Shares of sugar companies surged by up to 13% on the BSE during Friday’s intraday trading, driven by the government’s decision to remove the cap on sugar diversion for ethanol production for the Ethanol Supply Year (ESY) 2024-25.
How Much Sugar Stocks Are Up Today?
Several sugar stocks rose by up to 13% including, Dalmia Bharat Sugar and Industries led the surge, increasing by 13% to Rs 497.40. Shree Renuka Sugars and Avadh Sugar & Energy both saw a 10% rise, reaching Rs 52.01 and Rs 774.15, respectively.
Triveni Engineering & Industries gained 9%, trading at Rs 479, while Dhampur Sugar Mills also rose 9% to Rs 228.85. Balrampur Chini Mills and Dwarikesh Sugar Industries saw increases of 8%, reaching R 625.85 and Rs 79.40, respectively. EID Parry (India) experienced a 7.5% increase, closing at R 875.45.
What’s the Government Policy Change
The government’s new notification permits sugar mills and distilleries to produce ethanol from sugarcane juice, sugar syrup, B-Heavy molasses, and C-Heavy molasses during ESY 2024-25, according to their agreements with oil marketing companies.
Additionally, a proposed draft ‘Sugar (Control) Order, 2024’ suggests allowing the sale of raw sugar in the domestic market, overturning a regulation that has restricted its sale exclusively for export for over six decades.
Market Impact and Industry Outlook
The expected sugar inventory of approximately 8.55 million tonnes as of September 30, 2024, combined with a projected production of 32 million tonnes for the sugar season (SS) 2024-25 and domestic consumption of 29 million tonnes.
Providing sufficient headroom for the government to continue the ethanol blending program and potentially allow for exports in SS 2024-25, given the closing stock of 5.5 million tonnes.
Sharekhan’s recent report indicates that with a normal monsoon anticipated, the industry expects positive developments in both the Ethanol policy for ESY 2024-25 and the Export Policy for SS 2024-25.
DAM Capital on Sugar Stocks
DAM Capital has included normalized ethanol volumes in its projections for sugar companies within its coverage universe.
The brokerage anticipates that clear guidelines on ethanol blending and the full utilization of distillery capacity by sugar mills will drive significant earnings growth starting from Q3FY25. This expected growth is likely to lead to a re-rating of the sector.
In its latest report, DAM Capital assigns higher earnings multiples to sugar companies based on these expectations. The firm maintains a Buy recommendation on BRCM, with a target of 20x FY27 PE, factoring in the commissioning of a new PLA plant.
For the sugar business of TEL, DAM Capital assigns an 18x PE, while the engineering business is valued at 25x EV/EBITDA (FY27 numbers). DAM Capital also maintains a Buy rating on Dalmia, with a valuation of 16x FY27 PE. Conversely, the report maintains a Sell recommendation on Dwarikesh Sugar.
