Sugar shares in demand; Dhampur, Dwarikesh hit all-time highs

Shares of sugar companies were in demand and rallied up to 18 per cent on the BSE in Tuesday’s intra-day trade on strong outlook. With a favourable mix of ethanol towards B-heavy/juice (feedstock) coupled with higher sugar realisations; operating margins of sugar companies are expected to improve.

Among the individual stocks, Mawana Sugars zoomed 18 per cent to hit a 52-week high of Rs 140.55, surpassed its previous high of Rs 128.90 touched on February 17, 2022. Dwarikesh Sugar Mills surged 11 per cent to Rs 106.80 and Dhampur Sugar Mills soared 6 per cent to Rs 434.35. In the process, these two stocks also hit their respective record highs in intra-day trade today.

Triveni Engineering, Balrampur Chini, EID Parry (India), DCM Shriram Industries and Dalmia Bharat Sugar and Industries were up in the range of 2 per cent to 5 per cent in intra-day trade. The S&P BSE Sensex was down 0.16 per cent at 10.44 am.

Sugar companies are maximising ethanol production from B-heavy & sugarcane juice routes resulting in increase in distillery realisation. Ethanol demand should grow at a 15 per cent CAGR over FY22-30E driven by the government’s mandate of 20 per cent ethanol-blending in petrol. Further, higher diversion of cane towards ethanol will solve the problem of surplus sugar inventory and reduce business volatility. Improved profitability and reduced working capital will ensure superior cash flows, which along with the improvement in RoE/RoCE, would lead to sector re-rating.

“Based on the opportunities arising from ethanol and bioenergy, the sugar sector appears to be powering forward on a sustainable growth path (25 per cent CAGR), which would drive a shift in how it is perceived and eventually spur its re-rating,” analyst at Systematix Shares and Stocks (India) said in its sugar sector report.

According to ICRA, with majority of the expanded distillation capacities becoming commercialised in FY23 of sugar companies, their credit profile would strengthen materially in FY24 driven by growth in profits, cash accruals, reduced working capital intensity and thus lower debt level; assuming that the Government policies would continue to favour the industry, the rating agency said in recent sugar sector update.