NCDEX

1. SHUBH SUGAR CO.
CASE STUDY NO.2
TEAM 2
ASHANA SHIRODKAR-103
KRISHNA PARAB-70
JINAL PATEL-72
RUTUJA RANE-90
SANKET SANVATSARKAR-94
MAYANK TYAGI-111

2. SUGAR COMMODITY
● Sugar is a commodity of mass consumption and the cheapest source of energy
in India
● India is the second-largest producer of sugar and also the largest consumer of
sugar in the world
● Sugarcane is the main sugar-producing crop that contributes nearly 75%
● January to March is the period of planting and November to March is the period
of harvesting

3. ● Sugar comes in three forms:
Large crystals (L-grade), Medium crystals (M-grade) and Small crystals (S grade).
● M and S grades form about 80% of total sugar production and are traded on the
NCDEX platform.
● The quality of sugar is gauged using a parameter known as the ICUMSA number,
which assesses the chemical properties of sugar for grading.
● The lower the ICUMSA number, the better the quality.

4. INTRODUCTION TO THE CASE STUDY
● A Major Sugar Manufacturing Company “ SHUBH ” located in Uttar pradesh,
established in 1935.
● The company used sugar agents as a medium to sell its sugar in the open market.
● The agents purchased sugar at spot rates and sold them at prevailing prices.
● After the forward contracting was permitted under the forward contract
regulations act, sugar sales are now done in spot market, and upto one month
forward.
● In 2008, MCX and NCDEX launched sugar contracts for futures trading.

5. QUESTION AND ANSWERS

6. 1.Enlist the advantages shubh has by forward selling of sugar.
● Reducing their exposure to price fluctuations in the market
● Improve financial stability
● Hedge against price risk
● Increase in sales and growth in business by increasing market reach
● Production can be planned more efficiently and minimizing waste
● Builds up strong relationship between buyer and seller

7. 2. What will be the consequences of a sugar agent defaulting on
payments ? when this most likely to happen?
Sugar agents defaulting on payments is most likely to happen when
1) They did not receive payments from retailer's end.
2) They were not able to sell sugar in the market
Consequences of this can be:
● Due to sugar agents not being able to sell the sugar further, the sugar would lie in the
godowns for a longer time and reach its maximum capacity with no space to store newly
manufactured sugar.
● This would lead to a forceful decrease in production.
● Since there is no payment being done there won't be enough funds with the company for
further plans.

8. 3. Why does the sales head feel that sugar futures will be
speculative in future? Is he right?
● According to sale head , The team is selling sugar using forward contract because
in forward contract the agent are trustworthy and working from past few years.
● According to sales head pov, when it comes to Future trading we don't know the
people with whom we are trading because in forward contract we had trustworthy
agent with whom we use to deal.

9. 4. Why should the finance head be concerned about delays and
defaults by the agents?
The main role of the finance head is to see that there should be no losses and to choose
the best alternative to maximise the profits. In forward market when they use to sell it
to the agents they use to default the payment and even capital blockage will be a
major issue in the business as inventory is not sold on time which will directly affect
the profitability of the organization. When it comes to future contracts there is no
chances in defaulting the payments as the regulatory body will constantly monitor the
transactions.

10. 5. How can futures contracts be helpful in hedging without the risk
of delay or default from either party?
Futures contracts can be helpful in hedging because they are standardized agreements
that are traded on regulated exchanges, which reduces the risk of delay or default from
either party. This is because the exchange acts as a counterparty to every trade,
ensuring that both parties fulfill their obligations. Additionally, futures contracts
typically require a margin deposit from both parties, which helps ensure that they have
the financial resources to fulfill their obligations.

11. 6. Do you think hedging through futures can be used by shubh, in spite of
government regulated monthly sales quotas?
It depends on the specific details of Shubh's situation, such as the nature of the sales
quotas and the specific futures contracts being used for hedging. Generally, futures
contracts can be used for hedging against price fluctuations, but if there are
government regulated monthly sales quotas in place, it may affect the effectiveness of
the hedging strategy. Shubh should consult with a financial advisor or expert to
determine the best approach for their specific circumstances.

12. CONCLUSION
According to us, the main aim of the management department should be maximization of
profit. The management should also make sure that there is regular flow of inventories from
the warehouse in FIFO or LIFO method as per the company norms. Just because we have good
relations with agents we cant put the profitability of the organisation at risk because as we
saw that the agents are not being able to sell the commodity in the open markets due to
which the company has to face storage issues for new production. So therefore talking with
the higher authorities concerned the company should be using the alternative option for
hedging that is entering into the Future contracts as there are no chances of delay in
payments here as the trade will be done under the observations of the regulatory body.