Sugar stocks: Sugar stocks may sustain rally after ethanol push

Mumbai: Sugar stocks are likely to carry the bullish momentum of the past two weeks as the national policy framework for the sweetener is favourable, with New Delhi continuing to push the ethanol blending programme (EBP) to help offset any supply overhang and lower import bills.
gained 20% in the past two weeks, while EID Parry, Triveni Engineering, Dalmia Bharat Sugar and rallied over 15%. Dwarikesh Sugar, Avadh Sugar, and Uttam Sugar Mills surged 34%, 37%, and 27%, respectively, in the past two weeks.

“With Karnataka, the third-largest sugar producing state in the country also keen to join the ethanol push, we believe that the current season also augurs well for sugar companies as far as ethanol sales are concerned despite a 75% rise in ethanol revenues during the last season,” said S Ranganathan, head of research, LKP Securities.



“Besides improving the balance sheet and cash flows of sugar mills, higher ethanol sales also ensure timely payment of cane dues to farmers and balance out sugar inventories. We remain optimistic on the sector for CY2022 as well,” he added.

Sugar Stocks may Sustain Rally After Ethanol Push

Oil marketing companies have already contracted for 3.69 billion litres of ethanol for the current marketing year (December-November). Another 0.94 billion litres will be contracted in the next few weeks. Meanwhile, domestic and global sugar prices have remained firm, with sugar production in India touching 11.6 million tons until end-December.

“We continue to remain bullish on the sugar sector as government policies on sugarcane price, MSP, buffer stock, export subsidies, and ethanol prices would ensure the survival of the weakest,” said Achal Lohade, analyst, JM Financial Services. “Well-managed sugar companies could generate enormous earnings/cash flows in the process.”

“We believe ethanol prices are currently significantly above petrol and alcohol import parity prices as the government is aiming at twin objectives of surplus sugar being diverted to ethanol and a reduction in carbon emissions and dependence on crude imports,” he added.

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