Sugar shares trade higher in a weak market; Shree Renuka hits 11-year high

ICRA expects operating margins for sugar firms to remain in the range of 13.0 - 13.5 per cen in FY23 (in line with FY22 levels) supported by elevated sugar realizations as well as ethanol realizations

Shares of sugar companies were in focus and trading higher by up to 13 per cent on the BSE in Tuesday’s intra-day trade in an otherwise weak market on expectation of stable operational performance going forward.

Ugar Sugars rallied 13 per cent to Rs 75.35, while Shree Renuka Sugars, Avadh Sugar & Energy, Uttam Sugar, Dalmia Bharat Sugar, Dhampur Sugar, Triveni Engineering, Dwarikesh Sugar and Balrampur Chini Mills were up in the range of 2 per cent to 5 per cent. In comparison, the S&P BSE Sensex was down 0.50 per cent at 57,702 at 11:00 AM.

According to ratings agency ICRA, operating margins are likely to remain in the range of 13.0 per cent- 13.5 per cent in FY23 (in line with FY22 levels) supported by elevated sugar realizations as well as ethanol realizations despite increase in FRP, which would increase production cost in FRP-followed states. Further, operating margins remain vulnerable to cane availability.

The revenues of ICRA samples are expected to remain stable in FY23 supported by elevated sugar realizations as well as ethanol realisations, in addition to expected healthy sugar export (likely to be lower than FY22) and improved ethanol volumes for most of the integrated sugar mills. However, domestic sugar sales for few integrated mills could be lower with moderation in inventory levels. Favourable international demand for sugar exports amidst higher diversion towards ethanol or short fall in production in Brazil for next crushing season could provide an upside to revenues and profits for the ICRA samples, rating agency said in September month Indian sugar sector report.

Among individual stocks, Shree Renuka Sugars hit an over 11-year high of Rs 68.70 as it rallied 5 per cent in intra-day trade today. The stock was trading at its highest level since September 2011. In the past one month, the stock has zoomed nearly 40 per cent, as compared to 3.5 per cent decline in the S&P BSE Sensex.

With the onset of good monsoon in the country, the management of Shree Renuka Sugars anticipates better sugarcane availability in the upcoming season (October-September) also. Besides improving the balance sheet and cash flows of sugar mills, higher ethanol sales have ensured timely payment of cane dues to farmers and balance out sugar inventories. The management remains very optimistic on the financial performance and overall growth of the company.

Shree Renuka Sugars (SRSL) is a major agricultural and biofuels company in India. The company is one of the world’s largest sugar producers, and one of the world’s largest sugar refiners.

Meanwhile, the board of directors of Wilmar Sugar Holdings Pte. Ltd., (Holding Company) has provided letter of support to the company to meet shortfall in its normal trade related working capital requirements for up to a period ending May 31, 2023. Also, term loans and working capital loans availed by the company from banks are secured by corporate guarantee provided by the ultimate promoter company (Wilmar International Limited).

Rating agency India Ratings & Research (Ind-Ra) has reaffirmed its rating on the long‐term bank facilities availed by SRSL and non‐convertible debentures (NCD) issued by the company. Ind-Ra continues to factor in SRSL’s strong legal, operational and strategic linkages with its ultimate parent, Wilmar International Limited (Wilmar), and the continued strong support that it receives from Wilmar to arrive at the ratings.

The positive outlook reflects the likelihood of a sustained improvement in SRSL's business profile with the doubling of its distillery capacity along with the likelihood of a gradual deleveraging with the ramp-up of the new capacities leading to an improvement in the financial profile, Ind-Ra said on August 18, 2022.