While the Business Standard index of sugar stocks is down 29.3 per cent since December, the BSE Sensex has gained 1.5 per cent.
“With production estimates high, companies are likely to get impacted, with sugar prices remaining under pressure," said Gaurav Dixit, deputy general manager-corporate ratings, CARE Ratings.
Stock holding limits will also get relaxed after April, when crushing will end, Dixit said. Cane arrears will also need to be cleared; these been rising alongside the increasing production. At the beginning of March, these were at around Rs 140 billion, which will further increase, with the crushing to be done in March and April.
Sugar prices have fallen nine per cent since December and are now at Rs 3,336 a quintal in the Mumbai wholesale market. “Higher arrears and rising production will bring more sugar to the market, which is likely to put prices on a downward spiral. The government needs to keep incentivising exports,” Dixit added.
According to the Isma note, the yields in Maharashtra and Karnataka are reportedly one of the highest ever in either state. Last year, these two states reported average yield of about 60 tonnes per hectare, due to drought. In the current season, Maharashtra and Karnataka reported an average yield of 100 tonnes and 91 tonnes per hectare, respectively.
Uttar Pradesh and Maharashtra are expected to produce over 10 mt sugar each this season. The country's total production as of February 28 was 23.05 mt.
The output will be higher this year, considering 479 mills are still crushing.