Sugar stocks jump up to 11%: Here's why
Sugar stocks saw a major boost today (December 18), after the Indian government reversed its ban on using sugarcane juice for ethanol production. This decision allows both sugarcane juice and B-heavy molasses to be used in creating eco-friendly fuel for the 2023-24 supply year. As a result, shares of sugar companies like Dwarikesh Sugar Industries, Indian Sucrose, and Bajaj Hindusthan Sugar jumped by over 10%.
How did the stocks perform?
Balrampur Chini Mills and Shree Renuka Sugars saw gains of roughly 7.5%, while Dalmia Bharat Sugar rose by approximately 6.5%. Dwarikesh Sugar went up by 6.39% to hit Rs. 91.38. Indian Sucrose surged by 10.65% to Rs. 90. Triveni Engineering and EID-Parry (India) also saw gains of about 5% each. Bajaj Hindusthan Sugar surged by 9.22% to reach Rs. 30.55. Dhampur Sugar Mills climbed by 8.22% to Rs. 268.45, while Magadh Sugar & Energy rose by 6.56% to Rs. 724.30.
Companies react positively to the government's decision
Vivek Saraogi, Managing Director of Balrampur Chini Mills, expressed relief for sugar companies and praised the government's revised decision as a crucial step in providing more flexibility in sugar production. In a conversation with CNBC-TV18, he pointed out that the cap on total diversion is now set at 17 lakh tons, a significant increase from the previous 12-13 lakh tons. This change offers more flexibility in sugar output and shows the government's dedication to monthly output reviews.
Concerns about reduced sugar production in the upcoming year
However, Saraogi also shared concerns about a potential drop in sugar production next year due to unpredictable monsoon patterns damaging sugarcane crops. He stressed the importance of building inventory for the following year in preparation for this situation. The Indian Sugar Mills Association (ISMA) reported that India's sugar production might decrease by 8% to 33.7 million tons (excluding diversion toward ethanol) in the 2023-24 marketing year.
Impact on ethanol-oriented sugar stocks
The government's initial move to limit ethanol production from sugarcane came after erratic monsoon patterns hurt sugarcane crops, leading India to extend export restrictions beyond October 31. Nirav Karkera, Head of Research at Fisdom, said that the diversion into ethanol has been quite meaningful over the past quarters and margin accretive for sugar companies. He also added that the government's ethanol clampdown may increase sugar production alone, but the core output has not been as profitable as ethanol diversion.
