Sugar stocks continue to rise as export demand pick up

Sugar stocks were trading higher on Friday after India's sugar exports rose on a global price rally and a weak rupee. 

Indian sugar mills signed contracts to export 550,000 tonnes of the sweetener in recent days, as surging global prices and a weak rupee made overseas sales lucrative, as per Reuters. 

Higher exports from the world's second-biggest sugar producer could check the rally in global prices, which have been buoyed by a spike in crude oil prices and lower output in top exporter Brazil.

The shipments will also help India reduce its stockpile and support the local prices of the sweetener, crucial in ensuring millions of cane farmers get government-mandated prices.

"In the past few days, mills from Maharashtra and Karnataka were active in the market. They were getting better realisation from exports than local sales," said Rahil Shaikh, managing director of MEIR Commodities India.

Indian mills have so far signed contracts to export 6.4 million tonnes of sugar in 2021/22, dealers estimate. Out of this, nearly 5 million tonnes have already been shipped.

In the last few days, Indian traders mainly sold raw sugar to Asian buyers such as Indonesia and Bangladesh, which were trying to replenish their inventories ahead of the Muslim holy month of Ramadan, said a Mumbai-based trader with a global trading firm.

India had exported a record 7.2 million tonnes of sugar in the previous season, taking advantage of government subsidy for overseas sales.

But this year, mills could export 7.5 million to 8 million tonnes without government incentives, said a New Delhi-based dealer with a global trading firm.

"Rupee and global prices are supportive. If the government does not impose any restrictions on exports fearing inflation, then exports could rise to 8 million tonnes," the dealer said.

India is likely to produce a record 33.3 million tonnes of sugar in 2021/22, nearly 7% more than a year ago.

Ugar Sugar works jumped nearly 7% to trade on its 52-week high value that it hit on Thursday. 

Similarly, Dhampur Sugar mills jumped nearly 2% to hit the day's high of ₹431.30, while Dwarikesh sugar gained 3% to trade on ₹125. 

Balrampur Chini rose 1.5% to trade on ₹459, Mawana Sugar traded marginally higher at ₹143.85 and Dalmia Bharat gained more than 1% to ₹448 per share on the BSE. 

Of all the sugar stocks, Mawana sugars and Ugar sugars and Dwarikesh sugar have gained significantly in the past one month. 

Shares of Mawana sugars gained 28% in a week and 45% in a month as on March 11. The stock has given over 200% return in the last one year. 

Similarly, Ugar sugar surged 26% in a week and over 200% in one year, showed technical data of the stock. Dwarikesh sugar rose nearly 250% in one year, while gained more than 25% in one week. 

BJP's victory in Uttar Pradesh will benefit sugar stocks.

Earlier, Parth Nyati, Founder, Tradingo has said that sugar stocks would do well if BJP retains power in Uttar Pradesh. "Although there should not be much impact on individual stocks, we can see the sentimental impact on Infra and Sugar stocks. 

If BJP comes back in the power, then Infra and Sugar stocks may do well due to stability in policies and vice-versa,” he had said on exit polls trend. 

Brokerage houses have also predicted transformational change in the sugar sector owing to the government's plans of ethanol blending with fuel. 

Increase in Ethanol demand

Operations margins of sugar companies are expected to improve with a favourable mix of ethanol towards B-heavy/juice (feedstock) coupled with higher sugar realisations.

The sugar industry is about to have a mega transformation as it has emerged as a potent driver of clean energy.

It is expected that the operating margins of sugar companies will improve as the demand for ethanol is on the rise, with an estimated compounded annual growth rate of 15% over FY22-30, as the Government is promoting ethanol-blended fuels.

Sugar inventory is high in India and conversion of cane towards ethanol will reduce the problem of surplus and reduce business volatility. It will improve profitability, reduce working capital and ensure superior cash flows, as per a Business Standard report.

"Based on the opportunities arising from ethanol and bioenergy, the sugar sector appears to be powering forward on a sustainable growth path (25 per cent CAGR), which would drive a shift in how it is perceived and eventually spur its re-rating,” an analyst at Systematix Shares and Stocks (India) said in its sugar sector report.