Sugar export ban hits Dwarikesh, Balrampur Chini and others; stocks fall 4%

Sugar stocks including, Dwarikesh Sugar, and Balrampur Chini fell up to 4 per cent in trade after the government prohibited sugar exports with immediate effect until September 30.

Sugar stocks today: Shares of sugar sector companies came under pressure today, falling up to 4 per cent in morning trade after the government prohibited sugar exports with immediate effect until September 30, or until further orders.

 

Individually, Dwarikesh Sugar Industries was the top loser as it cracked 3.6 per cent to trade at ₹45.03 on the National Stock Exchange (NSE) as of 9:35 AM, followed by Dhampur Sugar Mills (₹149.19), Balrampur Chini Mills (₹533.25), Uttam Sugar Mills (₹244), down 3 per cent each.

 

Other counters like Bajaj Hindusthan Sugar (₹18.35), Dalmia Bharat Sugar (₹359.7), MVK Agro Food Product (₹498), Magadh Sugar & Energy (₹486), KM Sugar Mills (₹28.81), and Sakthi Sugars (₹17.86) fell in the range of 1 to 3 per cent in trade.

 

 

The government's latest notification on the sugar ban does not apply to sugar being exported to the European Union and the US under the tariff rate quota scheme. The order is also not applicable to the shipments under the advance authorisation scheme, government-to-government exports, and consignments already in the physical export pipeline.

 

The ban applies to raw, white, and ‌refined sugar and marks a shift in policy from "restricted" to "prohibited". 

Analysts said that this appears to be a proactive measure by the government to ensure adequate sugar availability within the country and to prevent any sharp escalation in domestic sugar prices. Investors also need to keep in mind the two key factors the government is currently evaluating. First is the El Niño condition, which could further impact sugarcane production and, consequently, sugar output going forward. Second, system inventories are already slightly lower, which has led to a spike in domestic sugar prices.

 

Sunny Agrawal, head of fundamental research at SBI Securities, said that the decision to ban sugar exports is unlikely to have any long-term impact on sugar companies, as most UP-based sugar mills would have already exhausted their export quotas for the current sugar season. However, this move clearly signals that for the upcoming sugar season, beginning around October-November, export quotas are likely to remain extremely limited.

 

Also, he said that most sugar companies are now increasingly dependent on ethanol as the key profit driver. Any meaningful upward revision in ethanol prices could lead to an earnings uptick for most sugar companies.

 

"Therefore, we would prefer to wait and watch how the government approaches ethanol production, especially against the backdrop of elevated crude oil prices and the broader objective of reducing the country’s import bill," Sunny said, adding that he prefers a frontline market leader like Balrampur Chini Mills for investors looking to take exposure to the sugar space. 

Ponmudi R, CEO, Enrich Money, said that sugar stocks are likely to remain under pressure in the near term as the government's order is a negative for the sector. The export opportunities, he said, were one of the key earnings drivers for sugar mills over the last few quarters.  

"The immediate concern for investors is margin pressure. When exports stop, excess supply stays within the domestic market. That creates pressure on domestic sugar prices while inventory levels rise. Mills that were expecting better realisations through exports may now see lower profitability and slower inventory liquidation," he said. 

He added that this is, however, not entirely negative for the sector from a long-term structural perspective. The government’s move clearly indicates concern over domestic supply tightness, lower cane yields, and possible El Niño-related production risks. His top picks from the sector include Balrampur Chini Mills, Triveni Engineering & Industries, and Dalmia Bharat Sugar and Industries.

  

India is the world's second-largest sugar producer.  ============================= 

Disclaimer: View and outlook shared belong to the respective brokerages/analysts and are not endorsed by Business Standard. Readers' discretion is advised.