Shares of sugar companies surged up to 13 per cent on the BSE in Thursday’s intraday trade; Know why
Sugar Stocks Rally Today: Shares of sugar companies surged up to 13 per cent on the BSE in Thursday’s intraday trade on the likelihood of a 14 per cent fall in sugar output in Maharashtra in the 2023-24 crop year.
Among individual stocks, Dalmia Bharat Sugar and Industries surged 13 per cent to Rs 481.40, hitting its 52-week high on the BSE. Magadh Sugar & Energy rallied 10 per cent to Rs 677, followed by Uttam Sugar Mills (8 per cent at Rs 443), Avadh Sugar & Energy (8 per cent at Rs 716), Balrampur Chini Mills (6 per cent at Rs 441.95), and Dhampur Sugar Mills (6 per cent at Rs 298.70). By comparison, the S&P BSE Sensex was down 0.02 per cent at 67,454 at 10:43 AM.
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Sugar stocks have been gaining lately on concerns over production in the wake of weak monsoon in the growing areas. Maharashtra, which is among India’s top-producing states, has been at the receiving end of the monsoon witnessing the driest August in more than a century, according to industry insiders and government officials as reported by Reuters.
DAM Capital has initiated coverage on sugar stocks with a ‘buy’ rating as it expects sugar companies to witness strong earnings growth for financial year 2023-2026.
The brokerage stated in its report said that increased sugar prices and rising ethanol volumes would lead to significant profitability growth for sugar producers.
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“We believe sugar companies would see strong earnings growth on the back of higher sugar prices and increase in ethanol volumes owing to completion of large distillery capacity expansion, Given sustainable crop pattern in UP due to easy availability of water, sugar companies would be bigger beneficiary of higher sugar prices. We initiate coverage on Balrampur Chini, Triveni Engineering, Dalmia Bharat Sugar and Dwarikesh Sugar in the sector,” said the brokerage in its report.
The brokerage further noted in its report that due to lower sugarcane yields in Maharashtra and Karnataka, gross sugar production decreased to 37.3 mt in 2022–2023. According to DAM Capital analysts, rapidly emerging El Nino conditions will further hinder the states’ ability to produce sugar and will keep domestic sugar prices over Rs 37/kg. This would help UP sugar firms by increasing the volume of sustainable sugar and sugar realisation.
“We expect sugar companies to witness strong earnings growth for FY23-26E. We initiate coverage on the sector with a positive outlook,” added the brokerage.
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The brokerage house has assigned the stocks of Dalmia Sugar, Dwarikesh Sugar, Triveni Engineering Industries Ltd, and Balrampur Chini Mills Ltd a ‘buy’ recommendation. Let’s check what the brokerage has to say about each one of them.
Balrampur Chini: Buy | CMP: Rs 416 | Traget: Rs 510 | Upside: 23 per cent
The brokerage in its report claimed that Balrampur Chini Mills is one of the most effective sugar producers in the nation with the biggest ethanol production capacity.
Triveni Engineering: Buy | CMP: Rs 355 | Traget: Rs 415 | Upside: 17 per cent
According to the brokerage, Triveni Engineering is a sugar company with a greater share of high margin refined sugar industry located in western Uttar Pradesh. With the increase in ethanol blending to 20 per cent levels by 2025–2026, it is well positioned to take advantage of the growth opportunity. Additionally, it has a substantial engineering division, which might unleash value in the event of a future demerger.
Dalmia Bharat Sugar: Buy | CMP: Rs 426 | Traget: Rs 540 | Upside: 27 per cent
“Dalmia Bharat Sugar is expanding its distillery capacity from the current 710 KLD (220 mn litre pa) to 1100 KLD (320 mn litre pa) by September 2024 by adding grain-based ethanol capacities. The distillery segment is expected to contribute 45 per cent to revenue by FY25,” DAM Capital said.
Dwarikesh Sugar: Buy | CMP: Rs 93 | Traget: Rs 120 | Upside: 29 per cent
According to the brokerage, the company is one of the sugar producers with the highest recovery rate at the lowest cost. The doubling of the distillery’s capacity would aid in future sugar-ethanol blend optimisation.
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