Sugar shares in focus; Balrampur, Dwarikesh, Dhampur, Dalmia rally up to 8%

Dalmia Bharat said the outlook for the FY2023-24 seems stable as there will be less pressure on stock levels and the company can expect improved profitability and realizations

Shares of sugar companies were in focus on Monday as they rallied up to 8 per cent on the BSE the intraday trade, in an otherwise range-bound market, on positive business outlook.

Balrampur Chini Mills, Dalmia Bharat Sugar and Industries, Uttam Sugar Mills, Dwarikesh Sugar Industries, Dhampur Sugar Mills, Avadh Sugar & Energy, and Triveni Engineering & Industries gained in the range of 6 to 8 per cent. In comparison, the S&P BSE Sensex was down 0.10 per cent at 65,945 at 02:12 PM.

Sugar production for the current season is estimated to be lower than the previous season with Maharashtra seeing higher ratoon crop, along with uneven distribution of rainfall, resulting in lower production. Uttar Pradesh is expected to produce marginally higher sugar than last year on account of higher acreage and better yield. In Karnataka, like Maharashtra, lower yield led to lower production.

"The outlook for the FY23-24 seems stable due to consistant sugar diversion towards ethanol, grain capacity coming in, and investment in steam saving devices. There will be less pressure on stock levels and the company can expect improved profitability and realizations," Dalima Bharat said in its FY23 annual report.

According to analysts at DAM Capital, with sustainable sugar production in Uttar Pradesh (UP), higher sugar prices and increasing utilisation of new distillery capacity, UP-based sugar companies are expected to witness strong earnings growth for the next two years.

With a decline in sugar production, India is unlikely to export any sugar. Moreover, export from Thailand is also likely to come down due to the expected lower production. This is expected to result in a surge in global sugar prices post crushing ends in Brazil in November 2023.

Experts believe that even if India were to resume exports from earlier next calendar year, international prices may hold up at the current level, as demand has been healthy with miniscule chances of production being improved by other countries.

According to analysts at Systematix Institutional Equities, the government will take a call on permitting exports only after January-February 2024, once visibility on sugar production improves. Based on the prevailing conditions, production in SS24 could fall behind SS23 production of 32.7million tonnes, the brokerage expects. It expects lower production to sustain the upward trajectory in domestic prices seen in the last few weeks.

"For the upcoming sugar season 2023-24 (SS24), International Sugar Organisation (ISO) has forecast a deficit of 2.1million tonnes in its first detailed assessment, with production likely increasing to 174.8 million tonnes and consumption to 176.9 million tonnes.  For India, it anticipates 34 million tonnes of sugar production for SS24, higher than that estimated by most other agencies, including ISMA," the brokerage firm said in sugar sector report.