Sugar, tea stocks surge on demand-supply mismatch

An improved domestic demand-supply dynamics has resulted in a sharp rise in the sugar and tea sector stocks of late. Analysts expect selected companies in these sectors to outperform the market in the coming quarters.

Sector analysts said that demand-supply mis-match in sugar is expected to grow and this is a reason why the sugar sector stocks are finding favour with the investors. Sugar production is expected to be lower by almost 24 per cent in the current year to 14.5 million tonne compared with 19 million tonne in the previous year.

Meanwhile, the demand is expected to grow marginally by 5 per cent year-on-year from 18.2 million tonne in 2004 to 19 million tonne in 2005. This will result in the sugar prices remaining firm in the next few quarters.

The attraction of sugar sector stocks is very much evident form the fact that most of these stocks are currently trading at their all-time highs and have appreciated more than 15 per cent in the last one month.

As many as 12 stocks from the sugar and tea sectors are currently trading at their all-time highs on the BSE. These include Balrampur Chini, Bannari Amman Sugars, Ugar Sugar, Upper Ganges, Bajaj Hindustan, Rajshree Sugar, JK Sugar, Ponni Sugars (Erode), Indian Sucrose, Parry Agro, Sterling Biotech and Tata Coffee. Another 19 stocks from these sectors are quoting at more than their two-year highs.

In December alone, the total market capitalisation of 52 sugar and tea stocks has increased by Rs 1,056 crore: from Rs 8,782 crore on December 1, 2004, to Rs 9,840 crore on Monday. During the month, most of the stocks from these sectors increased between 10 per cent and 90 per cent.

The Ugar Sugar stock has gained by 55 per cent in current month from Rs 100 on December 1 to Rs 155.19 on Monday.

Sakthi Sugar's market price has appreciated by 41 per cent to Rs 45.70, from Rs 32.35 in the beginning of this month.

Dhampur Sugar's market price has also increased by 41 per cent to Rs 69.80 (Rs 49.45), Oudh Sugar Mills by 39 per cent to Rs 109.95 (Rs 79.05), Kesar Enterprises to Rs 48.70 (Rs 35.35), Riga Sugar by 34 per cent to Rs 29.05 (Rs 21.65), Ravalgaon Sugar by 29 per cent to Rs 4,286.95 (Rs 2,257.60).

During the half year ended September 30, 2004, 19 sugar companies had posted a total net profit of Rs 40.23 crore against a net loss of Rs 14.63 crore in the first six months of 2003-04.

Preeti Gupta, director, commodities, Anand Rathi Securities said, "The past two year have seen a decline in production, while the consumption has gone up. This has resulted in the hardening of sugar prices. India being the largest consumer of sugar, I expect that by 2006, the country will have a deficit in sugar stocks."

A sector analyst with a domestic broking firm said that the demand-supply mis-match is expected to go upwards.

During the quarter ended September 2004 itself, the retail price of small grade sugar has improved by 19 per cent to Rs 1,617 a quintal and prices of medium grade sugar have jumped by 18 per cent to Rs 1,663 per quintal over corresponding previous period.

Similarly, tea sector stocks has found favour with the investors following lower production, rise in exports and modest growth in domestic consumption resulting in domestic demand-supply dynamics for tea to improve, leading to surge in prices and profits.