Sugar mills on debt reduction spree
Sugar mills have reduced their debt and improved profitability in 2016-17 on the back of an improved cash flow due to a sharp increase in sugar prices.
While debt reduction has taken place over the past two years, their borrowings continued to be substantially higher than the net worth, eroding their net profit.
This indicates that sugar mills would continue to face challenges in debt servicing. The net worth of a number of sugar mills including Empee Sugars and Kesar Enterprises has become negative, according to the Capitaline data.
The data compiled by Capitaline show Shree Renuka Sugars (SRSL), India’s largest sugar refiner which recently sold its additional stake to Wilmar, has a consolidated debt of ~6,012 crore for 2016-17, a sharp decline from ~9,104.1 crore in the previous financial year. With improvement in its net sales at ~11,844.5 crore in FY17 over ~9,823.4 crore in the previous year, SRSL posted a net loss of ~1,039.7 crore in FY17 compared to a loss of ~1,802.9 crore in the previous financial year.
SRSL’s debt is much higher than its negative net worth of ~2,652.2 crore for FY17.
“Most sugar mills’ balance sheets are heavily loaded with debt. But, a number of them have reduced not only their borrowings but also working capital. With sugar prices having recovered a bit in the past few months, sugar mills will be able to reduce their debt further in the coming quarters,” said a senior analyst with a leading equity broking firm.
For companies such as Bajaj Hindusthan and Balrampur Chini, although they reported profit in FY17, the debt continued to remain higher than their net worth.
Kolkata-based Balrampur Chini has reported the highest net profit in the industry at ~592.8 crore compared to a ~92 crore loss incurred by the industry leader, Bajaj Hindusthan. Balrampur Chini has a lower cane crushing capacity than Bajaj Hindusthan.
Sugar mills’ financial health worsened with a sharp fall in sweetener prices more than four years ago when its ex-factory price fell to ~1,900 a quintal on bumper output. This level of price could not recover the production cost, resulting in an increase in famers’ cane arrears and debt repayment issues.
Abinash Verma, directorgeneral of the Indian Sugar Mills Association (ISMA), said: “The revenue realisation should be good for the next year.” A CARE Rating study showed sugar prices that averaged ~36.20 per kg in the December 2016 quarter in the domestic market increased to ~38.2 per kg in January. In February, the prices rose by 3.9 per cent to ~39.7 per kg. The prices, however, stabilised from February 2017 and they hovered in the range of ~38.2039.90 per kg during the period February-June. In the initial days of July, the prices averaged ~37 per kg. They stabilised as domestic production was sufficient to meet the consumption requirements in the country, the study said.
Rating agency Icra estimates sugar mills’ margins will come under pressure from Q3, FY18 due to high stocks of around 4-4.5 million tonnes at the end of the forthcoming sugar season SY2018.
While debt reduction has taken place over the past two years, their borrowings continued to be substantially higher than the net worth, eroding their net profit