Drivers of Financial Performance of Sugar Industry in India

The sugar and sugarcane prices are highly regulated by the state governments of India. The objective of our study is to find reasons for sustainability of sugar mills despite poor economics. Through secondary research, the supply chain and key financial metrics of five selected sugar mills are analyzed. Correlation coefficient is computed for the crucial pairs of financial ratios (control variables). The results indicated that sugar industries are able to sustain by leveraging the profits from by-products and the industry is suffering from the government policies of pricing sugar and sugarcane. Arrears in payments to farmers by sugar millers could be a way to regulate the supply (cultivation) of sugarcane by the farmers in the catchment area of their mills. It is also observed that volume of production increase does not drastically reduce the margin as it is widely believed among industry circles. Similarly, accounts payable is not a larger issue with millers whereas cane arrears could be an issue with farmers. The study emphasises the need for financial analysts closely monitoring volume, productivity, margin and payables. The study uses simple framework and tools for establishing a meaningful relationship among operating and financial parameters of the industry.