Dwarikesh Sugar, Shree Renuka: Why sugar stocks are buzzing in trade today

Sugar stocks in focus: Sugar stocks were buzzing in trade on Monday, September 16, 2024, with some companies seeing gains of up to 4 per cent during intraday trading. 

Key players in the sector, including Shree Renuka Sugars, Dhampur Sugars, and Balrampur Chini Mills, were among the top gainers.

The uptick in sugar stocks followed the government's decision to permit sugar mills and distilleries to produce rectified spirit and extra-neutral alcohol from sugarcane juice and B-heavy molasses. This move is anticipated to provide increased production flexibility for ethanol and other alcohol-based products, thereby supporting the industry’s diversification strategies.

Among individual stocks, Bajaj Hindusthan Sugar, which saw its stock rise 3.59 per cent, and Dwarikesh Sugar Industries, which increased 3.83 per cent. Shree Renuka Sugars climbed 3.38 per cent, while Balrampur Chini Mills gained 2.87 per cent. Other major gainers include Triveni Engineering and Industries (up 2.97 per cent) and EID Parry (up 1.99 per cent).

Apart from that, last month, the government granted the use of cane juice or syrup for ethanol production starting from November 1, 2024. The policy shift comes after the imposition of restrictions in December 2023 aimed at boosting sugar output following a poor monsoon season that affected cane crops. 

The new regulations also allow the use of B-heavy molasses, a byproduct with higher sucrose content, for ethanol production. Approximately 750,000 metric tonnes of B-heavy molasses have accumulated in stock, previously restricted for ethanol use.

DAM Capital analysts, in their August 29 report, highlighted that the normalisation of ethanol volumes for sugar companies had already been priced into their forecasts. However, they anticipate that improved ethanol blending clarity and full utilisation of distillery capacities will drive strong earnings growth from Q3FY25 onward, leading to a sector re-rating. As a result, they have revised earnings multiples for companies in their coverage.

“We maintain our ‘Buy’ recommendation on Balrampur Chini, assigning 20x FY27 PE (factoring in commissioning of PLA plant). We assign 18x PE to the sugar business of TEL and 25x EV/EBITDA to the engineering business (FY27 numbers) and maintain our ‘Buy’ recommendation. Maintain our Buy rating on Dalmia Bharat valuing at 16x FY27 PE. Maintain our sell recommendation on Dwarikesh sugar,” DAM Capital analyst said in a note on August 29.