Sugar Cycles: 7-8 years of losses followed by 2-3 years of super gains!

Some happenings in last few days.

1). Export subsidy was announced which has made exporting raw sugar viable for the mills.

2). There is prediction of less sugar production due to delay in crushing, arrears, diversion to make jaggery etc. Due to this sugar price has marginally increased.

3). Renuka Sugar has sold 25.7% stake to Wilmar group from Singapore.

Are these news indication of sugar cycle turning?

Balrampur Chini Millsconference calladdressed by Mr Vivek Saraogi MD

Key Highlights by Capital Mkt;

India produced about 23.75 Million tons of sugar till 30thApril'14, down by about4% YoY. This is primarily due to UP production being down by 14% YoY and Maharashtra down by about 3%.

The company's financials for FY'14, particularly the sugar division got affected due to higher cost of production and lower sales realization.

For Sugar division, the average selling price was around Rs 32 and costs were around Rs 31.96. The cost is before the interest and corporate expenditure. The interest loss including the corporate and other expenditure of sugar division is about Rs 225 crore.

As per the management, while the monsoon, Elnino Effect, international prices etc will determine the sugar prices, the chances of sugar prices coming down is very remote.

The reduction in export subsidy of export of raw sugar from Rs 3300 per ton to about Rs 2275 per ton from April'14 will not have much impact. While it is sad that the subsidy was reduced instead of increasing it due to promise of rupee parity, the effect on the industry will be negligible, as till Mar'14, most of raw sugar has already been exported for the season 2013-14 ending Sep'14.

The company earned an REC entitlement of about Rs 4 crore during Mar'14 quarter. REC entitlement is on the power used for captive consumption. Management expects about Rs 25-30 crore as REC entitlement income in FY'15.

Management kept on reiterating the fact that the results need to be seen on annualized basis and not on quarterly basis, as costs are booked in first 3 quarters and their income may be booked in Q4 which is a general phenomena adopted by the whole of industry.

For Distillery, the company sold about 7.4 crore liters of alcohol@ Rs 32.66 per liter as compared to about Rs34.7 per liter on YoY basis. For FY'15, management expects to sell about 8 crore liters of alcohol driven by the high demand from OMC companies post election and post policy framework and price is expected to be not less than Rs 34.7 per liter, given the pricing parity based on landed costs of petrol.

Also rate of recovery for alcohol and molasses were better in FY'14 and also are expected to be better in FY'15.

For Power, the company sold about 54.7 crore units@Rs 4.17 per unit generating PBIT of about Rs 137 crore including Rs 4 crore of REC entitlement income.

Post election, management expects tariff hike to happen in UP. Also with the capacity addition, management expects power units to get sold will be around 60 crore units in FY'15.

There is an important committee meeting which has been set up in UP State to look into the matter of linking of sugar cane prices with sugar realization. The committee will confirm its decision by end of Aug'14. If implemented for 2013-14 season, the company will receive about Rs 9 per ton or about Rs 70 crore as cane arrears which will be booked as other income.

The company has cane arrears of about Rs 700 crore outstanding as on Mar'14.

Overall, FY'15 looks to be a better year than FY'14. However the sugar prices will depend upon monsoon and Elnino effect and the prices in Brazil and Aus, where maximum Elnino effect is predicted.


This Investors. ** Link: )in me:))

that’s sweet :wink:

i am into bajaj hindustan from 18.90 levels sold a sizeable % of holdings to make my current holding absolutely free and get a ticket to ride :slight_smile: for next 36 months and mind you these 67% gains came in less than a month al nino not withstanding.

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Dear bhupesh

Discussion on price and gains are of little use. It will distract u as a fundamental investor.




i think price plays a major part in deciding what ever you punt on wearing which ever hat that of a fundamental investor or more conveniently the euphemistic value investor i saw value in bajaj hindustan @ 19 levels all the bad news was there in price only one thing had changed fundamentally … TOO MUCH DEBT !

buddy donald has gone in length explaining all i had nothing new to add to that fundamentally debt reduction of 25% will work more for it rather than 200% increase in sales and 10% increse in profitability.

