Sugar stocks rally up to 8% post strong Q2 results by Dwarikesh Sugar

Balarmpur Chini, Triveni Engineering, Shree Renuka, Dhampur Sugar, Dalmia Sugar and Avadh Sugar gained in the range of 4 per cent to 8 per cent in Tuesday's intraday trade

Shares of sugar companies rallied up to 8 per cent on the BSE in Tuesday's intraday trade after Dwarikesh Sugar's reported a strong set of Q2 numbers.

Balarmpur Chini Mills surged 8 per cent to Rs 326, while Triveni Engineering & Industries surged 6 per cent to Rs 201.70, followed by Shree Renuka Sugars (5 per cent at Rs 29.05), Dhampur Sugar Mills (5 per cent at Rs 308), Dalmia Sugar (5 per cent at Rs 428) and Avadh Sugar & Energy (4 per cent at Rs 428.95). These stocks had corrected up to 24 per cent from their respective 52-week highs till Monday. In comparison, the S&P BSE Sensex was up 0.44 per cent at 61,205 points at 02:06 pm.

Dwarikesh Sugar Industries, however, was down 1 per cent at Rs 73.55, after hitting an intra-day high of Rs 76.20 on the BSE. On Monday, the stock had ended 5 per cent higher at Rs 75.35 after it reported strong set of numbers. 

In Q2FY22, Dwarikesh Sugar's consolidated revenue saw a growth of 21.1 per cent year-on-year (YoY) at Rs 505.5 crore on the back of higher sugar as well as distillery segment sales. Net profit during the quarter more-than-doubled or was up 123.6 per cent YoY at Rs 39.60 crore led by higher operating profit & reduction in interest cost.

Earnings before interest, tax, depreciation and amortization (EBITDA) increased by 61 per cent YoY to Rs 75.38 crore mainly on the back of higher sugar prices. Ebitda margin improved 370 basis points (bps) to 14.9 per cent from 11.2 per cent.

ICICI Securities believes, both, ethanol factor & aggressive export have led to the rationalisation of system wide inventory in last one year, which led to the increase in sugar prices to Rs 36-37/kg levels. "We believe UP based sugar companies would be earnings Rs 1-3 / kg in sugar segment on a sustainable basis. Further, increase in distillery capacity would aid earnings growth in next three years. The increase in ethanol volume over the next three years would be highest for Dwarikesh sugar with the expansion of distillery capacity to 320 KLD by October 2022. We remain positive on the sector as well as on the company," the brokerage firm said in a note.

Meanwhile, ICRA expects the revenues of sugar companies under its coverage to grow by 5 per cent-7 per cent in FY22 on 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," ICRA said in a sugar industry update.