No impact of Sugarcane Agitation by farmers

We expect the next 2 years to be shortage years, sugarcane farmers are anyways expected to be paid a price much higher than the support prices. So FRP [fair and remunerative price] would not have any impact on our near term earnings.

We build in a sugarcane price of Rs2,100/tonne (FRP=Rs1,300/t; SAP=Rs1,650/t) for the U.P. players, initial media reports suggest that the companies have started the season with a price of Rs1,800/quintal. In any case, given the supply tightness we believe that the mills would be able to pass on higher costs top consumers.

Near Term Weakness on Stocks
We expect continued negative news flow related to farmers agitation against FRP. This is likely to have a negative impact on stocks of the U.P. players Bajaj Hindustan and Balrampur Chinni. Seasonally, sugar prices soften due to higher supplies as sugarcane crushing picks up. This may also lead to weakness in sugar stocks. Domestic sugar prices are trading at close to import parity and 8-10% higher than our SY10-11 estimates, which poses significant upside risks to forecasts.