Sugar stocks in sweet spot; surge 20% on hike in ethanol price

Shares of sugar companies climbed as much as 20 per cent in the intraday trade on Monday. Sugar stocks have been on a rising spree ever since the government approved an over 25 per cent hike in the price of ethanol produced directly from sugarcane juice for blending in petrol in a bid to cut surplus sugar production and reduce oil imports.

The Cabinet Committee on Economic Affairs (CCEA) last week raised the procurement price of ethanol derived from 100 per cent sugarcane juice to Rs 59.13 per litre from the current rate of Rs 47.13. 

The price for ethanol produced from B-heavy molasses (also called as intermediary molasses) was hiked to Rs 52.43 a litre from the current Rs 47.13 but that for ethanol produced from C-heavy molasses was reduced marginally to Rs 43.46 from Rs 43.70, said a PTI report.

Ambareesh Baliga, independent market expert, feels the price hike in Ethanol is a double bonus for the sugar mills. "Firstly it is more profitable compared to producing sugar, thus margins will move up and secondly mills would be able to control their sugar inventory by re-balancing production, thus saving on working capital blocked in inventory," Baliga said.

At 11:10 am, shares of Dhampur Sugar Mills, Avadh Sugar and Dwarikesh Sugar were trading 20 per cent higher each at Rs 140.45, Rs 567.15 and Rs 29.55, respectively. Balrampur Chini Mills was trading at Rs 97, up 9 per cent. Shree Renuka Sugars was trading 15 per cent higher at Rs 17.15 apiece on BSE while Mawana Sugars was trading at Rs 68.60 apiece on BSE, up 15.49 per cent.

COMPANY NAME	LATEST	HIGH	LOW	CHG ( )	CHG(%)	VALUE (  CR)	VOLUME
BALRAMPUR CHINI	96.15	97.45	89.90	7.55	8.52	51.37	5342817
DHAMPUR SUGAR	140.45	140.45	124.90	23.40	19.99	11.78	838721
AVADH SUGAR	567.15	567.15	504.00	94.50	19.99	9.40	165787
DWARIKESH SUGAR	29.55	29.55	25.50	4.90	19.88	5.89	1994087
TRIVEN.ENGG.IND.	55.05	56.30	48.80	6.40	13.16	4.84	879751

Stock price as at 11:10 am. 

AK Prabhakar, Head of Research at IDBI Capital, finds the rally in the sector a temporary phenomenon and advises investors to use this opportunity to cut exposure to these stocks in their portfolio.

“Sugar is cyclical in nature; hence it is very difficult to predict how long will the rally sustain. That apart, given the fact that we are in the election year, the government will try to fine balance everything. But, whether this rally will sustain or not is very difficult to comment. This is just a relief rally and investors who are stuck with sugar stocks should use this opportunity to exit,” he says.