EID, Dalmia Bharat: Sugar stocks rise up to 8% on hopes of govt raising MSP

Majority of sugar stocks rallied up to 8.1 per cent in Thursday's (January 16, 2025) trade after reports suggested the Indian government is soon likely to take a decision on increasing the minimum support price (MSP) of sugar.

 

MSP refers to the price at which the government guarantees to buy certain crops from farmers to ensure they receive a minimum price for their produce. It aims to protect farmers from price fluctuations in the market.

 

Around 11:55 AM, individually on BSE, Dhampur Sugar Mills was up 5.9 per cent, Dwarikesh Sugar was up 4.68 per cent, Dalmia Bharat Sugar and Industries was up 4.14 per cent, Shree Renuka Sugars was up 3.61 per cent, Bajaj Hindusthan Sugar was up 3.59 per cent, and Mawana Sugars was up 3.46 per cent.

 

Similarly, Triveni Engineering & Industries shares were up 3.35 per cent, EID Parry was up 3.16 per cent, and Balrampur Chini Mills shares were up 1.58 per cent.

 

The decision is likely after industry bodies have demanded to increase MSP on the backdrop of rising production costs and economic pressures faced by sugar mills.

 

As per reports, the Indian Sugar and Bio-Energy Manufacturers Association (ISMA) and National Federation of Cooperative Sugar Factories (NFCSF) are pushing for an increase in the MSP to Rs 39.14 per kg or even Rs 42 per kg to better reflect production costs and support the financial health of sugar mills in India. 

 

Meanwhile Elara Capital expects sugar sector to post a lacklustre show in Q3 owning to drop in realisations and lower volumes for the sugar space and flat realisations for the Ethanol segment.

 

As per the brokerage, sugar prices are under pressure and have declined by 5 per cent year-on-year (Y-o-Y) as mills look to liquidate inventory faster to meet their cane-related dues. Ethanol volumes are expected to grow in mid-single digit but realisations may be flat.

 

Further, the brokerage believes the government has resumed full-scale ethanol blending this season onwards but delayed decision as regards ethanol price hike is creating uncertainty. 

 

"We have modelled a 2.5-3 per cent rise in juice-based and B-heavy ethanol price. Any price increase lower than this will lead to a downgrade in earnings projections," Elara Capital's report read.

 

Meanwhile, InCred Equities reiterate a negative outlook on the sugar sector in a report dated January 7, 2025. As per the brokerage, the gap between sugar prices and sugarcane prices will further narrow, impacting mill profitability.