Sugar stks in focus; Balrampur, Dhampur, Dalmia, Uttam Sugar rally up to 5%

Shares of sugar companies were in focus on Thursday as they rallied up to 7 per cent on the BSE in intra-day trade, exiting their consolidation phase, on the back of a strong earnings outlook.

Balrampur Chini Mills, Dhampur Sugar Mills, Avadh Sugar & Energy, Uttam Sugar Mills and Dalmia Bharat Sugar and Industries rallied more than 5 per cent each on the BSE. Dwarikesh Sugar Industries, Shree Renuka Sugars, Triveni Engineering & Industries and Bajaj Hindusthan Sugar, on the other hand, were up between 2 per cent and 5 per cent. In comparison, the S&P BSE Sensex was up 0.43 per cent at 52,531 points at 12:00 pm.

Sugar industry, analysts say, is well poised to benefit from, both, global and domestic factors. Tight global demand supply situation, favourable government policies and push for higher ethanol blending in India will keep the inventory under control, they say.

As more sugar mills sacrifice the production of sugar and graduate to the manufacture of ethanol, there is a possibility of the country’s sugar production declining with consumption and production being evenly matched in three years, hardening sugar realisations.

"The outlook for the distillery business appears positive. There is a greater government focus in increasing the blending of ethanol with automotive fuel, increasing to in excess 7.23 per cent today and likely to increase further following Brazil’s example of 48 per cent," the management of Dwarikesh Sugar Industries said in its annual report for financial year 2020-21 (FY21).

Individually, Balrampur Chini Mills (BCML) rallied 5.4 per cent to Rs 344.50 on the BSE in intra-day trade on the back of heavy volumes. The stock had hit a record high of Rs 363.15 on June 14, 2021. The company’s board had recently approved an investment of Rs 425 crore for the new 320 KLPD distillery facility that is scheduled to commence operations from December 2022. The investment would result in higher efficiency leading to better recovery of ethanol from juice which will add to the bottom line with a decent payback period.

BCML is one of the largest sugar producers in the country with sugar operations comprising ten sugar mills based out of Uttar Pradesh with a combined capacity of 76,500 TCD of sugarcane, which provides it with economies of scale. The operations are highly forward integrated with the company having 520 KLPD distillery capacity and 168.70 MW of saleable cogeneration capacity at present.

Credit rating agency ICRA said that higher diversion towards producing B-heavy molasses by integrated players including BCML will lead to lower sugar production and in turn result in lower dependence on export policy of GoI for evacuation of surplus sugar.

"Further, increased Ethanol production and sacrifice of sugar will lead to improved working capital cycle. The integrated operation also provides cushion against cyclicality in the sugar business," ICRA said in April report.