Sugar shares in focus; Balrampur Chini, Dhampur Sugar surge over 6%

Indian sugar production estimates for the 2019-20 season are unlikely to be revised upwards by much from 26 million tonnes, when the ISMA meets to review figures towards February-end, a report said

Shares of sugar companies were in focus in Wednesday's session and rallied by up to 8 per cent on the BSE on expectation of no significant upward revision in sugar production.

Balrampur Chini Mills, Avadh Sugar & Energy, Dhampur Sugar Mills, Dalmia Bharat Sugar and Industries, Uttam Sugar Mills and Dwarikesh Sugar Industries were up 5 per cent to 8 per cent in intra-day trade today. In comparison, the S&P BSE Sensex was up 0.8 per cent at 41,540 points at 12:24 pm.

In the past four weeks, most of the sugar stocks have underperformed the market by falling in the range of 7 per cent to 16 per cent, against 2 per cent decline in the benchmark index.

“Indian sugar production estimates for the 2019-20 season are unlikely to be revised upwards by much from 26 million tonnes, when the Indian Sugar Mills Association (ISMA) meets to review figures towards February-end,” a Reuters report suggested quoting the trade body.

The trade body has said India's sugar output in 2019-20 could fall 21.6 per cent to 26 million tonnes, the lowest level in three years, after drought in 2018 forced farmers to curb cane planting and flooding damaged crops in key growing regions in 2019, the report said.

According to ICRA, the improvement in average sugar prices by close to Rs 2/kg to Rs. 32.5-33.0/kg in 9M FY2020 (April-September) Y-o-Y, along with the non-increase in the cane price for sugar season, SY2020 is expected to support the profitability of the sugar mills in the near term.

Further, the decline in the sugar production along with the government support measures for SY2020 such as creation of 4 million MT of buffer stock and export subsidy for 6 million MT of sugar, are likely to support the sugar prices, it said.

Meanwhile, analysts at ICICI Securities maintain ‘buy’ rating on Balrampur Chini with 12-month target price of Rs 220 per share.

“Balrampur Chini is the second largest and most efficient company in the industry. With the current distillery capacity addition, the company can divert as much as 55 per cent of its sugarcane towards B heavy molasses. We believe Balrampur Chini can sacrifice around 80,000 tonnes of sugar with this kind of diversion. Moreover, with strong cash flows, the company would be able to substantially reduce its peak working capital debt requirement,” the brokerage firm said in company update.