Sugar stocks in focus; Dhampur, Uttam Sugar hit 52-wk high; soar up to 14%

Shares of sugar companies were in focus and rallied up to 14 per cent on the BSE in Thursday’s intra-day trade in an otherwise subdued market on expectation of sugar prices to remain elevated due to the deteriorating weather outlook coupled with rising demand.

Among individual stocks, Uttam Sugar Mills (up 14 per cent at Rs 347.65), Ugar Sugar (up 8 per cent at Rs 131) and Dhampur Sugar Mills (up 6 per cent at Rs 286) hit their respective 52-week highs.

Avadh Sugar & Energy, Dalmia Bharat Sugar and Industries, Bajaj Hindusthan Sugar, Dwarikesh Sugar Industries, Balrampur Chini Mills, Shree Renuka Sugar and Triveni Engineering were up in the range of 3 per cent to 8 per cent. In comparison, the S&P BSE Sensex was down 0.15 per cent at 63,429 at 11:38 AM.

According to ICRA, domestic sugar prices are expected to remain elevated with lower-than-expected output in India, Thailand and Europe along with delayed harvest in Brazil in April 2023. El Nino risk on Asian production may also result in a price increase.

Meanwhile, industry remains cautiously optimistic. India is headed to produce 32.8 million tonnes of sugar during sugar season 2022-23 compared to a sugar production of 36.5 million tonnes in SS 2021-22 even as consumption is gradually rising and estimated at about 27.5 million tonnes in SS 2022-23.

Besides, the government approved the export of 6 million tonnes of sugar by May 31, 2023. The net result is that the closing stock at the end of the sugar season 2022-23 is estimated at 6 million tonnes, less than three months of consumption.

The incremental tailwind is expected from attractive international prices, which could catalyse a positive in sugar realizations, Dwarikesh Sugar said in its financial year 2022-23 annual report.

The distillery business is headed in the right direction. India intends to increase the blending of ethanol with automotive fuel from around 10 per cent presently to 20 per cent by 2025. The doubled proportion on a larger consumption base implies that whatever ethanol manufacturers expect to produce will be sold at attractive realisations, accelerating reinvestments, the company said, adding, this virtuous cycle play out across the future, resulting in a larger ethanol contribution to the bottomline of companies.

The government is going to introduce flex fuel vehicles on a large scale. The early introduction of flex-fuel vehicles will require a higher percentage of ethanol, including running these vehicles on pure ethanol could help achieve 20 per cent blending target, Dwarikesh Sugar said.

Meanwhile, sugar consumption was expected to increase on account of the appetite coming from India’s largely unorganised catering segment, one of its largest consumers. India’s unorganised grocery segment was expected to report positive growth due an increasing population and disposable incomes.