Mumbai: India Ratings has given a negative outlook to sugar manufacturing companies this year following rising production costs, sufficient domestic availability and stable global prices.
"There is a negative outlook for sugar manufacturing companies for 2013, considering a further deterioration in their financial profile. The operating margins of sugar companies in 2013 are likely to be below the 2012 levels (13 percent), as sugar margins (October 2012-September 2013) may fall. Thus, financial leverage is expected to worsen. This is based on financial statements of 18 listed sugar companies," India Ratings today said.
India Ratings said the floor for domestic prices is likely to be around Rs 30-32 per kg in 2013.
However, prevailing sugar prices may be somewhat higher than this range given the high domestic cost of production.
The costs of sugar production in 2013 will be higher than 2012, as sugarcane costs have increased 16-17 percent.
Also, for mills based in Karnataka and Maharashtra, a decline in sugarcane availability due to unfavourable weather would result in lower capacity use.
However in Uttar Pradesh, cane acreage for 2013 will be higher, resulting in better capacity use and cost absorptions.
Domestic sugar prices are likely to remain stable this year as there will be more than sufficient stock to meet internal consumption.
In 2013, closing stocks are likely to be maintained at previous year levels. Sugar would also be available for exports, subject to global attractiveness of domestically produced sugar.
India Ratings said a comfortable global demand-supply balance will result in weak international sugar prices.
World sugar production in 2013 will be up 19 percent. Thus, the world sugar market may be in a surplus for a third consecutive year.