Guys, I am new to this forum but trust me when I saw I have closely followed the sugar stocks and sugar cycle since the past 3 years. It seems that the turnaround in sugar cycle is finally dawning. Although, it is all bleak when we look at the news emanating from the individual sugar mills and the industry body ISMA, BUT if we go through the price trends in the commodity market - more particularly the Sugar delivery price, then a turnaround is soo obvious that it cannot be ignored by any investor interested in cyclical investing.

I am attaching the weekly price chart along with my comments. I would like to request knowledgeable boarders to comment on this…either on valuepickr or on the moneycontrol message board.


I would also like to draw the attention of the boarders towards the long term price movement of the strongest sugar company - Balrampur Chini Mills.

Balrampur chini has given a very strong bullish divergence signal on monthly charts. It is usually a signal one sees at the market turnaround or at cyclical turnaround points.

It may not be just a coincidence that the best sugar stock is giving turnaround signal just when the sugar prices too have bottomed out.

I would recommend keeping a close watch on the sugar prices as soon as the current market turmoil subsides.


In my opinion the sugar price may continue to rise following such a strong bullish divergence or the sugar prices may again fall after 1-3 months(around Oct - nov) when the tug o war between all the stake holders (mills, state govt and farmers) begins over fixation of Sate Advisory Price for procurement of sugarcane by the UP / TN sugar mills. And also the announcement of aggressive sugar export subsidy policy by the central government.

If the prices do fall again, in all probability it will lead to formation of inverted head and shoulder bottom formation and then the cyclical uptrend in sugar sector will begin.

By April / may, India would have exported its excess sugar at a subsidised rate, manufactured record quantity of Ethanol for the ethanol blending programme and also sugarcane farmers would have finally shifted to alternate crops. Thus heralding a two year long rally in sugar stocks.


I am very keen to know the opinion of Donald sir (admin) on this development. I firmly believe that cyclical investing is largely a game of technical and momentum.

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The expected cyclical up trend is still some time away.
-The current supply glut from Brazil’s ‘bumper’ harvest will take it down further.
-The artificial substitute ‘sucraloses’ from China dampens the China growth factor.

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Thanks for putting up this chart. I have also been tracking sugar prices and expect a cyclical recovery but I am not yet sure if it would be this year but more optimistic sometime in the coming year. Do have a look at the brazilian currency as a variable on the sugar prices (sugar no. 11). When looking for for technicals for cyclicals (recovery) do look at long term charts say 25-30 yrs. I am trying to figure out if fed hike makes any impact on the sugar cycle. But yes there are signs that we are near (4-14 months) a cycle reversal.

Nice discussion here.

I have been reading up on sugar cycle in India and it seems that this season also there will a bumper production

The main issue with the sector has been that the cane prices are still remunerative for the farmers to deter them from production, notwithstanding arrears from the mills.

The below is an excerpt from one of the sugar companies con-call

When do you see the cane acreage in India coming down? This is becausein the last four years we have not seen a significant decrease in the cane acreage beside the sugar industry going through a bad phase.

There is only one sign to look for. The historical sugar cycle has been based on cane arrears. Whenever arrears have exploded, you had the willingness of a farmer to move from sugar cane to other crops. If you look at the figure that I had mentioned on the call i.e on 31st of January 11,000 crore of cane arrears which will expand to 20,000 crore by the end of the sugar season is an astronomical number. That is the number at which one will see people moving away from sugar cane on an all India basis. Every State has different ramifications because different State Governments view cane price arrears in different manners. So that is the first sign to look at. The next thing of course is to look at the competing crops. Traditionally and I am speaking generally for the Country, the competing crops would be rice, paddy, and wheat. Now the prices of paddy and wheat have also suffered over the last couple of years. The moment you see any upswing in those prices, you will have farmers that will willing shift from Sugarcane to other crops

There are many moving variables here. Let me try to list some of them here. This may not be exhaustive, kindly add to this list:

