Basmati rice and sugar stocks up on favourable fundamentals

Price moves up in physical markets, Iran to issue rice import licence; lower production estimates help sugar stocks

Share prices of companies engaged in sugar production and basmati rice export rose sharply on Monday, on an increase in consumer demand.

Basmati exporters are hoping for better days ahead on expectations that Iran, this country's largest importer, will soon start issuing licences in this regard. Sugar mills think their realisation will go up on lower domestic production.

Among basmati shares, that of 'Dawat' brand producer LT Foods had the highest gain, of 14.7 per cent. Kohinoor Foods and KRBL reported a 13.9 per cent and 7.2 per cent surge in their shares, respectively.

Shares of sugar mills rose up to 20 per cent, on expectation of less production this year, after a deficient monsoon. Mills' federation in Maharashtra, the country's largest producer, has forecast total output in the state at 8.6 million tonnes this year as against 10.5 mt last year.

“Iran, which consumes over half of India’s annual basmati rice export, had halted issuing new import licences, resulting in a sharp decline in our export last year. It is expected that Iran would start issuing new licences in a week to 10 days,” said Satnam Arora, joint managing director of Kohinoor Foods.

After a record 1.44 mt in 2013-14, around 38 per cent of India’s overall shipment, basmati export to Iran was 0.94 mt in 2014-15. Arora said basmati prices had risen at least 20 per cent in the past week on festival demand in India and a sharp jump abroad.

As for sugar, rating agency ICRA has forecast a five per cent decline in output to 26.8 mt this year versus 28.2 mt last year. Indian Sugar Mills Association had lowered its forecast to 27 mt, due to the estimated fall in Maharashtra.

If the four mt of export approved by the central government comes through, the total closing stock is estimated at 7.6 mt in sugar year 2016 (ending September 2016), from nearly 10.1 mt in SY15. Prices have started moving up gradually in home markets.

The industry is awaiting finalisation of the export subsidy to achieve the four mt target. Prices are falling in global markets and ICRA expects the losses through export to be nullified when the domestic sugar realisation rises an estimated three to five per cent during SY16, from the Rs 26,000 a tonne average for SY15.

Surplus domestic production, coupled with limited export, resulted in a steep decline in prices to a three-year low in July this year to Rs 23,000 a tonne, from Rs 29,000 a tonne in November 2014. With the government notifying export, domestic prices picked up to Rs 25,500 a tonne in September and to Rs 27,500 a tonne last month.