Sectoral Spotlight: Multiple levers to drive domestic sugar sector growth; 4 stocks with decent return potential
Global supply tightness, Indian government’s thrust on ethanol blending and the likely uptick in summer demand makes a compelling story for the domestic sugar sector and a combination of all these factors could bring windfall gains for sugar companies. The global sugar prices have already surged to 11-year highs.
“With global raw sugar prices surging to 11 year highs, the outlook for large integrated Sugar Mills in India with large capacities for Sugar and Ethanol is getting brighter this quarter as we approach the peak summer season,” S Ranganathan, Head of Research at LKP Securities said.
“Strong demand for the soft commodity this quarter coupled with diversion to ethanol manufacturing is seen brightening the prospects for such fully integrated sugar complexes in India,” Ranganathan added. “The fact that India is seeing a diversion to Ethanol makes it compelling as we are approaching the peak summer season now,” the LKP Securities Head of Research further said.
Ajay Bagga, market expert, is of the view that the sugar sector is politically sensitive and is among the sectors that can be kept on the radar as the global prices are edging higher.
Sector Triggers
– Summer Demand: Equity and commodity sector expert Anuj Gupta sees demand peeking as we move towards the scorching summer season ahead. He said that the Government has already announced release of 2 lakh tonnes of additional sugar stock to meet summer demand which is expected to go up on the likelihood of growth in ice cream and cold drink demand.
– Sugar production is also expected to fall in Brazil due to rainfall over the central and south sugarcane areas in Brazil, Gupta said. Gupta, who is Vice President (VP), Commodity and Currency Research at IIFL Securities said that the sugar prices are trading higher in the international market due to global supply tightness. “Thus the Margin of sugar companies may increase due to higher demand and tight supplies,” he further said.
– Meanwhile, brokerage firm JM Financial is also positive in the Indian sugar sector.
Stocks to buy: Anuj Gupta recommends this:recommends this:
– Buy Balrampur Chini Mills at Rs 370-380 with a stop loss of Rs 320 and price target of Rs 480. The stock ended at Rs 403 on the NSE on Thursday. Stock market was shut on Friday on account of Ambedkar Jayanti.
– Buy Sri Renuka Sugar at Rs 40-45 with a stop loss of Rs 30 and target of Rs 65. The stock ended at Rs 46.25 on Thursday.
– Buy Dwarikesh Sugar Industries at Rs 85-90 with a stop loss of Rs 72 and price target of Rs 125. The stock ended at Rs 92.40 on the NSE on Thursday.
– Buy The Ugar Sugar Works at Rs 93-97 with a stop loss of Rs 80 and price target of Rs 125. The stock ended at Rs 100 on Thursday.
– JM Financial reiterated its Buy rating on Balrampur Chini with an unchanged target price of Rs 480 per share. “We continue to believe the most efficient mills like Balrampur Chini will reap tremendous profits through integrated operations in the medium term,” it said.
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