Sugar Stocks gain on the Rising Sugar Prices

Dynamic Equities | June 12, 2017, midnight


Although the rising sugar prices will benefit the Sugar Industries as a while, but the key beneficiaries will be the Uttar-Pradesh based Sugar mills. Prices have increased by Rs 2 to Rs 37-38 per kg in the past 15 days due to anticipated shortage of sugarcane supply from Maharashtra and Karnataka.


According to the estimates the recent price rise will boost profits of these companies by 30-50% for the sugar year October 2016 to September 2017. Analysts tracking the sugar industry expect prices to firm up further. Prices may rise further due to supply shortage in Maharashtra and Karnataka. Balrampur, Dhampur and Dwarikesh are the three largest UP-based sugar companies with capacities of 76,500, 45,500 and 21,500 tonnes per day, respectively. With rising profits, these companies should become debt-free next year, unless they plan for further capacity expansion. This has boosted their stocks by 13-26% over the past week.


Balrampur Chini share price gained over 12 per cent from Rs. 117.60 on 27th December 2016 to Rs. 132 on 4th January 2017. Dhampur Sugar share price went up by over 28 per cent in past seven trading sessions. The stock had closed at Rs. 119.80 on 27th December 2016 to Rs. 153.75 on 4th January 2017. Today Dhampur Sugar went up to Rs. 158.30 and traded at the new 52 week high. From trading at Rs. 287.60 on 27th December 2016, the Dwarikesh Sugar share price gained over 25 per cent to trade at Rs. 361 on 4th January 2016. The stock went up by over 5 per cent in trade today.


Insight to Rising Sugar Prices:


According to ICRA, an opening stock of 7.6 million tons (mt) for sugar year 2017 is expected to result in the overall sugar availability of between 30.5 mt and 31.0 mt, which is likely to meet the domestic consumption of around 26 million tons.


However, the closing stocks of around 4.8 million tons in sugar year 2017 lower than the normative sugar stock level of around 6.4 million tons. The data is based on the assumption of requirements of three months' domestic consumption. It would be sufficient to meet the requirement of around only two months of domestic consumption, instead of typical three months.

 

Therefore, deferred stocks are required to meet the domestic consumption needs for this superseding period of 2 months. Previously, the government had a rule of having opening balance of 3 months consumption.


Other Sugar Stock in focus:


Ugar Sugar share price also gained approximately 5 per cent today. The stock had closed at Rs. 23.35 on 27th December 2016 while at the time it is trading at Rs. 29.15, hence showing a gain of approximately 25 per cent in a week’s trade. KM Sugar share price also traded at the new 52 week high today at Rs. 31.15.

 

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