Pawar takes step to decontrol sugar; presents case to PM

The sugar sector is finally in for some sweet news. CNBC-TV18 learns that the Agricultural Minister has made a formal presentation to the Prime Minister for sugar decontrol. This is the first time that an official step has been taken by the Minister.

Almost all sugar stocks, which had been rallying through today's trade in anticipation of some development, showed significant spike after this news came in.

Pawar takes step to decontrol sugar; presents case to PM

While decontrol in sugar has been touched upon several times by Governments in the past, what is different perhaps this time is that the current Government is known to take the bull by the horns after it decontrolled petrol pricing a few months ago.

CNBC-TV18’s research analyst, Varinder Bhansal, gave his views on the agriculture minister making a first of its kind formal presentation to PM Manmohan Singh regarding deregulation of sugar prices.

Below is a verbatim transcript. Also watch the accompanying video.

Q: What is the research team picking up in terms of decontrol? Any details as to what does this word itself mean?

A: We do not want to go very gung-ho on this but what we are hearing from confirmed sources that today the agriculture minister, Sharad Pawar had made a presentation to the Prime Minister. This is the first time a formal presentation has been made in front of the ministry. The important point is we have been hearing from Indian Sugar Mills' Association (ISMA) President and many others in the sugar industry, that decontrol is a must for this industry.

This is the first step towards it that the PM is hearing about from the agriculture minister. Now, the important thing remains is the cane pricing. It is very important for the entire sugar industry. We are hearing some of the important points, which have been put forward by the agriculture minister, are that the pricing if you see some of the world basis, what they have done, the nearest example you will be picking from Brazil where they follow the Consecana formula, where you have power, ethanol and sugar. So, 65% of the weighted average is paid to the farmers and the rest portion is paid to the companies, which will be used for capex and debt plans.

This is one programme, which has been put ahead. How far this will come through we do not know, but formal presentation has been made. Of course, there are many other opinions which have been made in the presentation, which includes that cane pricing should be limited. You will be having an upside in the sugar prices, which should be shared with farmers on formula basis. These all are working out.

The only reason why all the sugar stocks are excited is because a formal step has been taken by the agriculture minister today by doing a presentation in front of the Prime Minister. We will soon know what were the contours and how much the PM actually liked it and what were the details which will be coming from there.

The only advantage when I spoke to analysts is they feel that the visibility in terms of numbers, if at all the sugar decontrol happens, will get clear for the entire industry. Also, the multiples at what they are trading will have to go higher. The visibility on the revenues, that how much percentage will be accruing to all these companies going ahead.

source: moneycontrol