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Increase in MSP likely to improve sugar mills’ operating profit margins by 6%: ICRA
Feb-18-2019

The rating agency ICRA in its latest report has said that the government’s move to hike the minimum selling price (MSP) of sugar will augur well for the sugar mills and is expected to improve their operating profit margins by around 6 percent from the current levels. That apart, it said the move will help millers clear farmers' dues. To support the oversupply hit sugar industry, the government has increased the MSP of sugar to Rs 31,000/MT from Rs 29,000/MT (announced in June 2018).

According to the report, the sugar prices were relatively subdued at around Rs 29,000/MT in the recent months, resulting in high cane arrears of around Rs 20,000 crore as on January 2019 end. It also noted that while, the MSP hike is a credit positive for the sugar mills, and also benefit cane farmers through better settlement of dues, the government's ability to enforce the price regulations will be critical. It also pointed out that as per the latest estimates on domestic sugar stocks, the country is likely to produce 30.7 million tonnes (MT) of sugar in 2018-19 as against the earlier estimates of 31.5 MT.

The rating agency further said that this is after considering the diversion of B heavy molasses and sugarcane juice from sugar into ethanol. It stated that notwithstanding this and the estimates of growth in domestic sugar consumption by 2-3 percent to around 25.8 MT in sugar year 2019, the production would still be higher by at least 4.5 MT than the estimated consumption.

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