ISMA demands de-regulation of sugar industry

Considering a surplus production this year, and likely high sugar production next year, there is a need to immediately reduce sugar stocks held by sugar mills and permit export of additional 10 lakh tonnes, by removal of stock holding limit on traders, ISMA president Narendra Murkumbi advocated

Bangalore: The apex organisation of sugar mills, the Indian Sugar Mills Association (ISMA) on Thursday asked the government to lift stock holding limit on sugar traders and permit immediate export of another 10 lakh tonne to prevent any crisis, reports PTI.

Demanding de-regulation of the industry, ISMA president Narendra Murkumbi said the industry has had a surplus sugar production and is burdened with unprecedented stocks.

Most of the mills neither have adequate storage capacities nor cash flows to manage the surplus inventories, which may trigger distress sale, he said.

Currently, the value of stock balance with sugar mills is approximately Rs30,000 crore.

Despite the recent permission to export five lakh tonnes of sugar, the opening balance for 2011-12, would be about 60 lakh tonnes, which is about 10 lakh tonnes more than the normative three month consumption opening balance for the next year.

Considering a surplus production this year, and likely high sugar production next year, there is a need to immediately reduce sugar stocks held by sugar mills and permit export of additional 10 lakh tonnes, by removal of stock holding limit on traders, he said.

He added that with improving international sugar prices and low domestic ex-mill prices, it would be prudent to permit export of maximum possible quantities of sugar immediately (July to September) to enable the stakeholders to gain.

Mr Murkumbi further warned of a crisis if such export was not permitted. Due to surplus sugar in the country and continuance of stock-holding limit on traders, the ex-mill sugar prices are below the cost of production. Such a situation would adversely impact the paying capacity of sugar mills to farmers.

With surplus sugar production next year and lack of opportunities to export sugar, the mills would no longer be in a position to pay farmers, he said.

Building cane price arrears will also harm the farmers, who he feared would move away from sugarcane cultivation in 2012-13.

With increase in domestic demand, the country will then be forced to import at high prices, Mr Murkumbi said.

He said in the sugar season 2009-10, around Rs45,000 crore was paid to farmers as cane price, this year it is expected to rise to about Rs51,000 crore.

However, the industry continued to be controlled by the government which was harming the industry, he claimed.

Certain percentage of sugar produced had to be handed over to the government at a given price for public distribution system. Such a practise was not followed in other parts of the world, he said.

The government, he said, must procure sugar at the market price and then make it available to the PDS at a subsidised rate, to safeguard the interest of sugar producers.

Sugar prices in India were 30% lower than global prices, he added.

The ISMA demanded abolition of levy sugar obligation on sugar mills and of monthly regulated release mechanism.

It also demanded fast-tracking of the national ethanol programme. He said around 600,000 tonnes of molasses had to be exported as it could not be sold. If this had been converted into ethanol, it could have addressed one per cent of the country's petrol requirement.

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FMCG firms to maintain growth on steady demand, profits may be dented on higher costs

Brokerages say demand has been stable in the first quarter, although softening is visible in some categories and this could spread to other areas in the second half as prices harden

The fast moving consumer goods (FMCG) sector, which is dominated by some large Indian companies and multinationals, is likely to maintain revenue growth on steady demand in the first quarter of fiscal 2011-12, but profits would to be affected by increased costs, according to various brokerages.

Several companies are making various attempts to cut costs, like curtailing promotional expenses, according to KR Chowksey. With the competition stiffening, companies particularly in the personal products and processed foods segments have launched new products to try and grow market share.

Motilal Oswal Securities (MOSL) estimates that the packaged goods sector will post a 20% revenue growth (aggregate Rs23,400 crore) and profit after tax (PAT) will grow by 17% (aggregate Rs3,200 crore) in the first quarter. IDFC Securities has projected revenue growth for the sector a touch lower at 19.2% and PAT growth a couple of notches down at 16.3%.

According to MOSL, the demand environment has been stable, although volume growth in a couple of categories like coconut oil and malted food drinks has shown signs of softening. It says that further price increases in the second half of the year could result in softening in other categories as well.

