From Balrampur Chini To Renuka Sugars, It's A Sweet Day For Sugar Stocks; Here's why

Sugar Stocks Rally Today: After news reports surfaced that the government is considering raising the minimum sale price (MSP) for the 2024-25 sugar season, sugar stocks are trading higher today.

Shares of sugar companies surged up to 14 per cent on the BSE in Thursday’s intraday trade. KCP Sugar & Industries Corp shares rose by 14.05 per cent; Sakthi Sugars surged 8.69 per cent at Rs 39.40 per share; Dalmia Bharat Sugar and Industries share price gained 7.48 per cent at Rs 434.45 a piece and Dhampur Sugar Mills soared 5.03 per cent at Rs 248.55 per share.

Others such as Prudential Sugar Corp, Piccadily Sugar & Allied Industries, Balrampur Chini Mills and the Ravalgaon Sugar Farm shot up by 3.48 per cent, 3.62 per cent, 3.54 per cent and 5 per cent, respectively. By comparison the BSE Sensex was up 0.33 per cent higher at 76,858 levels.

According to reports, a senior Government official stated that the revision is likely to apply to the next sugar season and not the ongoing one. The official said that the Government will propose a moderate increase, which will fall below the industry’s request.

The industry has been advocating for an MSP of sugar to be set between 40-41 rupees/kg. The official highlighted that although fair cane prices were announced in February, they will only take effect from the upcoming sugar season beginning on October 1.

The sugar industry is optimistic that the Government will adjust the sugar MSP in line with the rise in cane fair and remunerative price (FRP), enhancing the sugar industry’s liquidity and facilitating timely payments to cane farmers.

Sugar stocks have been on a bull run over the past month, rising 10 per cent to 20 per cent.

Amit Trivedi, CMT. Vice President – Research at YES Securities is bullish on Avadh Sugar & Energy, Balrampur Chini Mills, and EID Parry (India).

According to an Informist news report that cited a senior officer, the government is considering boosting the minimum selling price of sugar for the next season, which begins in October. Since 2019, the sweetener’s minimum selling price has remained unchanged at Rs 31 per kg. The industry has been seeking that the minimum selling price of sugar be increased to Rs 40–41 per kg.

As per Informist news report, Deepak Ballani, director general of the All India Sugar & Bio-energy Manufacturers Association, stated that when the Fair and Remunerative Price (FRP) rises, so should the sugar minimum selling price.

Before the elections, the Cabinet Committee of Economic Affairs approved a record 7.4 per cent rise, or Rs 25, in sugarcane FRP to Rs 340 per 100 kg for the sugar season 2024-25 (Oct-Sep), with a baseline recovery rate of 10.25 per cent.

According to Brokerage Centrum’s most recent sugar sector analysis, Uttar Pradesh state saw a steep reduction (-10 per cent YoY) in crushing activities for sugar season 2023-24, owing mostly to poorer yields caused by red rot disease. However, sugar production in Maharashtra was 11.0 MMT, up from 10.5 MMT in SSY23. On a nationwide scale, the sugar recovery data for SSY24 have improved on YoY basis at 10.09 per cent which is same as month before – owing to lesser diversion.

As of May 31, 2024, state-by-state crushing data for SSY24 show that sugar output is down at 31.7 MMT compared to 32.6 MMT previous season at the same time. Sugarcane crushing activity decreased by 5.4 per cent to around 314 MMT, compared to 332 MMT in SSY23.

“Looking forward (FY26), we anticipate positive developments in the sector, with stable sugar prices and increased sugar diversion for ethanol production. We forecast a significant +3.5 MMT vs. ~2MMT sugar diversion in current season, facilitating efficient use of distillery assets in FY26. Also, we anticipate a +3 per cent ethanol price hike next season (BH/Direct). Further, we believe that the worst is over for the sector in terms of negative news flow and maintain positive stance,” said Centrum in its report.