Sugar shares in demand; Balrampur, Dalmia Bharat rally over 30% in a month

Shares of sugar companies continued their upward march on Thursday. In the past one month, Balrampur Chini Mills, Dalmia Bharat Sugar and Triveni Engineering have moved up in the range of 30 per cent to 43 per cent on expectation of improved earnings. In comparison, the S&P BSE Sensex was down nearly 4 per cent during the same period.

With the government’s aggressive stance on increasing ethanol blending with petrol to levels of 20 per cent by 2025, the industry is undertaking huge capacity expansion programmes to meet the ethanol requirement of 10 billion litre by 2025, analysts say. This distillery capacity addition to utilise the B-Heavy & sugarcane juice route to produce ethanol, would be earnings accretive after the significant increase in ethanol prices in last two years, they believe.

Analysts at JM Financial Securities, for instance, suggest India’s sugar sector has drifted away from cyclicality (in terms of sugar prices) as well as from partial deregulation. It is fully regulated now and is likely to remain so in the foreseeable future, they said in a recent note.

"This has been led by structural oversupply in terms of sugar production (from swinging between 22-30mnt to 30mnt plus except in case of drought years in Maharashtra and Karnataka), the government’s efforts on the Ethanol Blending Program (EBP; from 0.8 per cent to almost 8 per cent now; 20 per cent target EBP in 2025) through robust ethanol prices (especially B-Molasses and Sugarcane juice routes, which are indirectly linked with sugar prices) and the government’s objective to ensure sugarcane farmers are paid without significant arrears," the brokerage firm said in sugar sector update.

Among individual stocks, Balrampur Chini Mills hit a new high of Rs 273 on Thursday, rallying 9 per cent on the BSE in intra-day trade. In the process, the stock surpassed its previous high of Rs 272.05 hit on April 15. In the past one month, it has zoomed 34 per cent.

Rating agency ICRA revised the outlook on the long-term rating of the company from 'stable' to 'positive' on on April 10. The rating action, according to ICRA, considers an expected improvement in Balrampur Chini Mills’ operating profitability and debt coverage indicators in FY2022 on the back of higher B-heavy ethanol sales volumes; and an expected stable sugar realisation. In Uttar Pradesh (UP), sugar production is estimated to decline by around 20 per cent in SY2021, which is likely to support sugar prices in the near-term, it said.

Also, with continued higher diversion of cane towards B-heavy molasses, there is likely to be an increase in the sales volume of B-heavy ethanol, having better realisation, thus increasing the overall revenue and profits from the distillery segment, it added.

COMPANY	LATEST	ONE-MONTH BEFORE	GAIN(%)
Dalmia Bharat	230.90	161.05	43.4
Triven.Engg.Ind.	112.15	84.50	32.7
Balrampur Chini	267.50	204.10	31.1
Rana Sugars	10.15	8.13	24.9
Kesar Enterprise	50.10	41.10	21.9
DCM Shriram Inds	225.00	184.80	21.8
Magadh Sugar	123.00	103.00	19.4
Dhampur Sugar	210.20	184.00	14.2
Uttam Sug.Mills	103.80	91.50	13.4
Avadh Sugar	215.15	190.55	12.9