Sugar stocks in focus: Balrampur hits 11-month high; Triveni, Dalmia up 3%

Shares of sugar companies rallied up to 9 per cent on the BSE in Thursday’s intra-day trade in an otherwise subdued market due to hike in refined sugar prices and government’s thrust to double the ethanol blending by 2025.

Meanwhile, India´s sugar production fell 3 per cent to 29.9 million tonnes (MT) in the first six months of the 2022 23-marketing year ending September, according to industry body ISMA. Sugar output was at 30.9 MT in the corresponding period of the previous year.

ISMA has projected production for 2022-23 to 34.0 MT against 35.8 MT in the 2021-22 marketing year, the PTI reported.

Among the individual stocks, Balrampur Chini Mills hit a 11-month high at Rs 422.70, up 3.3 per cent on the BSE. The stock was trading at its highest level since May 2022.

Triveni Engineering & Industries, Dalmia Bharat Sugar and Industries, Shree Renuka Sugars, Dhampur Sugar Mills and Dwarikesh Sugar Industries were up 3 per cent in intra-day trades today. Magadh Sugar & Energy rallied 9 per cent to Rs 363.85, while Avadh Sugar & Energy surged 5 per cent to Rs 480.05 on the BSE.

With almost all sugar mills closed in Maharashtra and Karnataka, sugar production in the country is expected to be ~33 MT compared to 35.9 MT last year. Given sugar consumption is 27.5 MT and export accounts for 6.3 MT, sugar inventories are expected to come down by ~1 MT, according to ICICI Securities.

“This has led to domestic sugar prices moving up by Rs 2 / kg to Rs 36.5/kg. We believe sugar prices would further move up by Rs 1-2 / kg in peak summer period and later in the festive season between August and November,” the brokerage firm said in a note.

“The revenue for sugar mills is estimated to increase by 8-12 per cent in FY23, based on analysis of top players accounting for about 50 per cent of the organised sugar industry. The growth is expected to be supported by addition in installed capacity for sugar production and distilleries along with increase in ethanol blending target and price. With the government's continuous support towards the sugar sector and increasing focus on diversion towards ethanol production to promote Ethanol Blending Program in India, the sugar sector is likely to gain traction going forward," Tanvi Shah, Director, CareEdge Advisory & Research, said.

Furthermore, looking at the overall profitability of the sugar mills, the distillery segment contributes a comparatively higher profit margin than the sugar segment. Such remunerative prices to ethanol suppliers will help in early payment to cane farmers, and improve the liquidity of Sugar mills, the rating agency said in sector update.