Sugar Stocks Sweeten Investors’ Wealth Today; Will the Sweet Run Continue in 2023?

Sugar Stocks Surge Today: Shares of sugar companies shares were seen trading with a positive bias on Tuesday even as the benchmark indices exhibited a cautious movement in trades so far. The BSE Sensex and Nifty 50, were seen holding marginal gains in late-morning deals after the initial volatility. Stocks such as Shree Renuka, Balrampur Chini Mills, Triveni Engineering, Dwarikesh Sugar, Uttam Sugar and Avadh Sugar surged over 3-5 percent on December 27.

Why are Sugar Stocks Surging?

The stocks surged after the Ministry of Consumer Affairs, Food and Public Distribution announced 100 per cent incentive on sugar sacrificed for producing ethanol from B-heavy molasses, sugarcane juice and syrup on December 26.

“The stock holding limit will be worked out on the basis of giving 100 percent weightage to the month-end notional stock of the preceding month,” as per government notification.

“Sugarcane and molasses-based ethanol producers are better placed than grains-based ones as sugarcane prices are fixed by the government rather than being left to market forces, preventing volatility in production cost and profitability,” brokerage firm Elara capital said.

“Feedstock used for fuel in sugarcane and molasses-based ethanol is internally sourced bagasse, and the price gap between cane-based and FCI rice-based ethanol is Rs 7/litre,” it added.

Other Trends Backing the Sweetening of Sugar Stocks

In other news, the Petroleum Ministry may soon revise the price of ethanol made out of damaged food grains. Oil marketing companies (OMCs) are likely to revise it to Rs 58.50 per litre from the current Rs 55.54, sources told The HinduBusinessLine.

Globally the international prices are also on an uptrend, which augers well for domestic prices as well.

What Should you Buy in 2023?

JM Financials in a report dated December 21, 2022, said: “Sugar season in India (started in Oct’22) is progressing reasonably well with cumulative production at 8.2 million tonnes (mnt), +5 per cent YoY, despite delayed start of the season due to the extended monsoon. Domestic sugar realisation (ex-mill for UP players) has been steady around INR 35-37/kg while global prices have remained firm at USD 0.19-0.20 per pound (for raw sugar). With the pick-up in crushing momentum, the government may consider additional quota for exports (earlier 6mt). Sugar mills have already contracted for over 4.5-5mt of exports. On the other hand, with OMCs contracting 460cr ltr ethanol for ESY23 (EOI for additional 139cr ltr floated), the government’s 12 per cent ethanol blending target for this year

remains on track. We remain positive on the Indian Sugar sector given favourable regulation (intended towards the survival of the weakest mill), which augurs well for efficient companies like Balrampur Chini. Maintain BUY on Balrampur Chini.”

Elara Capital has a buy rating on Dwarikesh Sugar with a target of Rs 145, an upside potential of 44 per cent from the current price of Rs 101 per share. The brokerage also has an accumulate rating on Balrampur Chini Mills with a target price of Rs 445 per share.

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