Sugar stocks rise on export subsidy buzz

Following the reports of export subsidy and creation of buffer stocks by the central government, shares of sugar companies moved up by an average 4 to 5 per cent even as Sensex was down 140.89 points to 13,145.04.

Share prices of Bajaj Hindusthan closed at Rs 175.40, up 4.06 per cent from the previous day. Shakthi Sugar gained 6.92 per cent to close at Rs 68 while Triveni Engineering and Industries rose 4.31 per cent to Rs 50.85. However, a major gainer in the sector was Renuka Sugar that moved up 8.9 per cent to Rs 430.10.

However, analysts see the rise as a short-term affair, and advise long-term investors to be cautious. "It is a positive move in the short-term but the projection of a further increase in production next season can be a concern. Long-term investors should wait and watch. Moreover, the export subsidy can be advantageous to mills before Brazilian crop hits markets in May," said Vikram Suryavanshi of Karvy Stockbroking.

According to the food ministry officials, sugar mills have secured permits for exporting about 0.9 million tonne sugar. Shipments for 0.3 million tonne have already been made.

The industry is keen to export 1.5-2 million tonne in the running season. The country is expected to produce 25 million tonne sugar in 2006-07 season (October-September) versus 19.2 million tonne last season.

"Earlier margins on export was negative and companies were losing around Rs 2,000 in Maharashtra and Rs 1650 a tonne in Uttar Pradesh as export realisation was $310-315. Subsidy will offset the losses partly. While we may not see profits, export will help domestic prices," said Sanjay Tapriya, director (finance) of Simbhaoli Sugars, which has got permits to export 29,000 tonnes.

April sugar futures at the National Commodity and Derivatives Exchange gained Rs 14 to close at Rs 1,470 a quintal. However, spot prices remained unchanged at Rs 1,450 a quintal.