Sugar Can Hope & Prayer Become Business Strategy? In India this possible, especially when you Buy cane at Rs 30 per kg and Sell Sugar at Rs 27 a kg. Brazilian production and Indian monsoon are near-term drivers Brazilian sugar production is expected to increase by 5.5m tonnes due to dry weather during the crushing season and 'Bisada' (previous years uncrushed) cane. The Indian Sugar Mills Association expects sugar production to increase by 6.5m tonnes, from 18.5m tonnes, to 25m tonnes.
Due to strong production increase in the top two producers, global sugar supply is set to exceed demand after two deficit years. Our analysis of sugar futures indicates that though there is some tightness in the white-sugar market the same will get resolved by end of Brazilian crushing season. We maintain a negative view on global sugar prices.
Weak 2HF10; FY11 to be driven by volume and by-products
We expect sugar companies to breakeven or report losses in sugar segment due to high inventory value and low sugar prices. Companies had acquired sugar cane at high prices, as they were eyeing 28-year high sugar prices. Sugar prices have since declined sharply. In FY11 we expect 30% increase in India sugar production. We expect profitability to be driven by higher volume and sugar byproducts, such as power.
If Monsoons are good, then pray for a Crop failure in Brazil or a industrial deregulation in India
The Indian sugar industry is highly regulated. In view of the high sugar cane production, the Indian government is considering deregulating the sugar sector. It may consider measures such as removing the levy quota, sugar release mechanism, bulk holding restriction, and reserve area as well as freeing up sugar cane pricing.
We expect FY11 profits to be driven by by-products rather than sugar prices alone. Positive catalyst for the stocks could be from a negative production surprise from Brazil or India, deregulation of the sector or a lower-than-expected sugar cane price.Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints. Nothing in this article is, or should be construed as, investment advice. |
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