Sugar Shares Hit The Sweet Spot

Amendments to Essential Commodities Act provide the booster

Shares of sugar companies, which have been on a sour run since the past couple of months, got a leg-up last week in the run up to the passage of the amendments to the Essential Commodities Act (ECA).

The amendments, which were passed on Friday last, are expected to reduce governmental control over sugar supplies and will also reduce levy sugar supplies.

Most of the frontline sugar counters had started rising last week and the trend continued even on Monday.

However, some shares declined mostly because of the weak undercurrent on bourses as a whole.

The Balrampur Chini Mills share has risen from Rs 103.10 on May 2 to close today at Rs 107.05 on the Bombay Stock Exchange (BSE).

Bannari Amman Sugars rose from Rs 98.35 on May 7 to Rs 105.05 on Friday, while Dhampur Sugar was up from Rs 9.45 to Rs 13.65 during the period.

Shares of Bajaj Hindustan moved up from Rs 71.40 to 76.25, Ugar Sugar gained from Rs 40 to Rs 42.25, Kesar Enterprise increased from Rs 3.15 to Rs 3.70, Rajshree Sugar moved up from Rs 10 to Rs 11 and Oudh Sugar gained from Rs 7.85 to Rs 9 on the BSE during the same period.

Shares of Simbhaoli Sugar increased from Rs 8.35 to Rs 10, Sakthi Sugar moved up from Rs 5.50 to Rs 6.35 and Ponni Sugar also moved up from a minuscule Rs 0.95 to Rs 1.30 during the same period on the BSE.

The sugar industry has also been aided by the mandatory blending of ethanol with petrol. Indian sugar industry has seen the worst in the recent previous years.

In January 2003 the government made it mandatory blending of Ethanol to the extent of 5 per cent with Petrol.

The blend of ethanol and petrol would be a boon for the sugarcane industry as this would lead to better price realisations.

The expected ethanol requirement for 5 per cent blending would be around 300 million litres per year, which is about 25 per cent of the current ethanol production in the country.

India is the second largest sugarcane producer of the world after Brazil.

The Central and state governments are giving various support to the industry.

The Centre has already cleared inland transport subsidy for sugar exports.

Similarly, Maharashtra has cleared the proposal for a subsidy of Rs 1,000 for every tonne of sugar that is exported from the state.

As a result, exports of sugar have shown a tremendous improvement on a year-on-year basis.

But industry production is likely to fall by 8 to 10 per cent to 170 lakh tonne this year. Therefore, total availability will be 280 lakh tonne of which domestic consumption would be 180 lakh tonne.

Exports are likely to be 15 lakh to 20 lakh tonne, while the buffer stock would be 20 lakh tonne.