Technical Analyst Vikas Pershad of Veda Investments has suggested investors to stay away from the sugar stocks for now.

Even the import duty imposition and escalating utilization will not help sugar scrips.

The news of administration taking back 15% duty on imported sugar and talks about a possible decontrol of sugar have failed to incite sugar scrips. The BS Sugar Index has drew back by about 36%, as against a 3.2% decline in the Sensex and a 22% drop in sugar costs since January this year.

Market analysts think that things could turn bitter for the sugar business, as rates of imported plus domestic sugar dropped, whereas cost of sugarcane is likely to stay at the same level, if not rise.

At present, the landed price of white sugar is Rs 27,960 per tonne, as against Rs 29,350 a tonne in the domestic market. Hence, imposition of import duty will have partial impact on the business.

In addition, with production cost expected to be between Rs 29,000 and Rs 32,000 per tonne at existing price levels, there is approximately no operating profit. In a strong price scenario during the last fiscal, sugar mills paid aprox Rs 26,000 per tonne for sugarcane. Costs relieved since then, but are not likely to go below Rs 20,000 per tonne. Sugar supply is readt to go up to 23 million tonnes this fiscal.

The top sugar players have already posted lower growth in their quarterly net earnings. The sugar segment has been an underachiever with net earnings springing up at 8.7% as compared to 28% registered by the corporate segment.