Sugar stocks extend rally; Uttam Sugar, Dwarikesh jump over 40% in one week

Thiru Arooran Sugars, Dwarikesh Sugar Industries, Uttam Sugar Mills, Dalmia Bharat Sugar and Industries and Ponni Sugars (Erode) were up in the range of 14% to 20% on Monday.

Shares of sugar companies were trading higher for the fifth straight day, surging up 20% on Monday in an otherwise subdued market.

Thiru Arooran Sugars, Dwarikesh Sugar Industries, Uttam Sugar Mills, Dalmia Bharat Sugar and Industries and Ponni Sugars (Erode) were up in the range of 14% to 20%, while Bannari Aman Sugars, Balrampur Chini Mills, EID Parry (India), Andhra Sugars and KCP Sugar gained between 5% and 9% on the BSE. In comparison, the S&P BSE Sensex was down 0.41% at 34,589 points at 11:43 am.

In past one week most of the sugar companies have outperformed the market by surging up to 60% against a marginal 0.42% rise in the benchmark index.

In order to stabilize sugar prices at reasonable level and to improve the liquidity position of the mills thereby enabling them to clear the cane price arrears of farmers, for the current sugar season 2017-18 (SS17-18), Central Government took the various measures including regulating the minimum selling price (MSP) of sugar, soft loans, export subsidies, cane price assistance, higher ethanol pricing and blending mandates.

From a long-term perspective, the Government announced a biofuel policy that will encourage the sugar industry to manufacture sugar from B heavy molasses, thereby reducing sugar production.

Ethanol contributes 10-15% of sugar mills annual turnover. Uttar Pradesh’s mills contribute nearly half the country’s ethanol supply. Since ethanol is manufactured from molasses, a by-product of sugar, the mills do not incur any extra cost on the raw material. Therefore, higher realisation from ethanol would add to the profitability of the Sugar mills, according to EID Parry.

"In SS18-19, with the export quota announced well in advance and a slew of measures including raw material subsidy and transport subsidy, exports are expected to get a boost," according to Rating agency CRISIL.

Integrated mills typically earn higher margins than standalone sugar mills owing to the better operational economics of their distilleries and power segments with revenues from the distillery and power segments accounting for 9-10% each of overall revenues. CRISIL expects EBITDA margins for its sample set of 24 companies (large proportion being integrated public listed entities) to improve to 600-800 bps in SS2018-19 from (5)-(7)% expected earlier to 0-2% in SS 2018-19.

“We believe sector fundamentals continue to remain weak on a significant supply overhang (which may take at least 2 years to overcome) and hence sugar prices are fundamentally expected to remain weak if a free market scenario considered.

However, given that the government is expected to regulate supplies and the MSP for sugar/sugarcane prices, we expect sugar prices to remain firm and argue that the profitability of sugar mills is now entirely in the hands of the government,” JM Financial said in a sector update.

COMPANY	LATEST	1-WEEK BEFORE	GAIN(%)
UTTAM SUG.MILLS	155.75	95.80	62.58
DWARIKESH SUGAR	32.90	22.95	43.36
DALMIA BHARAT	94.50	68.30	38.36
DCM SHRIRAM INDS	222.95	161.30	38.22
THIRU AROOR. SU.	32.90	24.10	36.51
TRIVEN.ENGG.IND.	51.90	39.65	30.90
BALRAMPUR CHINI	101.00	77.65	30.07
DHAMPUR SUGAR	164.00	126.35	29.80
BAJAJ HINDUSTHAN	11.15	8.65	28.90
AVADH SUGAR	493.55	386.80	27.60
MAWANA SUGARS	62.00	48.65	27.44
UGAR SUGAR WORKS	16.55	13.48	22.77
SIMBHAOLI SUGAR	13.75	11.39	20.72
SAKTHI SUGARS	14.82	12.34	20.10
PONNI SUG.ERODE	137.00	114.95	19.18
BANNARI AMM.SUG.	1701.55	1431.00	18.91
KESAR ENTERPRISE	34.90	29.50	18.31
DHARANI SUGARS	14.89	12.60	18.17
EID PARRY	214.40	182.50	17.48
SH.RENUKA SUGAR	13.84	11.82	17.09