Jay Shree sugar unit eyes return to profit, buyer

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The BK Birla Group’s sugar business may turnaround in the current year with a profit of at least Rs20 crore, but Jay Shree Tea and Industries Ltd, which carved out the sugar unit from itself with the aim of selling it, has yet to find a taker.

Last year, Jay Shree Tea spun off its sugar business into a wholly owned subsidiary, Majhaulia Sugar Industries Pvt. Ltd, saying it was planning to divest it. The unit posted a loss of Rs20 crore in the previous year, but in the current year, the management expects it to return a profit of Rs20 crore.

There’s been a contraction in supply and prices have hardened, said D.P. Maheshwari, Jay Shree Tea’s managing director. Though sugar production was disrupted in certain parts of India due to inadequate rainfall, Majhaulia Sugar wasn’t impacted, he said.

In the key sugar producing state of Uttar Pradesh, prices have remained firm, but in Bihar, where Majhaulia Sugar has its production base, prices are expected to firm up further, Maheshwari said, adding that if the trend continues, his company will make more profits in the years ahead.

For mills, realisation per kg of sugar should go up from Rs37 to Rs40, according to Maheshwari.

Credit rating agency Icra Ltd said in a recent report that sugar production in India is set to decline 9% to 23 million tonnes, in the year till September 2017 due to poor rainfall in sugarcane-growing states such as Maharashtra and Karnataka.

The decline in sugarcane output coupled with a drop in inventory in the previous year drove the domestic sugar price to Rs36,200 per tonne in October last year—the beginning of the so called October-September sugar year, according to Icra.

Asked about the management’s plan to sell the business, Maheshwari said there is “no potential buyer in the horizon immediately” because of the stress overhang in the sugar industry. However, with the sector witnessing a revival, Maheshwari is of the view that appetite for investment into small units like Majhauli Sugar will soon improve.

“This is the best opportunity for the group to find a taker for its sugar business,” said Rajat Bose, a Kolkata-based stock market analyst, who tracks the sugar industry. “This could well turn out to be the year for consolidation in the sugar industry.”

Icra said in its report that even if sugarcane output improves, its effect will be seen only in the sugar year starting October 2017.

In fiscal 2016, Jay Shree Tea (which had still not spun off its sugar unit) produced 40,334 tonne of white sugar compared with 45,154 tonne in the year earlier. With Rs150 crore in revenue, the division accounted for 21% of the company’s total revenue from operations, according to Jay Shree Tea’s annual report for 2015-16.

Asked about the core business of tea, Maheshwari said prices remained depressed in the current year and that with wages in the Dooars and Darjeeling tea estates being revised from 1 April, margins may come under further pressure. Already, the production cost for Jay Shree Tea is rising by around Rs15 a kg every year, Maheshwari said.