Sugar stocks turn bitter

Ethanol tender system triggers a fall of up to 4% in share prices.

The declaration of tender system for purchase of ethanol by oil marketing companies (OMCs) has led to a fall of up to 4 per cent in the share prices of various sugar companies.

Companies like Bajaj Hindusthan, Dhampur Sugar, Balrampur Chini Mills, Sakthi Sugars, Simbhaoli Sugars, Uttam Sugar, Dwarikesh Sugar and Renuka Sugar, among others, have witnessed a depressing week in the stock market as the expectation of a fixed price for ethanol did not materialise.

"The market is feeling that sugar companies may fail to get a good price for ethanol, and this may affect their profitability. The fact that sugar mills have to give individual offers for selling ethanol to OMCs has not gone well with the market," said S P Tulsian, an investment advisor. There was a hope for a better negotiated price of ethanol, which would have boosted sugar stocks.

Since that has not happened, the situation would become clear once the offers for supplying ethanol are submitted, Tulsian added.

However, Vikram Suryavanshi, an analyst with Karvy Stock Broking, said the falling of the stocks had more to do with the bearish domestic as well as international sugar prices than the ethanol issue.

Sugar industry representatives have been negotiating with the oil marketing companies on the pricing of ethanol over the last few months, but no consensus has yet been reached.

The one-year contract, which sugar companies had entered into in August last year to supply ethanol at Rs 18.75 a litre, ended last month. So, the companies were expecting to sign a fresh contract to supply ethanol at a revised rate of Rs 27 a litre.

However, the petroleum ministry, on Wednesday, directed the OMCs to drop the idea of directly buying ethanol at a negotiated price from the sugar companies.

Instead, it asked them to come up with a tender system to enable all the suppliers to participate in an open, transparent transaction.