar companies are in a spot as the annual domestic consumption is only 18.5 lt.

The Food Ministry is said to have recommended an extra Rs 440 per tonne support for raw sugar exports. The market for white sugar is not as promising as raw sugar with huge refining capacities coming up in Bangladesh (15 lakh tonnes), Indonesia (12 lakh tonnes), Dubai (15 lakh tonnes), Saudi Arabia (10 lakh tonnes) and Egypt (7.50 lakh tonnes), explaining the move of the Food Ministry.