Sugar stocks surge up to 5% after govt approves Rs 3,500 cr export subsidy

Balrampur Chini, Triveni Engineering, Uttam Sugar Mills, Dhampur Sugar Mills, Shree Renuka Sugars, EID Parry and Dwarikesh Sugar Industries were up in the range of 3% to 5%

Shares of sugar manufacturers gained up to 5 per cent on the BSE in the early morning trade on Thursday after the Union Cabinet on Wednesday approved Rs 3,500-crore sugar export subsidy.

Among individual stocks, Balrampur Chini Mills (BCML), Triveni Engineering Industries, Uttam Sugar Mills, Dhampur Sugar Mills, Shree Renuka Sugars, EID Parry (India) and Dwarikesh Sugar Industries were up in the range of 3 per cent to 5 per cent. In comparison, the S&P BSE Sensex was up 0.09 per cent at 46,706 points at 09:24 am.

The central government on Wednesday approved a subsidy of Rs 3,500 crore to sugar mills for the export of around six million tonnes (MT) in the ongoing 2020-21 marketing season that started in October.

It also cleared pending export subsidy of around Rs 5,360 crore, which will be passed on directly into the bank accounts of farmers through an escrow account in a week's time.

The exports will help the industry generate around Rs 18,000 crore in revenue at current international prices, which will also help clear dues, Business Standard reported. CLICK HERE FOR FULL REPORT

This subsidy aims at covering expenses on marketing costs, including handling, upgrading and other processing costs along with costs of international and internal transport and freight charges on the export of up to 6 million tonnes of sugar limited to Maximum Admissible Export Quota (MAEQ) allocated to sugar mills for sugar season 2020-21.

"With the announcement of sugar export subsidy, the domestic sugar prices may see some upside in the coming months as the subsidy will enable India to offload the excess stock. The international sugar prices, on the other hand, are expected to witness some pressure when sugar exports from India would start coming in," CARE Ratings said in a note.

That said, even if one factors-in exports of 6 million tonnes for the sugar year 2020-21, the glut situation is expected to continue as the closing stock continues to be more than the normal requirement estimate for the year, the note added.

Analysts at ICICI Securities have 'buy' rating on BCML as the brokerage firm believes the company is the most efficient sugar company with sustainable earnings and strong cash flow generation. It has been giving around 40 per cent payout through dividends and buybacks. With the significant increase in cash flow generation, the analyst expects payout to increase to 60 per cent in FY22E.

In regards to Triveni Engineering, the brokerage firm in a report said: "with the liquidation of excess sugar inventory and a significant increase in ethanol revenue, the company is expected to see 9.1 per cent CAGR earnings growth in FY20-22E. Moreover, possible expansion in distillery is likely to eliminate the dependence on sugar exports in future".