20 stocks from the sugar sector turned multibaggers, rallying over 100 percent in the last 3 years. According to experts, the sector is currently in the sweet spot due to various government initiatives. The government, recently, restrict sugar exports for the first time in six years to prevent a surge in domestic prices.
The government has capped sugar exports at 10 million tonnes, with no exports between June 1-October 31, 2022 (except under restrictive conditions).
Rana Sugars was the top gainer in the sector, surging nearly 900 percent in the last 3 years. The stock jumped from around ₹3 in June 2019 to currently trade around ₹31. Meanwhile, Sir Shadi Lal Enterprises jumped over 600 percent in 3 years, from ₹33 to currently trade around ₹233.
Among other major sugar companies, Dwarikesh Sugar Industries, Triveni Engineering & Industries, Dalmia Bharat Sugar And Industries, EID Parry (India), Balrampur Chini Mills, and Uttam Sugar Mills rose between 100 percent and 300 percent in this time. In comparison, the benchmark Sensex advanced nearly 40 percent during the same period.
Market experts believe that the domestic sugar industry used to be cyclical, however, now due to the continuous rise in sugar cane prices, farmers have been able to increase their yield helping India become one of the biggest producers of sugar, which is a big positive for the sector. Further, other changes like the ethanol blending programme have also kept the sentiment in the sector strong.
“With positive structural developments, newer capacities lending revenue visibility or stability, robust capex cycle behind and inflation resistant nature of the industry we believe that the industry is in the sweet spot, and hence we are bullish on the sector,” domestic brokerage house Centrum Broking said in a report.
According to the brokerage, the demand for ethanol blending is estimated to reach 1,016 crore litre from the current 425 crore litre (ethanol blending was 172/332 crore litres in SSY20/21) over ESY21-26, clocking a CAGR of 25.1 percent. This is primarily driven by the sugar industry and has resulted in an expansion in the total addressable market for integrated sugar mill owners from ₹0.95 lakh crore to ₹1.4 lakh crore over FY21-24, it added.
The brokerage believes that the increase in the addressable market size would be beneficial for players that have embarked on aggressive distillery capacity expansion plans to cater for the growing fuel-ethanol demand. It is positive on Balrampur Chini Mills and Triveni Engineering & Industries with a target price of ₹515 and ₹313, respectively.
Meanwhile, Sharekhan is positive on Dhampur Sugar Mills with a target price of ₹315.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.