The festive demand, usually known by lower production and higher prices, proved to be a dampner. And, the sweet dreams of sugar barons turned into a sour one. For, sugar prices remained steady even at the peak festive demand. The investors, too, now turning their back to these sweetener stocks which climbed up prior to Diwali in anticipation of a hardening sugar prices. In fact, the sugar scrips started sliding down from their peak-levels around end-November 97. The market was so disenchanted that it has even failed to note the improved bottomlines of sugar companies despite poor growth in sales during the first-six months of the current year.

The government's decision to allow duty-free sugar imports seems to have had psychological effect on the sugar market although the quantity of imports was an insignificant 1.5 lakh tonnes. Moreover, the news of a 54 per cent drop in sugar production in the first four months of the current year compared with 66 per cent rise in the corresponding period of the last year, hardly influenced the sugar prices.

Balrampur Chini was the only exception which recorded a 38 per cent jump in sales to Rs 132.75 crore during April-September, 1997. Net profit zoomed 68 per cent to Rs 16.67 crore. Despite the impressive results, Balrampur Chini's scrip fell from a peak of Rs 123.5 on October 21 to the current level of Rs 96 (previous low at Rs 100 on October 15).

Dhampur Sugar scrip also shed much of its gain, which fell from a peak of Rs 82 on October 27 to the current level of Rs 66. Thiru Aroon stock went up to Rs 84 only to descend to the current level of Rs 69. Bajaj Hindustan resumed its uptrend from Rs 57 on October 9, 97 to Rs 70.50 on October 27, 97. However, the scrip is currently quoted at Rs 61.

The poor performance of these scrips is despite the fact that sugar majors like Dhampur Sugar, Thiru Aroon Sugar, K C P Sugar and Bajaj Hindustan have lined up an impressive performance in terms of net profit in face of a poor growth in sales. Thiru Aroon reported 5 per cent drop in sales to Rs 63 crore during April-September 1997 and still could shore up its net profit to Rs 7.16 crore from a meagre Rs 43 lakh during the corresponding period last year.

Dhampur Sugar has turned the corner. The company recorded a net profit of Rs 5.78 crore against a net loss of Rs 4.11 crore during the corresponding period last year. Sales grew by 9 per cent to Rs 169 crore. K C P Sugar doubled its net profit to Rs 5 crore on a 7 per cent higher sales of Rs 99.21 crore during April-September 97. Bajaj Hindustan reported a 3.4 per cent rise in sales turnover at Rs 107.37 crore, but managed to wipe off last half-year's loss of Rs 10.22 crore. The company recorded a net profit of Rs 2.04 crore.

Thanks to a good other income from molasses and bagasse sales as also from interest paid on the buffer stocks, most sugar companies have been able to boost their bottomlines despite a lower growth in sales.

According to Bajaj Hindustan spokesperson, subsequent to the molasses decontrol, the molasses prices more than doubled from Rs 400 per tonne to Rs 1000 per tonne. Also, bagasse prices shot up from Rs 200 per tonne to Rs 500 per tonne. This enabled the company's other income to double to Rs 6.39 crore this half-year from Rs 3.28 crore last half-year.

But for this Rs 3 crore gain from other income, Bajaj Hindustan's net profit of Rs 2.04 crore would still have remained negative. The company could turn around mainly due to austerity on the expenditure front. In fact, all the companies have been cutting corners on expenses which has been major reason for improved bottomlines of these sugar companies.

Sugar manufacturers moan at the current sugar prices in the range of Rs 14.50 to Rs 17 per kg saying that the cost of sugar production is Rs 14 per kg which is quite back-breaking for smaller sugar factories.

The bigger companies still can survive due to large scale operations. Sugar lobby allege that Indian government is turning a blind eye to sugar being dumped by the European countries which sell sugar to India at $350 per tonne as against their cost of production at $800 per tonne and get subsidy from their government.

The Indian Sugar Mills Association (ISMA) has demanded introduction of corporate farming so that mills will be allowed to own captive farms through appropriate changes in the land ceiling legislations.

It also observed that some state governments have already initiated such `progressive steps'. In Madhya Pradesh, Land Ceiling Act has been amended to permit sugar mills to own large tract of land and undertake cultivation of canes. In West Bengal, too, the state government has accepted the concept of corporate farming.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.