This could affect most companies except ITC, United Spirits and GSK Consumer and margins would be stressed despite the price increases. MOSL expects a decline in margins for 10 of the 12 companies in its coverage universe and believes that investors will have to be cautious as stiff competition and margin pressures persist.

IDFC says more than half of the sales growth in the packages goods sector will be driven by the impact of acquisitions (Sara Lee, Megasari, etc) by Godrej Consumer and a third by Dabur (Hobi Kozmetik's personal care products and Namaste Laboratories' hair care range).

The best performances will come from niche players, like ITC and Pidlite, that have strong pricing power and greater visibility on volume growth and profitability, MOSL says. Godrej Consumer will see acquisition led growth through the low-margin acquisitions in Latin America and Africa.

The brokerage estimates ITC to post 18% sales growth (estimated sales of Rs5,720 crore - 8% cigarette volume growth) and 23% PAT growth (Rs1,320 crore). Pidlite is expected to see sales grow by 24% (Rs780 crore) and profit growth at 15.7% (Rs125 crore).

In the major processed foods business, Cadbury-Kraft launched Tang in the ready-to-mix category, GSK Consumer introduced Boost Glucose, Hindustan Unilever came up with Kissan Creamy Spread and Dabur served Hajmola Mint Masti. In the personal products categories, Dabur came launched Fem Safe Handz and Godrej Consumer relaunched Expert Hair Colour.

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SBI to raise $5 billion via offshore loans this year

"Right now, we have a total objective of $5 billion, but we would like to time the market in the second and third quarters. If there is demand for assets, we will go and raise it," SBI chairman Pratip Chaudhury said

New Delhi: India's largest lender State Bank of India (SBI) on Friday said it plans to raise $5 billion through offshore loans by December, reports PTI.

"We hope to raise $5 billion debt by December by means of foreign debt through medium-term notes (MTN)," SBI chairman Pratip Chaudhury told reporters here.

Speaking on the sidelines of a meeting between finance minister Pranab Mukherjee and chiefs of public sector banks here, he said the debt would be raised during the second or the third quarter of this fiscal.

"Right now, we have a total objective of $5 billion, but we would like to time the market in the second and third quarters. We will be raising the funds, but there has to be visibility of credit growth. If there is demand for assets, we will go and raise it," Mr Chaudhury said.

MTN is a kind of bond note with a maturity period usually between five and 10 years continually offered through various brokers, rather than issued all at once like other bonds.

The SBI chief said the bank is confident of maintaining its net interest margin (NIM), which is a measure of the return on a company's investments relative to its interest expenses, at 3.5% this fiscal.

"The margins are improving. This current fiscal we have a guidance of 3.5% (NIM) and we are slightly ahead of it. Overall guidance is 3.5% and we are on track," Mr Chaudhury said.

He said SBI is also looking at increasing its credit growth by 16%-19% in 2011-12.

Regarding recent hikes in rates, Mr Chaudhury said: "Raising of interest rate has not impacted interest margin."

SBI had Thursday increased lending rates by 25% and deposit rates by up to 100 basis points (bps), a move that will make home, auto and other loans more expensive, but will provide better returns to savers.

The bank revised the base rate or the minimum lending rate upward by 25 bps, or 0.25%, to 9.50% with effect from 11th July.

Interest rates on fixed deposits with a maturity period of one to 10 years have been fixed at 9.25%. The new deposit rates will also be effective from 11th July.

The bank has also raised its benchmark prime lending rate (BPLR), which is used to determine floating interest rate loans, to 14.25% from 14%.

The decision follows the rate hike announced by the Reserve Bank of India (RBI) in its policy review last month. Several banks, including major private lender ICICI Bank, Canara Bank and Bank of Baroda, have already raised their lending rates.

Asked about inflationary pressure, which has prompted the RBI to hike rates 10 times since March, 2010, Mr Chaudhury said: "Inflation is continuously above 7%. So any policymaker would be worried."

Headline inflation stood at 9.06% in May and is expected to breach the double-digit mark in July due to the recent hike in prices of diesel, cooking gas and kerosene.

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