Sugar stocks in focus; Balrampur Chini, EID Parry rally up to 7%

Ethanol is expected to be a key driver for the sugar industry, going ahead

Shares of sugar companies, on Monday, were in focus at the bourses, with Balrampur Chini Mills, EID Parry, Dwarikesh Sugar Industries, Dhampur Sugar Mills, and Dalmia Bharat Sugar and Industries rallying up to 7 per cent on improved sector outlook. In comparison, the S&P BSE Sensex was up 0.44 per cent at 50,625 points, at 11:51 am.

Last week, Prime Minister Narendra Modi said the target of blending 20 per cent ethanol in petrol advanced to 2025 from 2030 earlier. Ethanol is expected to be a key driver for the sugar industry.

The sugar sector has seen structural changes with rational alterations in the government’s policies, and flexibility provided, as diversion of surplus cane and B-heavy molasses is now allowed to produce ethanol that can be used for blending with petrol. In addition, differentiated pricing for ethanol (based on raw material) is quite attractive and has the potential to significantly reduce the cyclical nature of the sector because of the sustainable business model it provides for sugar mills.

“For the past few years, the sugar sector has consistently faced twin issues of surplus production and higher sugar inventory. Due to attractive MSP, sugar mills are now able to realize significantly higher prices for sugar in the domestic market, despite the country having one of the highest sugar inventories,” analysts at Phillip Capital said in sugar sector update.

The government has also indicated that going ahead, export subsidy will be discontinued. Sugar mills would need to manage the surplus themselves and for this, ethanol production is becoming an attractive solution. Mills will benefit from raw material flexibility given to produce ethanol form Bheavy molasses and cane juice; this is expected to improve profitability as well as reduce the production imbalance in the sector, the brokerage firm said. It believes that sugar mills will shift to flexible business model with higher production of ethanol due to secure demand, attractive pricing, and a balancing out of the sugar cycles.