As per a notification, the government decided to allow the export of sugar up to 10 million tons. The restriction will be applicable from June 1 onwards till October 31. According to reports, the government has told traders to secure permission for the overseas sale of sugar from June 1 to October 31.
The notification, and before that news flow around the possible action, has led to a bloodbath in sugar stocks in the last couple of days.
Analysts said sugar prices have skyrocketed in international markets as a result of the drought in Brazil. The world was hoping India, which is the second-largest exporter, would fill the gap. To an extent, the country has taken the mettle and thus margins of all sugar export companies in India have surged as well. But, now the government action may play spoilsport, said some analysts.
“After the export prohibition takes effect on June 1, 2022, these companies may face margin pressure, which is why sugar stocks are falling,” said Naveen Mishra, analyst at CapitalVia Global Research. He said Triveni Sugar Mills and Dalmia Bharat Sugar stand to be the hardest hit by the government action.
However, some analysts don’t see much impact as they believe the export expectation for the year was anyway less than the limit placed by the government. Raj Vyas, portfolio manager at Teji Mandi, said the export expectation from the country for the on-going season was expected to be in the range of 9-9.5 million tons.
“This (the government action) is seen as a precautionary measure to safeguard the country’s own food supplies. So, what the statement from the government means is that now sugar mills will need to take permission from the government to export sugar,” said Vyas.
“As in any case, exports were not expected to be happening beyond 10 million tons and the fact that the government is comfortable even at an inventory level of 6 million tons by end of September 2022 is positive.”
He does not see any earnings impact because it is just the potential export restrictions and there is no ban on exports. The industry executives have also underlined that fact and said the impact will not be much. Though there could be some impact on the global prices of the commodity, an analyst said.
Mohit Nigam, Head – PMS, Hem Securities, said, in the midst of a worldwide commodities-price spiral, India’s export limits can drive international prices higher.
“Because of recent market corrections, followed by this news, most sugar stocks have plummeted 30 to 40 per cent from 52-week highs, but export restrictions will make more surplus sweetener accessible for domestic ethanol production, which is a primary government aim,” he said.
Nigam saw another motive in the government step.
“The sugar sector is undergoing a massive transformation and has emerged as a powerful clean energy driver, accelerating India’s transition to renewable energy. Increased cane diversion to ethanol will alleviate the problem of excess sugar inventories and minimize company volatility, resulting in improved profitability, lower working capital, and stronger long-term cash flows. To solve the problem of excess sugar, the government is encouraging sugar mills to shift excess sugarcane to ethanol production,” he said.
DRE Reddy, CEO and Managing Partner, CRCL LLP, a company that provides canteen services in corporate offices, said it was too soon to say if this restriction will have an impact on the pricing in India.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
