Sugar stocks extend rally; Dhampur, Dwarikesh soar over 70% in a month

Lower production in Brazil and Thailand, the two largest sugar exporters in the world, could result in higher opportunities for domestic exporters

Shares of sugar manufacturers and their allied companies continued their northward movement, ralling up to 75 per cent in the past one month on positive outlook, on Monday. The sugar industry, analysts say, is well poised to benefit from, both, global and domestic factors such as tight global demand-supply situation, favourable policies, push for higher ethanol blending in India and higher ethanol capacity addition.

Individually, Dhampur Sugar Mills, Praj Industries, Dwarikesh Sugar Industries and Triveni Engineering & Industries rallied in the range of 14 per cent to 19 per cent on the BSE in the intra-day trade on Monday while Dalmia Bharat Sugar and Industries, Uttam Sugar Mills, Avadh Sugar and Balrampur Chini Mills were up between 9 per cent and 10 per cent. In comparison, the benchmark S&P BSE Sensex was up 0.68 per cent.

In the past one month, market prices of Dhampur Sugar Mills, Dwarikesh Sugar Industries and Trievni Engineering have zoomed in the range of 73 per cent to 75 per cent, as compared to a 2 per cent gain in the benchmark index.

Brazil and Thailand, the two largest sugar exporter in the world, are expected to witness lower production of 7-8MMT each as compared to last year, given the challenges faced due to dry weather. This would result in higher opportunities for domestic exporters as the surplus inventory for the current season is expected to be around 9.5 MMT, analysts say.

"Further, the shortfall in global sugar production has resulted in sharp increase in global prices of sugar to over 16.5 cents/lb, which is likely to sustain. Also, if global sugar prices increase from 16.5-17.5cents/ lb to 19-20/lb, then higher amount of sugar is expected to be utilized for conversion to ethanol, leading to further increase in global sugar prices," Motilal Oswal Financial Services said in sugar sector report.

During December-March'21, sugar prices were flat at around Rs 31/kg. However, in Apr'21 the prices saw spurt to Rs 33-34/kg, reflecting higher demand due to summer season. Going forward, prices are expected to sustain at higher levels.

ICICI Securities believes domestic sugar prices would remain above Rs 34/kg given aggressive exports & diversion of sugarcane towards ethanol production. Global sugar prices are also on rise (around 15 per cent in last two months). The current raw & white sugar prices are above cost of production for Indian millers.

"We believe global raw sugar prices can easily cross 20 cents/lb in the next six months given Brazil is expected to witness 20 per cent production decline in 2021-22 season. This would ensure sustainable export dynamics in the next season as well. We believe India’s sugar inventory levels would come down to around 7 million tonnes (MT) by September 2022", the brokerage firm said in a note.

COMPANY	LATEST	1-MONTH BEFORE	GAIN(%)
Dwarikesh Sugar	58.65	33.65	74.3
Dhampur Sugar	331.55	193.85	71.0
Bajaj Hindusthan	11.27	6.67	69.0
Triven.Engg.Ind.	155.00	92.50	67.6
Avadh Sugar	331.90	204.75	62.1
Uttam Sug.Mills	157.30	100.45	56.6
Dalmia Bharat	316.05	203.45	55.4
Praj Industries	312.85	203.45	53.8
Balrampur Chini	340.45	234.00	45.5
EID Parry	442.15	332.95	32.8