Sugar company stocks up as lifting resumes from bulk consumers

With this upsurge in stocks, over half of the decline since the demonetisation has been reversed

Stocks of sugar companies surged by up to 20 per cent on Friday, following a turnaround in market sentiment during the past few days. The shares had earlier taken a beating at the bourses, with demonetisation taking a toll on retail and wholesale offtake.

Parry Sugar led the surge with a 19.90 per cent jump in its stock price, which closed on Friday at Rs 47.90, followed by Uttam Sugar which rose 12.32 per cent to Rs 49.70. 

Upper Ganges Sugar and Dwarikesh Sugar added 9.99 per cent and 9.03 per cent to close at Rs 271.50 and Rs 288.60, respectively. The Triveni Engineering stock was up 5.60 per cent to Rs 56.60 and Simbhaoli Sugars gained 5.42 per cent to Rs 27.25.

With this upsurge, over half the decline since demonetisation has been reversed. Sugar stocks like Upper Ganges shed 33 per cent immediately after the demonetisation of the high-currency notes was announced on November 8, due to slow lifting from bulk and retail consumers.

"Sugar prices recovered by at least 75 paise a kg after falling by Rs 2-3 a kg post demonetisation," said Abinash Verma, director-general, Indian Sugar Mills Association (ISMA).

Meanwhile, fundamentals in sugar stocks remained positive after with commodity's output estimated to decline this year. Apex industry body ISMA estimated the country's sugar output at 23.4 million tonnes for the current sugar season 2016-17 ending September 2017, down from 25.1 million tonnes in 2015-16 and 28.3 million tonnes in 2014-15.

Also, fundamentals in India are supported by the global deficit. Global sugar markets are estimated to remain in deficit this year. Hence, sugar prices are likely to remain elevated this year.

A recent Icra report forecast sugar prices to remain firm in the near term due to the deficit situation in the domestic and international markets. This, coupled with the moderate cane prices seen for the current sugar year across most states, augurs well for profitability in the near-term.

"With recent government estimates pegging sugar production at a 10 per cent lower level as compared to last year, sugar prices are likely to remain firm over the next three to four quarters. This apart, moderate cane price hikes effected in most states, notably UP, bode well for the industry profitability outlook in the short term," said Sabyasachi Majumdar, head of Corporate Ratings, Icra.

Domestic sugar prices have remained firm, increasing from about Rs 31,500 a tonne this March to Rs 36,000 in August. After remaining stable at Rs 36,000 a tonne in September, the surge in prices continued in October, with prices reaching their highest level of Rs 36,200 a tonne in the last five years. Prices continued to remain healthy in November, though the dipped marginally to Rs 35,500 a tonne due to demonetisation.

Trade sources said retail consumers have started coming into the market following easing of the monetary crisis. Also, bulk consumers have started lifting in the last couple of days, changing market sentiment.