Sugar Stocks Continue To Climb Up the Green Ladder

Dynamic Equities | June 12, 2017, midnight

Sugar company stocks continued their upward climbing, gaining by up to nearly 50 per cent in past 2 weeks. Oudh Sugar Mills, Dhampur Speciality Sugars, Ugar Sugar Works, Upper Ganges Sugars, Thiru Arooran Sugars and Mawana Sugars were up between 5 per cent and 8 per cent on the National Stock Exchange (NSE) today.

On 9th January, 2017, Dwarikesh Sugar Industries, Dhampur Sugar Mills, Indian Sucrose and KM Sugar Mills hit their respective 52 week highs in intraday trade. Since 21st December, 2016, sugar prices have increased by 3 per cent from Rs 37.51 per kg to Rs 38.69 per kg.

The rating agency ICRA estimates domestic sugar production to fall to 23 million metric ton during sugar year 2017 (SY2017), a slump of around 9 per cent over the previous year. This is largely due to the lower cane availability in Maharashtra and Karnataka because of poor monsoons last year.

Albeit the monsoons are likely to be better this year, the effect on the cane output is likely to be witnessed only in SY2018, given the growing period (1 year) of sugarcane.

Going forward, the profitability of the mills is dependent on the control over operating expenses and also the control over interest expenses by appropriate leveraging. Sustained healthy realizations and healthy recovery rates likely to culminate in healthy contribution margins for UP based mills, in spite of Rs 25 per quintal rise in the cane price for SY2017, the rating agency stated in a recent report.

In ICRA’s view, sugar prices are estimated to remain firm in the near term, given the tight stock position. With the FRP - Fair and Remunerative Price of cane for SY2017 fixed at the same level as of last year and sugar prices on higher side, the profitability of mills located in Maharashtra and Karnataka is likely to increase, however, the extent of rise in absolute levels of profits could be moderated with the fall in the cane availability in these regions.

Share price performances by the sugar stocks today:

•    Upper Ganges Sugar share price surged 5 per cent intraday

•    Ugar Sugar share price soared 4.9 per cent intraday

•    Oudh Sugar share price shot up by almost 9 per cent intraday

•    Mawana Sugars share price climbed up by 7 per cent intraday

According to Dynamic Levels Research Analysts, the above four stocks belong to the top 500 list of stocks filtered from the 1700 stocks listed on the NSE on the basis of strong fundamental research.

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