Ethanol, price rise, production drop continue to fuel rally in sugar stocks
Fears of a decline in sugarcane production in light of the monsoons, which play an absentee role sugar Increased demand due to summer and the upcoming festival season will likely lead to higher prices of the commodity. The prospect of margins improving for sugar firms led to a rise in sugar inventories on Thursday.
among individual stocks, Uttam Sugar Mills It closed at Rs 342.05 on Thursday – up 12.37 per cent over the previous close in BSE. stock like Bajaj HindustanAnd Dalmia sugarsAnd Balrampur Chennai MillsAnd Dwarkish sugarAnd Shri Renuka SugarAnd reported sugars And Moana Sugars It jumped between 2 and 5 percent.
The excellent flow of sugar stocks started in 2021 and is still going on. In the case of Uttam Sugar, the stock is up 270 percent in the past three years. As the temperature rises, so does the greater demand for sweeteners from ice cream and soft drink manufacturers. The center’s push towards ethanol blending also supports the slight increase in sugar stocks.
The rise in sugar stocks is likely to continue, especially in light of the extension of the subsidy program by the center and fears of a decline in domestic production and an increase in domestic demand. At the moment, due to government intervention that has imposed a ceiling on sugar prices and subsidies, prices have not gone up. Ethanol prices will soon rise which will benefit ethanol producers, said Bhavik Patel, Sr. Research Analyst at Tradebulls Securities. Business line.
production decline
The US Department of Agriculture said that Indian sugar production is expected to increase by 4 million tons to 36 million tons in the 2023-24 season (October 2023-September 2024). But India is likely to produce 32.8 metric tons of sugar in the 2022-23 marketing year, down 3.5 percent from a previous forecast, as sugarcane crops declined in major producing countries due to erratic weather conditions, said the Indian Sugar Mills Association, one of the the top. trade body, in April.
Since higher prices could add fuel to higher food price inflation, the center is unlikely to allow additional sugar exports. Global prices are already trading near multi-year highs.
Amar Deo Singh, Head of Advisory, Angel One Ltd.
Hit gold with ethanol
Going forward, ethanol is destined to become a money spinner for most sugar mills. Ethanol is a biofuel that is produced naturally through the fermentation of sugars by yeast. It is used in the production of medicines, plastics, polishes, cosmetics, and also as an alternative fuel source. The latter would be a windfall for the sugar makers.
The biggest tailwind for large integrated sugar mills, S. Ranganathan, head of research at LKP Securities, told Businessline is that they have a massive capacity to “provide ethanol to the three oil marketing companies at very profitable rates. These integrated sugar mills have eliminated risk in their business model.” Today, the profitability of the ethanyl business – which makes up 25-30 percent of revenue – is much higher than that of the sugar business.”
In addition, the government is likely to come out with a policy on flex-fuel vehicles. Although widespread use of such vehicles will take longer, moderate adoption is sufficient to increase ethanol consumption even after 2025.
The upward look
Although the outlook is positive for the sugar and corporate sector, investors should remain cautious given the cyclical nature of the crop. Ranganathan said that most integrated sugar mills have a good budget to hold large stocks of sugar for a long time, which can be liquidated when prices go up. Besides, the effect of El Nino is a major factor to consider.