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Sweetness in Sugar Stocks

By Avni Goel and Amandeep Singh Bhutani

Sugar stocks, now-a-days, are trading on multi year highs. These stocks have given around 150% returns from January. These phenomenal returns are backed by many triggers and favorable government policies. Government has planned to provide another source of revenue, ethanol, to refined sugar producing companies. It is a bio fuel that is made using sugarcane. In India, ethanol is primarily used for blending petrol.

Government’s announcement of an increase in the mandate of ethanol blending from 8% to 20% till 2025 is the major factor that has fueled this rise. Most companies are now preparing to tap this increase in demand for ethanol and are preparing to expand their capacities and distillery operations by setting up ethanol plants. This came after the board of directors of Shree Renuka Sugar have approved of their capacity expansion. Industries, AMCs, brokerage houses and market participants believe that ethanol blending will not be limited to 20% and in future India might follow Brazil which stands at 48% of mandate. This ethanol program can prove to be a tipping point for this industry which is also reflected in their bullish prices.

 

Locally, sugar prices were flat at around Rs 31/kg during December-March'21. However, in April’21, the prices saw spurt to Rs 33-34/kg, reflecting higher demand due to summer season. Global factors are also extending a pillar for this sector due to the tight global demand-supply situation. Given the problems posed by dry weather, Brazil and Thailand, world's two major sugar producers, produced 7-8 million tons less sugar than last year. This thus provides more opportunities for domestic exporters, as the current season's surplus inventory is anticipated to reach 9.5 MMT.

Some fundamentally strong sugar stocks like Balarampur Chini, Dhampur Sugar Mills, Dwarikesh Sugar Industries, Triveni Engineering and Andhra sugar have dissolved massive sweetness in the market.

Since sugar sector has now become predictable, one can expect a good rally for few upcoming months. Many critical factors like government policies, ethanol capacity addition would be the key for its growth at the domestic front. Due to high demand of sugar arising with ethanol production, sugar companies could make a substantial impact on the market direction.

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Avni Goel

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Amandeep Singh Bhutani

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