Following the government's announcement on Saturday that the GST rates on ethanol intended for blending will be reduced from 18% to 5%, shares of sugar companies were trading in the green zone on Monday's morning session.
The main blending component in petrol is ethanol, which can be made from sugarcane, sugar, or sugar syrup.
Shares of Eid Parry India Ltd reached an intraday high of 5.0%; those of Balrampur Chini Mills Ltd reached an intraday high of 3.80%; those of Dhampur Sugar Mills Ltd reached an intraday high of 17.4%; those of Dalmia Bharat Sugar & Industries Ltd reached an intraday high of 20%; those of Triveni Engineering & Industries Ltd reached an intraday high of 5.9%; and those of Shree Renuka Sugars Ltd.
According to analysts, the short term trend is positive for the sugar stocks as good volumes are witnessed along with price up moves. This indicates buying interest in the sector.
On Saturday, the GST Council meeting's chair, Union Finance Minister Nirmala Sitharaman, stated that there were up to 15 items on the agenda, eight of which were finished, and the other topics will be carried over to the following council meeting.
"This is a good news for the sugar companies, but one must understand that GST does not add to the profits of sugar companies. Also, contracted value of ethanol is fixed in advance in terms of quantity, and pricing by the oil marketing companies," said Avinash Gorakshakar, Head of Research, Profitmart Securities.
According to Avinash, today's upside in sugar companies is a sentimental rally. "Overall, we remain positive on the ethanol sector although one must understand that if crude cools further, then this should temper the demand for ethanol ahead," he added.
Prashanth Tapse, Senior Vice President Research of Mehta Equities believes such support from the government would help the sector to grow. The effort is to support more blending and reduce dependence on imported crude and save foreign exchanges.
"The Government aspires to reach a 20% ethanol blending target by 2025e for which, it will need 1,000 crore litres of ethanol. Currently, India has reached a 10% blending target, with 450 crore litres of ethanol already being produced. Overall this effort would be a welcome move for the sector growth and we remain optimistic on the sector for the long term," said Mehta.
Further, another media report, which stated that the government would think about raising the sugar export quota for the current 2022–2023 marketing year contributed to the positive sentiment amongst the sugar companies today.
