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HC decision: Not much relief for sugar

Mills in UP may face margin pressures

BL Research Bureau

The Allahabad High Court’s decision to allow sugar mills in the State to clear their sugarcane arrears in a phased manner may provide temporary relief for these companies from the ongoing cash crunch.

However, with cane prices for the ongoing season being pegged at high levels, severe margin pressures on sugar mills based in the State seem likely to persist.

The Allahabad High Court, on October 30, permitted leading sugar companies based in Uttar Pradesh to clear 25 per cent of their outstanding dues on cane purchases over the next five-six weeks.

This replaces an earlier court directive which required these mills to clear all their cane arrears in three weeks time, failing which they would attract recovery proceedings.

Low price

With sugar prices plunging to low levels on surplus inventory and expectations of a large production surplus, this ruling would have exacerbated the ongoing cash crunch for the mills in question. However, the court ruling has also been accompanied by the State Government’s announcement of the State Advised Price for cane for the ongoing sugar season.

With the cane procurement price pegged at previous year’s levels, the medium-term prospects for mills in the State remain uncertain, as sugar prices this season are ruling significantly lower than last year’s levels.

This suggests that profit margins for sugar companies based in the State could come under pressure in the current fiscal.

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