Sugar shares under pressure, decline up to 7%; Balrampur Chini at 2022 low

Shree Renuka, Dwarikesh, Triveni Engineering, Uttam Sugar, Dhampur Sugar and Dalmia Bharat Sugar are down in the range of 2 per cent to 7 per cent on the BSE.

Shares of sugar companies were under pressure, falling up to 7 per cent on the BSE in Wednesday’s intra-day trade amid heavy volumes. Balrampur Chini Mills (BCML) and Shree Renuka Sugars were down 6 per cent and 7 per cent, respectively.

Dwarikesh Sugar Industries, Triveni Engineering & Industries, Uttam Sugar, Dhampur Sugar Mills and Dalmia Bharat Sugar were down in the range of 2 per cent to 4 per cent on the BSE. In comparison, the S&P BSE Sensex was down 0.25 per cent at 58,707 at 01:42 pm.

Among the individual stocks, Balrampur Chini traded at its lowest level in the calendar year 2022. The stock has fallen below its previous low of Rs 331.10 hit on July 7, 2022. In the past five trading days, the stock has slipped 17 per cent as the company reported muted performance for the quarter ended June 2022 (Q1FY23) owing to a challenging operating environment in our sugar division.

The company’s sales de-grew 5.3 per cent year-on-year (YoY) to Rs 1,080 crore. Sugar volumes were down 11.8 per cent YoY. Earnings before interest, taxes, depreciation, and amortization (ebitda) was down 66.9 per cent YoY at Rs 44.4 crore, with margins at 4.1 per cent from 11.8 per cent in Q1FY22.  Profit after tax declined 83.4 per cent YoY to Rs 12.4 crore during the quarter.

The management said lower sugarcane yields/ recovery in the season impacted the segment’s performance. Further, fixed overheads could not be absorbed fully in this quarter due to lower crushing/season days. With good quality rains in our command areas, the management is hopeful of reporting improvement in the operational performance when the company begins next sugar season in the month of November.

The last two sugar seasons were challenging for Balrampur Chini due to lower availability of sugarcane in its catchment area adversely impacted by red rot disease in eastern UP.

However, analyst at ICICI Securities remains positive on the prospects of sugar industry, in general, and Balrampur Chini, in particular.

We believe the company would be able to increase its sugarcane crushing by around 20 per cent in next season, which would help it regain profitability in sugar segment. On the ethanol front, the company would be commissioning its new distillery by December 2022, which would help it increase ethanol production to 35 crore litre by FY24E,” the brokerage firm in result update. It maintains ‘buy’ rating on BCML value the stock at Rs 515, valuing the business at 12x FY24 PE.

Meanwhile, this quarter’s results must be seen in the light of soaring global inflation, high interest rates, high crude prices and weakening currency. Commodity markets remain very volatile, compelling Government to resort to export restrictions, the management of Shree Renuka Sugars said.

With the onset of good monsoon in the country, the management anticipates better sugarcane availability in the upcoming season (October-September) also. Besides improving the balance sheet and cash flows of sugar mills, higher ethanol sales has ensured timely payment of cane dues to farmers and balance out sugar inventories. The stock of Shree Renuka Sugars dipped 7 per cent to Rs 44.20 on the BSE in intra-day trade today.

Brazil sugar production is expected to increase by 1 MT to 33 MT. Thailand sugar production is also likely to increase by 1-2 MT. Given, India export availability is likely to dip by 3 MT, global raw sugar prices are likely to remain firm 18-20 cents /lb. Global refined white sugar prices are prevailing at Rs 41/kg (US$530 /tonnes), analyst at ICICI Securities said.