Sweet cravings! Sugar stocks rally up to 10% today. What's cooking?

Shares of sugar companies -- Uttam Sugar, Triveni Engineering and Industries, Shree Renuka Sugars, and Sakthi Sugars -- rose up to 10% in Tuesday’s intra-day trade after the Ministry of Consumer Affairs, Food and Public Distribution announced a 100% incentive on sugar sacrificed for producing ethanol from B-heavy molasses, sugarcane juice, and syrup.

"The stock holding limit will be worked out on the basis of giving 100% weightage to the month-end notional stock of the preceding month," the ministry’s notification said.

Dhampur Sugar Mills, Dwarikesh Sugar, Simbhaoli, and Rajshree Sugar also surged over 5% in today's trade.

Sandip Sabharwal, an independent market expert, said, "global sugar prices rally to near 52-week highs while domestic prices are still much lower."
The sugar story should be strong for the next 1-2 years, Sabharwal said.

“Sugarcane and molasses-based ethanol producers are better placed than grains-based ones as sugarcane prices are fixed by the government rather than being left to market forces, preventing volatility in production cost and profitability,” brokerage firm Elara capital said.

“Feedstock used for fuel in sugarcane and molasses-based ethanol is internally sourced bagasse, and the price gap between cane-based and FCI rice-based ethanol is Rs 7/litre,” it added.

Elara Capital has a buy rating on Dwarikesh Sugar with a target of Rs 145, an upside potential of 44% from the current price of Rs 101 per share. The brokerage also has an accumulate rating on Balrampur Chini Mills with a target price of Rs 445 per share.

According to early December reports, the government also may consider increasing the sugar export quota for the current 2022-23 marketing year after assessing the domestic production in January.

Food Secretary Sanjeev Chopra said the ministry will assess the domestic production of sugar in January and then decide whether to raise the quota or not. The food secretary was speaking on the sidelines of the Annual General Meeting (AGM) of the industry body ISMA.

Indian Sugar Mills Association (ISMA) president Aditya Jhunjhunwala hoped that the government would increase the export quota from the current 60 lakh tonnes.

"We are grateful that exports are allowed with the option provided to sugar mills to exchange their export quota with domestic sugar sale quota," the president said.
This is much on the lines of the request made by ISMA and equitable to all sugar mills, he added.

As per ISMA's estimate, the total sugar production is expected to be the highest ever at 410 lakh tonnes (before diversion for ethanol) in the 2022-23 marketing year. Sugar diversion towards the production of ethanol is estimated to be at 45 lakh tonnes in the current marketing year.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)