Sugar shares in focus; Balrampur, Dwarikesh, Triveni, Dhampur rally upto 7%

According to CRISIL, despite reduced exports and a decline in ethanol production, Ebitda margins of MSMEs in the sugar industry are projected to increase in the upcoming quarters

Shares of sugar companies were in demand on Wednesday and surged up to 7 per cent on the BSE in an otherwise range-bound market. The gains came on higher demand and expectations of better earnings.

Balrampur Chini Mills, Triveni Engineering & Industries, Dhampur Sugar Mills, Dwarikesh Sugar Industries, Avadh Sugar, Shree Renuka Sugars and Magadh Sugar & Energy rallied between 3 per cent and 7 per cent on the BSE in intra-day trade.

In comparison, the S&P BSE Sensex was up 0.12 per cent at 64,650 at 10:29 AM.

According to CRISIL, despite reduced exports and decline in ethanol production, Ebitda margins of micro, small and medium enterprises (MSMEs) in the sugar industry are projected to increase in the upcoming quarters.

This is due to their significant involvement in the sugar segment and limited exposure to exports and the distillery segment. Robust sugar prices will positively impact their financial performance this financial year.

The government has banned sugar exports this season because of low supply. The Directorate General of Foreign Trade issued a notification extending the restriction on sugar exports from October 31 onwards till further notice.

Lower cane availability is expected to reduce sugar production by 3-4 per cent, which will trigger a price rise. Sugar prices are likely to rise 2-3 per cent in the backdrop of weak supply and strong demand, CRISIL said.

Meanwhile, for the upcoming sugar season 2023-24 (SS24), International Sugar Organisation (ISO) has forecast a deficit of 2.1mn tonnes in its first detailed assessment, with production likely increasing to 174.8 million (mn) tonnes and consumption to 176.9 mn tonnes.

The government will take a call on permitting exports only after Jan-Feb 2024, once visibility on sugar production improves. Based on the prevailing conditions, production in SS24 could fall behind SS23 production of 32.7mn tonnes, in our view, said analysts at Systematix Institutional Equities in a report.

The brokerage expects lower production to sustain the upward trajectory in domestic prices seen in the last few weeks and thus retained its positive stance on the sector.

The experts believe that even if India were to resume exports from Jan-Feb 2024, international prices may hold up at the current level, as demand has been healthy with miniscule chances of production being improved by other countries.