Domestic brokerage firm ICICI Securities in its report has reiterated the positive stance on sugar sector along with an imminent re-rating. It is important to note that sugar stocks have seen 2-4x run-up in four months, the report said.
“The sector has seen a turnaround from being a cyclical to a structural growth sector backed by the government’s aggressive ethanol blending programme,” it added. ” With aggressive distillery capacity addition in India, our coverage sugar companies would see strong earnings growth over the next three years.”
Sugar stocks like
and Industries surged 5 per cent each to Rs 78.40 and Rs 475, respectively on Thursday. Magadh Sugar and Energy jumped 4 percent to Rs 340, whereas EID Parry India gained 2 per cent to Rs 417.70
In June 2021, the government released a roadmap for an ethanol blending programme that clearly set forth all important factors & guidelines for OMCs, auto OEMs, sugar and other related industries.
“The government’s programme, with increasing molasses and grain based ethanol capacity is achievable. The industry would divert 6 MT of equivalent sugar toward producing ethanol. This would reduce the sugar inventory and drive domestic sugar prices upwards.”, said ICICI Securities.
Smaller sugar stocks like Mawana Sugars, Kesar Enterprises, and Allied Industries, Indian Sucrose, , ,Davangere Sugar Company and Simbhaoli Sugars hit the upper circuits of 5 per cent each.
Global sugar prices have moved up 50 per cent in the last one year on the back of two consecutive years of lower sugar production by Thailand. Moreover, despite the ongoing Brazilian crushing season, sugar prices have been firm.
“With the massive increase in distillery capacities by sugar companies, ethanol sales are likely to double for most of our coverage companies. Ethanol sales would contribute 25-30% to revenues of major sugar companies by FY24,” the brokerage said. “Despite the huge run up in the sugar stocks, we remain positive on the sector.”
