Balrampur Chini, Triveni, EID Parry at record high; stocks soar up to 20%

According to ICRA, sugar companies are expected to strengthen in FY2022 with expansion in operating profits in addition to sugar inventory reduction and hence curtailment of working capital debt.

Shares of sugar companies were rallied by up to 20 per cent on the BSE in Monday’s intra-day trade on expectation of strong earnings growth. Triveni Engineering and Industries (up 9 per cent at Rs 218.50), Balrampur Chini Mills (5 per cent at Rs 398.25) and EID Parry (India) (3 per cent at Rs 500) hit their respective record highs in the process.

Vishwaraj Sugar Industries zoomed 20 per cent to Rs 191.10 in intra-day trade, too hit record high today, surpassing its previous high of Rs 172 touched on June 14, 2021. Shree Renuka Sugars, Dhampur Sugar Mills and Dwarikesh Sugar Industries were up 3 per cent to 5 per cent. In comparison, the S&P BSE Sensex was up 0.91 per cent at 61,864 points at 01:46 pm.

Among the individual stocks, Balrampur Chini Mills hit a new high of Rs 398.25 after the company announced closure of buyback. The stock surpassed its previous high of Rs 396.80 hit on October 5, 2021. The executive committee of the company will meet on Tuesday, October 19, 2021, to consider proposals for closure of the buyback, in view of the fact that the company has utilized 99.82 per cent of the maximum buyback size (excluding transaction costs); Balrampur Chini Mills said in exchange filing.

In August 2021, the company had announced buyback of equity shares at a price not exceeding Rs 410 per share and for an amount not exceeding Rs 215.25 crore from the open market through stock exchange mechanism.

Rating agency ICRA expects the revenues of its sample of sugar companies to grow by 5 per cent-7 per cent in FY22 on year on year (YoY) basis supported by firmed up domestic and international sugar prices given the improved demand-supply dynamics in addition to expected healthy sugar export and ethanol volumes. Notwithstanding the likely increase in cane prices, the operating margins too may remain steady at 12.5 per cent-13.0 per cent in FY2022 (similar to FY2021 levels) aided by current favourable pricing and revenue mix trends.

Coverage indicators of sugar companies are expected to strengthen in FY22 with expansion in operating profits in addition to sugar inventory reduction and hence curtailment of working capital debt, the rating agency said in October 12, press release.

Meanwhile, analysts at JM Financial Institutional Securities believe India’s sugar sector has drifted away from cyclicality (in terms of sugar prices) as well as from partial deregulation (it is fully regulated now and is likely to remain so in the foreseeable future). This has been led by structural oversupply in terms of sugar production, the government’s efforts on the Ethanol Blending Program through robust ethanol prices and the government’s objective to ensure sugarcane farmers are paid without significant arrears.

This augurs well for the sugar sector (especially efficient companies like Balrampur Chini Mills) as government policies would ensure survival of the weakest and therefore augur well for efficient sugar mills, the brokerage firm said.