  • Sugarcane acreage & production- this is further affected by FRP/SAP, Cane arrears, prices of alternative crops, monsoon
  • Ehtanol mixing- Dependent on govt policy largely. Indirectly also affected by crude oil prices (lower crude oil prices reduces willingness of the OMCs to increase ethanol mixture)
  • Global prices- If the prices globally firm up, it can be an outlet for the excess sugar stocks of Indan mills. Global markets have excess supply of 5.5-6 MN tonnes as of last season. India accounts for almost half of this. The global market is largely dependent on Brazil as it is the largest producer in the world. To that extent production in Brazil is a key variable. Production in Brazil begins in April/May. As per this article of 2014 the farmers and mills in Brazil are under stress and they expect the production and crushing to be lower this year. Also the brazilian Real is a key variable. The same has depreciated over the last year or so, further depressing the sugar prices.
  • Govt measures of interest free loans/buying buffer quantity, import duty etc- some of these are more temporary measures which will not have an impact on sugar prices which is the key variable to look at/predict in my view.

The inventory levels of Sugar are still high, but post December 2015 the Ethanol prices are fixed at Rs.49 which is very lucarative and the govt incentive of Rs.4000/T of sugar if the industry crosses the 4MT of Sugar exports. These two can be huge booster for the industry. We can look at playing this with Balrampur Chini (Debt to Equity is just 0.4 inspite of huge capacity) and can also look at Praj Ind an indirect beneficiary of revival of Ethanol blending.

Disclosure : Not invested yet, but tracking closely.

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D/E of Balrampur Chini is close to 1.5.

I have been studying Sugar in international markets since 2007s… I have seen 15cents go to 35 cents within months and back down to 10-13 cents range over last 7-8 years.

I am very tempted to call a bottom in Sugar here around 10-13 cents…could see a good upside push towards 20-25 cents by 2016 end.

Its a gut based on a long study of the cycle.



I guess as opinioned by many learned boarder, 10 cent is rock solid floor for sugar prices in international market. This much downside is only possible because of sharp devaluation of brazillian currency against US dollar (from around 1.25 real per dollar to 4 real per dollar) due to various political mismanagement etc inside brazil which incidentally control more than 45 % sugar export and have disproportionate influence on global sugar prices. Else near term demand for sugar is highly inelastic and grows around 2-3 % annually at all times good or bad. Brazilian sugar operation most efficient globally is also in losses from last 2-3 years and it is not possible for them to produce sugar suistanably below 12 13 cent. India being largest consumer also has important influence on global sugar prices. This year severe drought in many part of country is likely to reduce sugarcane production and recovery very significantly for next 2-3 years. This year drought can only be compared with drought in 2008 and 2002 in recent times in its severity whose full effect is likely to be felt in coming months and sugarcane planting for next year may be even lower. With favorable expected scenarios it is very much possible for sugar to touch around 25 cent in international market and around 40-45 rs per kg in indian market, which if happens can lead to multibaggers return in most sugar stocks. This recent rally may be just beginning for the same.

One key reforms expected to be announced in near term by GOI is linkage of sugarcane prices with sugar prices and creation of a sugar stabilization fund and govt may directly decide to provide subsidy to sugarcane farmers for shortfall for FRP declared. Also clear cut sugar export/import policy during surplus/deficit years in place of current adhocism can change long term outlook for sugar industry for investment purpose and may be catalyst for further rerating of sugar stocks. Any clarity on ethanol policy front is only added benefits as and when petrol prices start rising again.

Technically also most sugar stocks with exception to Balrampur and Shree Renuka was trading with very low volume for last many months with hardly any takers for sugar stocks. Also it is surprising companies with sales turnover in 100s and 1000s cr is quoting at valuation of 20-40 cr and 100 - 200 cr across the board and this amount of undervaluation is currently not available in any other sector in indian stock market. Basically most sugar stocks is already priced for bankruptcy and holding sugar inventory which is more than mcap for many stocks. Offcourse debt in many cases also is relatively very high and some of them in CDR.