Sugar: No direct impact from Budget

The budget proposes to increase the MAT rate from 15% to 18% while the surcharge for corporate has been reduced to 7.5% from 10%.

Industry expectations not met

The premier sugar body in the country Indian Sugar Mills Association (ISMA) has raised following demands with the finance ministry for Union Budget 2010-11:

To include Ethanol in the list of declared goods.

To grant exemption of service tax on goods transport to the sugar industry.

Promotion of Ethanol as a bio-fuel by the government. And reduction of Excise duty on Ethanol from Rs 750/tonne to Rs 150/tonne.

Weighted deduction of 150% of the cost incurred for Construction of Roads in Rural Areas and conservation of water and productivity improvement

To extend the terminal date for section 80-IA benefit for cogen plants by 5 years i.e. upto 31st March 2015 for starting the generation of power.

No budget expectations for the sector have been fulfilled. However, in last Union Budget 2009-10 the terminal date for starting the power generation by cogen plant was extended by one year i.e. upto 31-03-2011, though the industry demanded five year extension.

Budget Impact

The increase in MAT rate from 15% to 18% in effective terms to 19.93% from 16.995% would mean higher cash outflow for the companies paying tax at MAT Rate like Balrampur Chini and Bajaj Hindusthan.

However, the Companies would get MAT credit on the amount paid for the next 10 years and benefit of which would be taken when the Company starts paying tax on income tax profit rather than book profits. Currently the company would create a deferred tax asset for the MAT paid.

Companies to watch out for

Balrampur Chini, Shree Renuka Sugar and Bajaj Hindusthan

Outlook

As the sugar sector is going through an up-cycle, it was expected that the government would neglect the sector for the time being. The industry has been demanding since long for de-controlling the sugar industry by freeing from the obligation to supply levy sugar and from release mechanism for sugar sales that is determined and declared by Government of India.

The priority for the government at the moment is to curb and check the sugar prices and recently the government has succeeded to some extent in its attempts as the prices has been soften post announcing of white sugar import by the government. However, the outlook for the sector remained positive considering the favourable demand supply situation and higher sugar realisation on Y-o-Y basis.