The profitability of 47 sugar firms rated by CRISIL may increase by Rs 600 crore, if recommendations of Dr C Rangarajan Committee pertaining to full decontrol of the sector are implemented, said the rating agency's report.
In effect, this accounted for a 50 percent rise in profits for the companies over their estimated profits under the current regulated scenario, besides strengthening their credit risk profiles.
Sugarcane farmers, the rating agency pointed out, too stand to gain from decontrol through reduction in cane arrears and share the upside in sugar prices, it said.
An expert committee headed by Dr C Rangarajan recommended abolishing state-advised cane prices (SAP) and removal of regulatory control on the sale of sugar in the domestic market, quantitative restrictions in international trade and mandatory jute packaging.
CRISIL Senior Director, Bank Loan Ratings, Subodh Rai said, “"Decontrol will improve players' cash flows, reduce their working capital requirements, and thereby strengthen their credit risk profiles." The government advises on the cane purchase price for companies. However, the key sugarcane-producing states (Uttar Pradesh, Tamil Nadu and Punjab) also announce SAP for sugarcane.
The committee has recommended abolishing SAP, and suggested that 70 percent of companies' realisation from sugar and its by-products be shared with the farmers.