Sugar shares extend rally; Balrampur, Dwarikesh rally up to 27% in one week

The sugar industry is going through a transformation from being a cyclical industry to structural growth sector by increasing distillery capacities over the next three years, analysts say.

Shares of sugar companies continued at their upward movement, with Balrampur Chini Mills, Dwarikesh Sugar Industries and Triveni Engineering & Industries hitting their new record highs on Thursday, in an otherwise weak market, on strong outlook. Most of the sugar stocks were higher in the range of 3 per cent to 10 per cent. In comparison, the S&P BSE Sensex down 1.2 per cent at 59,517 points at 10:11 am.

In the past one week, Balrampur Chini Mills, Dwarikesh Sugar, Uttam Sugar Mills, Magadh Sugar and Avadh Sugar have rallied between 20 per cent and 27 per cent on the BSE, as against a 3 per cent rise in the Sensex.

The sugar industry is going through a transformation from being a cyclical industry to structural growth sector by increasing distillery capacities over the next three years, analysts believe. From 2019-21, the industry has been able to reduce the sugar inventories from 14.5 MT to 8.2 MT (September 2021) through aggressive exports & diversion of sugarcane towards ethanol production.

According to a report by rating agency CRISIL, sugar mills are expected to see both revenue and profitability improvement in the 2022 season (SS 2022; October 2021 to September 2022).

"Sugar prices are expected to rise 16-17 per cent this season, compared to a marginal fall in the last year, led by a pickup in industrial demand and increased exports. An increase in consumption amid stable production is expected to deplete inventories, leading to the sharp rise," the agency said.

Higher sales volumes and higher realisations will aid revenue growth of 18-19 per cent. Cane costs, meanwhile, are expected to rise at a slower pace of 8 per cent in north India and 3 per cent in south India. This would provide ample room for improvement in operating profitability, or earnings before interest, taxes, depreciation and amortisation (Ebitda) margin, which is expected to increase by 300-400 basis points, it added.

Among individual stocks, Dwarikesh Sugar hit a new high of Rs 93, surging 11 per cent on the BSE. In the past six trading days, it has soared 30 per cent after rating agency ICRA reaffirmed the long term rating for the bank facilities of Dwarikesh Sugar at "[ICRA] A+" with outlook revised to positive from stable.

ICRA noted that the expansion in revenues as well as profits in FY2022 would be driven by firmed-up domestic and international sugar prices, supported by increased ethanol volumes and improved blended distillery realisations with favourable change in feedstock mix for ethanol production.

"Further, higher sucrose diversion towards B-heavy molasses/juice-based ethanol would moderate the inventory levels and lower its working capital borrowing levels going forward, which would allow its coverage metrics to emerge stronger," ICRA said in rating rationale.

ICRA also highlighted that the introduction of the minimum support price (MSP) for sugar in FY2019 gives some protection against any downside in the operating profits in sugar surplus years compared to the past. Over the medium term, DSIL's operating profits are likely to be less volatile than the historical levels, driven by the expected continuation of MSP and the industry’s focus on diverting of excess cane towards ethanol production.

COMPANY	LATEST	1-WEEK BEFORE	GAIN(%)
Dwarikesh Sugar	91.60	71.85	27.49
Uttam Sug.Mills	232.40	184.25	26.13
Avadh Sugar	558.80	460.05	21.47
Dalmia Bharat	456.00	380.95	19.70
Balrampur Chini	431.65	361.80	19.31
Bajaj Hindusthan	17.40	14.68	18.53
Sh.Renuka Sugar	35.10	30.15	16.42
Triven.Engg.Ind.	251.15	223.10	12.57
Dhampur Sugar	344.70	307.75	12.01
DCM Shriram Inds	97.55	88.40	10.35
EID Parry	496.80	451.75	9.97
Bannari Amm.Sug.	2864.00	2630.30	8.88
Stocks from S&P BSE Allcap index