Sugar stocks rise as production drops due to unseasonal rainfall; Will shares rally in this hot quarter?
On Thursday, sugar stocks were trading mixed but they have risen over 5% in the last two weeks. Gayatri Sugars surged 10% today, Dhampure Splty. Sugar rose 5% while Balrampur Chini Mill, E.I.D. Parry, Uttam Sugar Mills, Dalmia Bharat Sugar and Shree Renuka Sugar stocks fell up to 3%.
Sugar stocks have been rising for the past few days as sugar production fell 3% amid increased demand in the summer season. Due to unseasonal rainfall in some parts of India, production has dropped and many mills that keep crushing sugarcane by June or July, until the monsoon arrives, have wrapped up operations early, according to reports. On Thursday, sugar stocks were trading mixed but they have risen over 5% in the last two weeks. Gayatri Sugars surged 10% today, Dhampure Splty. Sugar rose 5% while Balrampur Chini Mill, E.I.D. Parry, Uttam Sugar Mills, Dalmia Bharat Sugar and Shree Renuka Sugar stocks fell up to 3% as the benchmark indices Nifty 50 and Sensex continued to trade in the red.
Why has sugar production dropped?
“The drop in production is mainly due to unseasonal rainfall in Maharashtra a possible shortfall of 200,000-300,000 tonnes from an initial estimate of 38.6 mt, including the diversion of sugar to produce ethanol. Due to less availability of sugarcane in Maharashtra and Karnataka, many mills that keep crushing sugarcane by June or July, until the monsoon arrives, have wrapped up operations early. About 71 mills in Karnataka and 190 in Maharashtra have stopped crushing. This leads to a decline in India’s overall sugar output,” said Arvinder Singh Nanda, Senior Vice President, of Master Capital Services Ltd.
Sugar industry outlook
All eyes on government’s decision to review hike in sugar quota
“We believe that the market will keep an eye on how the government will hike the quota on Indian sugar exports, the allowance for which currently is 6 million tonnes. As the sugar companies have a commitment to ethanol blending too. If the sugar prices rise further, the government has to intervene in order to cap the prices. The outlook is quite uncertain and a close watch needs to be kept on the El Nino trend across major sugar-producing countries and on the Government’s decision to review the hike in sugar quota,” said Arvinder Singh Nanda, Senior Vice President, of Master Capital Services Ltd.
Sugar Mills’ outlook getting brighter this quarter
“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. Strong demand for the soft commodity this quarter coupled with a diversion to Ethanol manufacturing is seen brightening the prospects for such fully integrated sugar complexes in India,” said S Ranganathan, Head of Research at LKP Securities.
Sugar stocks outlook
A cut in sugar production estimates, rallying domestic/global sugar prices and monsoon-related concerns do not rule out the assumption of an ‘up-cycle’ by some industry participants, according to analysts. “The government aims to maintain stability in the sector. We believe the most efficient mills like Balrampur Chini will reap tremendous profits through integrated operations in the medium term. We reiterate BUY on Balrampur Chini with an unchanged Mar’24 target price of Rs 480,” said Achal Lohade of JM Financial.
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