Sugar shares extend rally

Sakthi Sugars,Bajaj Hindustan,Upper Ganges Sugar, EID Parry, Dhampur Sugar, Triveni Engineering and Bannari Amman Sugars have rallied 15-23% during the week.

Shares in sugar manufacturer have rallied by up to 13% after the India Ratings revised its FY15 outlook on the sector and the companies within the sector to “negative to stable” from negative.

The outlook revision reflects the improvement in the credit profiles of millers based in south India from FY14 levels. However, the Uttar Pradesh (UP) based mills will likely continue to struggle with higher leverage though Ind-Ra anticipates limited deterioration, rating agency said in a note.

Shree Renuka Sugars, Sakthi Sugars, Andhra Sugars, Balrampur Chini Mills, Bajaj Hindustan, EID Parry (India), Dhampur Sugar Mills and Upper Ganges Sugar are up 4-13% on the Bombay Stock Exchange (BSE). The benchmark S&P BSE Sensex however, down 0.51% at 22,394 at 1050 hours.

In spite of the pricing pressure due to the global sugar surplus during 2014 (October 2013 - September 2014, also known as SS14) and the expected surplus in SS15, south India-based mills’ estimated sugar segment profitability (excluding by-products) is expected to turn positive (in the range of Rs 0.5/kg-Rs 1/kg) for FY15.

While UP based peers are expected to continue registering losses in the segment (Rs 1/kg-Rs 1.5/kg). Further, factoring in by-product realisations (especially ethanol), companies are expected to continue to exhibit a similar regional divergence, said rating agency.

So far in current week Sakthi Sugars has surged 23% to Rs 21.55, followed by Bajaj Hindustan (20% at Rs 19.35), while Upper Ganges Sugar and EID Parry (India) are up 19% each at Rs 35.55 and Rs 156 respectively. The benchmark index is down 0.43% during the period.