Sugar stocks rally up to 13% as Govt lifts diversion cap for ethanol prod

Sugar stocks rally: Shares of sugar companies have rallied by up to 13 per cent on the BSE in Friday’s intraday deals after the government removed the cap on sugar diversion for ethanol production for ESY (Ethanol Supply Year - December to November) 2024-25. 

Dalmia Bharat Sugar and Industries (up 13 per cent at Rs 497.40), Shree Renuka Sugars (10 per cent at Rs 52.01), Avadh Sugar & Energy (10 per cent at Rs 774.15), Triveni Engineering & Industries (9 per cent at Rs 479), Balrampur Chini Mills (8 per cent at Rs 625.85), Dhampur Sugar Mills (9 per cent at Rs 228.85), Dwarikesh Sugar Industries (8 per cent at Rs 79.40) and EID Parry (India) (7.5 per cent at Rs 875.45) from the BSE Allcap index have rallied over 7 per cent. In comparison, the BSE Sensex was up 0.33 per cent at 82,406 at 09:29 AM.

According to the government's notification, sugar mills and distilleries can produce ethanol from sugarcane juice/sugar syrup, B-Heavy molasses, as well as C-Heavy molasses, during ESY2024-25 as per their agreements with oil marketing companies.

Meanwhile, the Government has proposed allowing the sale of raw sugar in the domestic market, a move that would overturn a regulation in place for more than six decades, which restricted the commodity’s sale exclusively for export, according to a report by The Economic Times. The proposal is part of the draft ‘Sugar (Control) Order, 2024’, issued by the Ministry of Consumer Affairs, Food, and Public Distribution. CLICK HERE FOR REPORT

Expected sugar inventory at approximately 8.55 million tonnes as on September 30, 2024 in the country (opening balance) along with expected production of 32 million tonnes (pre-diversion) for the sugar season (SS) 24-25 and domestic consumption of 29 million tonnes provides enough headroom to the Government to carry on the blending programme under Juice & B-heavy route unhindered and possibly leave room for exports too in SS24-25 as closing stock of 5.5 million tonnes has been considered sufficient.

Further, with expectation of a normal monsoon, the industry expects positive updates in Ethanol policy for ESY 2024-25 and Export Policy for SS 2024-25, Sharekhan said in recent report.

Seperately, among individual stocks, Balrampur Chini Mills hit a new high of Rs 625.85, after surging 8 per cent amid heavy volumes.

India's inventory on September 30, 2024 is expected to be around 8.5 million tonnes or 85 lakh metric tonnes with the domestic consumption of 29 million tonnes. Historically, Government is comfortable to work with the closing stock of 5.5 million metric tonnes. 

This ample inventory, coupled with the gross outlook which we have projected would allow the Government to continue the ethanol blending programme unhindered on the juice and B-heavy front, therefore, not putting any cap like it was done last year.

Balrampur Chini Mills management, however, believes that if all the aforementioned projections come to fruition, there may also be export announcements in the middle of the season. "This is purely based on data and how Government has reacted to these data in the past," Balrampur Chini Mills said in Q1FY25 earnings conference call.