Sugar counters surge on price hike hopes

An anticipated hike in sugar prices and better quarterly results have brought back the zing in sugar stocks. Investors have lapped up over 19 million shares of sugar companies in the last two months.

While June saw 5.5 million shares being mopped up, the numbers rose further to 13.9 million shares in July. Of the total traded volume of 31.9 million shares in the two months, almost 61 per cent was marked for delivery.

As a result, sugar stocks managed to outperform the benchmark index. In the aggregate, the stocks posted a 40 per cent return in July against returns of 9 per cent by the Sensex. Strong financial results posted by the companies in the June 2004 quarter is the reason for this hyperactivity.

The aggregate net profit of sugar companies soared 228 per cent on a 19 per cent rise in sales turnover during the quarter ended June 2004. At current prices, most blue-chip sugar stocks are quoted at one to three-month highs. Many of them are near their respective 52-week highs.

Retail sugar prices in India have already firmed up from Rs 16 a kg two months ago to Rs 18 a kg now. There are expectations that sugar prices will see a major uptrend in the near future.

Driving these expectations are the substantial fall in sugar production in 2003-04 and 2004-05 seasons. The sugar season begins in October and ends in September next year. Sugar production is estimated to be lower at 140 to 145 million tonne in the 2003-04 season compared with 201 million tonne in 2002-03.

Domestic consumption is expected at around 180-185 million tonne, while exports are seen at 0.3 million tonne. As a result, the closing stock at the end of the season is expected to be substantially lower in the 2003-04 season.

The fall in sugar output is mainly on account of the severe drought prevailing in major sugar producing states of Maharashtra, Karnataka and Tamil Nadu.

For the season 2004-05 also it is expected that sugar production will be within the range of 140-150 million tonne. All the southern states are severely affected by drought. This is likely to result in a major shortage of sugar and the sugar price is likely to go further up.

Domestic sugar prices have hardened by almost 25 per cent in the current calendar year. M-30 grade sugar prices have moved up from Rs 1,338 per tonne in January 2004 to Rs 1,625 a tonne on July 4. S-30 grade sugar prices have moved up from Rs 1,288 a tonne to Rs 1,585 a tonne.

alarampur Chini, that manufactures sugar and alcohol, performed well in the quarter ended June 2004. The company's net profit surged 197.3 per cent during the quarter to Rs 25.12 crore (Rs 8.45 crore).

As a consequence, the company reported quarterly earnings of Rs 13.24 per share. The stock price has gained 34.9 per cent in a month to close at Rs 382.25 on Thursday. The counter reported delivery volumes of 1.58 million shares in the last two months.

A 1,100 per cent rise in net profit of Bajaj Hindustan was appreciated with the stock gaining 67.3 per cent in the last two months. The company's net profit at Rs 13.75 crore (Rs 1.14 crore) results in a quarterly EPS of Rs 1.57 per share of Re 1 each.