5 Sugar Stocks Down up to 50% from 52-Week Highs
Sugar stocks have plunged up to 50% from 52-week highs, driven by ethanol restrictions, rising input costs, and export curbs. The recent hike in sugarcane’s FRP to ₹355/quintal has further squeezed margins. Dwarikesh Sugar, despite its integrated operations and strong RoE (16%) and RoCE (21%), faces profit decline as regulatory pressures weigh on its financials.
Sugar stocks have fallen sharply, with some down as much as 50% from their 52-week highs. This decline is due to several factors, including regulatory actions, rising costs, and market pressures.
First, the government restricted the use of sugarcane for ethanol in the 2023-24 season. This directly impacted the revenue of sugar mills that had invested in ethanol capacities as part of the green fuel push.
Recently, sugarcane’s fair and remunerative price was increased to Rs 355 per quintal for the season starting from October. Although this is good for farmers, it has increased the input costs of sugar mills, putting pressure on their margins.
Meanwhile, the sugar mills have urged the government to raise the sugar’s minimum selling price (MSP) due to increasing operational and procurement costs. However, no revision has been announced so far. Export controls during 2023-24 further impacted the sector.
Dwarikesh Sugar operates as an integrated sugar company with a current sugarcane crushing capacity of 21,500 tonnes of cane per day (TCD).
The operations have been integrated into the power and alcohol business, with a 94 megawatt (MW) co-generation capacity and distillery capacity of 337.5 kiloliters per day (KLPD).
The company’s operations are spread across three sugar plants in Uttar Pradesh: Dwarikesh Nagar (DN), Dwarikesh Puram (DP), and Dwarikesh Dham (DD). These plants are strategically located near major sugar-consuming markets in India.
Dwarikesh financial has been affected by regulatory moves. After a strong performance, its financials have shown a downward trend.
Revenue has grown at a compounded annual growth rate (CAGR) of 9.5% to Rs 17 billion (bn) over the last 5 years ending FY24. Net profit declined at a CAGR of 2.6% over the same period.
However, the company’s average return on equity (RoE) and return on capital employed (RoCE) stayed strong at 16%, and 21%, respectively.
Dwarikesh Sugar Financial Snapshot
| Particulars | FY20 | FY21 | FY22 | FY23 | FY24 |
|---|---|---|---|---|---|
| Sales Growth (%) | 23.2 | 37.6 | 7.6 | 6.3 | -18.7 |
| Net Margin (%) | 5.5 | 5 | 7.8 | 5 | 4.9 |
| RoE (%) | 15.2 | 15.8 | 23.1 | 14.2 | 10.2 |
| RoCE (%) | 15.5 | 23.1 | 28.6 | 18.7 | 16.9 |
Source: Equitymaster
The company’s financials further deteriorated in 9MFY25. Revenue fell 32% from last year to Rs 9 bn due to lower sugar and ethanol sales volume.
As margins turned negative, the company reported a loss of Rs 0.23 bn, compared to a profit of Rs 0.6 bn.
Looking ahead, the company remains optimistic that it will regain momentum by the 2025-26 season. The announcement of 1 million (m) tons of sugar exports is also a positive development for the sector.
Furthermore, the anticipated increase in ethanol procurement prices and a potential revision in MSP for sugar are expected to boost performance further.
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Source : Equitymaster
