Bajaj Hindusthan Ltd., India’s biggest sugar producer, led a rally among mills for a second day on speculation that end to state curbs on sale of the sweetener in the local market may boost earnings.
Bajaj Hindusthan climbed as much as 3.4 percent to 24.20 rupees in Mumbai today, extending a 2 percent advance yesterday, while Balrampur Chini Mills Ltd., the second-biggest, rose as much as 2.7 percent to 46.95 rupees. Shree Renuka Sugars Ltd., the largest refiner, surged as much as 3.4 percent to 30.30 rupees, the highest level since Jan. 23.
The Food Ministry will soon send a proposal to the cabinet to end curbs on sales in the local market and scrap the practice of the government buying sugar from mills at below-market rate to supply to the poor, Minister K.V. Thomas said in an interview yesterday. The move to end curbs, introduced in 1972, is based on a report by a panel headed by Chakravarthy Rangarajan, chief of the Prime Minister’s Economic Advisory council, he said.
“The move will help producers improve their margins, increasing earnings,” Chanchal Biswas, an analyst at Dalmia Securities Pvt., said by phone from Kolkata. “This will also help companies decide timing of sales depending on prices.”
Bajaj, Balrampur and other producers will earn about 27 billion rupees ($508 million) annually should the government stop buying the commodity at subsidized rates, said Abinash Verma, director general of the Indian Sugar Mills Association. Producers are riled by a government policy that sets limits on sales by each mill for every four-month period to cap sugar prices, while states fix cane rates to boost earnings for 50 million farmers, a powerful voting block.
Mills in the northern state of Uttar Pradesh owe as much as 29.87 billion rupees to farmers after cane prices were raised by as much as 17 percent to a record for the 2012-2013 crop, according to the mills association. Producers will lose about 60 billion rupees as they sell sugar below production cost because of a surge in imports, Verma said last month.
“Scrapping of levy sugar and freeing sugar sales will alleviate arrears and farmers will be paid on time,” Vivek Saraogi, managing director of Balrampur, said yesterday. “There will be sustainable production.”
Output in India, the second-biggest producer, will fall next season from 24.3 million tons in 2012-2013, according to the mills association. Drought in the states of Maharashtra and Karnataka, which together account for 45 percent of output, will encourage farmers to cut plantings, said M. Srinivaasan, president of the association.