Shares of major sugar companies continued their upward movement in Thursday's intra-day trade after gaining 2–4% in the previous trading session after the government permitted the export of a specified quantity of raw sugar to the U.S. under the Tariff-Rate-Quota (TRQ) till December, according to a report by PTI.
A TRQ is a quota for a volume of exports that enter the U.S. at relatively low tariffs. After the quota reaches its limit, a higher tariff is applicable to additional shipments.
In May, the government permitted the additional export of 2,051 metric tonnes of raw sugar under the TRQ to the U.S. for the fiscal year ending September 30, 2022. With this quantity, the total sugar export to the U.S. under TRQ during its fiscal year 2022 would be 10,475 MT.
Major sugar stocks opened higher in Thursday's trade, with Ugar Sugar Works rallying 11% in the early hours, followed by Piccadily Agro Industries (up 4%), and Triveni Engineering (up 3.2%).
In the last one month, sugar stocks outperformed the Nifty by surging between 7-30%. Shree Renuka Sugars was the top gainer, rising 30.5% from ₹50.35 to ₹65.35. The stock is trading nearly 166% higher from its 52-week low of Rs. 24.40.
The bull run in the stock came after the company announced its plan to expand ethanol capacity by December. Further, on September 22, the board of directors of Wilmar Sugar, which is a holding company, provided a letter of support to the company to meet the shortfall in its normal trade-related working capital requirements for up to a period ending May 31, 2023.
Shares of Ugar Sugar works gained 201.98% from its 52-week low of ₹25.82. In the past one year. the stock jumped to ₹70.90 from ₹29.85, delivering a multi-bagger return of 137.52%. The stock has returned 25.4% in the last month.
|% Monthly Returns
|Shree Renuka sugars
|Ugar Sugar Works
|Kothari Sugars & Chemicals
|EID Parry (India)
|Rajshree Sugars & Chemicals
The sugar stocks started rallying in June after the government advanced the target of making petrol with 20% ethanol by five years to 2025. Analysts expect rising ethanol demand and aggressive ethanol capacity addition to boost sugar companies' margins in the coming quarters.
The government of India, with the aim to enhance India’s energy security, reduce import dependency on fuel, save foreign exchange, address environmental issues and give a boost to the domestic agriculture sector, has been promoting the Ethanol Blended Petrol (EBP) Programme.
In June, the target of 10% ethanol mixed with petrol was achieved much ahead of the target of November 2022.
According to rating agency ICRA, operating margins are likely to remain in the range of 13.0–13.5% in FY23 (in line with FY22 levels) supported by elevated sugar realisations as well as ethanol realisations despite the increase in FRP, which would increase production costs in FRP-followed states. Moreover, operating margins remain vulnerable to cane availability, BS reported.
Meanwhile, India produced a record 5000 lakh metric tonnes (LMT) of sugarcane between October 2021 and September 2022, emerging as the world’s largest producer of the commodity. During the period, sugar mills procured sugarcane worth more than ₹1.18 lakh crore and released payments worth more than ₹1.12 lakh crore with no subsidies from the government, the Ministry of Consumer Affairs, Food & Public Distribution said on October 05.
Of the total production during the period, about 3574 LMT was crushed by sugar mills to produce about 394 LMT of sugar (sucrose). Out of this, 35 LMT of sugar was diverted to ethanol production, and 359 LMT of sugar was produced by sugar mills.
During the season, Indian producers exported a record 109.8 LMT of the commodity. Favourable international prices and government policy measures helped the sugar industry achieve the feat. These exports brought in ₹40,000 crores worth of foreign currency for the country, the ministry said.
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