Sugar companies surge on govt's sweet package

The Shree Renuka Sugars stock closed at Rs 29.4 on BSE, up 10.32%; Bajaj Hindusthan shares soared 9.87% to close at Rs 29.5 apiece

Sugar stocks rose sharply on Monday, following a series of positive measures announced by the Union government to protect the interests of local sugar mills. While the Shree Renuka Sugars stock closed at Rs 29.4 on BSE, up 10.32 per cent, Bajaj Hindusthan shares soared 9.87 per cent to close at Rs 29.5 apiece.

Balrampur Chini and Simbhaoli Sugars also recorded major gains.

After a meeting on Monday, Food Minister Ram Vilas Paswan announced import duty on sugar had been increased from 15 per cent to 40 per cent. Mandatory ethanol blending with petrol was increased from five per cent to 10 per cent. The government also extended the period for interest-free loans to mills equivalent to the excise duty paid by them from two years to five years. The export incentives period was extended up to September.

“Until recently, sugar was a beaten-down sector. We are very bullish towards this sector being a cyclical one. With the government's fresh bailout measures, the sector's cash flow will improve. That will result in high profit-earnings (P/E) ratios for the sector, led by increased profitability in the coming years," said Harish Vasudevan, strategist, SVS Securities.

The rally in sugar stocks came even as the benchmark Sensex traded weak on Monday.

“All these measures will boost the sector in the near term, though we will retain our cautious view on stocks,” said Amar Ambani, head of research, IIFL.

Sugar prices for delivery in September rose two per cent to Rs 3,196 a quintal on the National Commodity & Derivatives Exchange.

“With positive measures in place, sugar prices are likely to go up at least Rs 2 a kg, resulting in higher realisations for mills,” said Narendra Murkumbi, managing director of Shree Renuka Sugars.

Ajit Shriram, deputy managing director, DCM Shriram Consolidated, said the government's measures would help the sector clear Rs 11,000 crore of cane arrears and help it turn profitable next year.

After a high-level meeting Food Minister Ram Vilas Paswan announced a massive hike in import duty to 40% from the existing 15%. Similarly, mandatory ethanol blending with petrol was also increased to 10% from the existing 5%. Additionally, the government extended period for interest-free loan equivalent to excise duty to five years from two years now. Also, export incentives period was extended upto September 2014.