Sugar stocks: Sugar stocks surge on Ethanol push, analysts see more upside

Mumbai: Shares of sugar producers were among the top gainers on the exchanges on Friday, after the government said the industry will be allowed to use cane juice or syrup, along with two types of molasses, to produce ethanol from November 1. Analysts said more upsides are likely for these stocks as the move would boost companies’ revenues. Out of the 37 sugar stocks listed on the BSE, 35 closed higher on Friday. Shares of Triveni Engineering jumped 8.6%. EID Parry, Balrampur Chini, Shree Renuka Sugars, Dalmia Bharat Sugar, DCM Shriram, Avadh Sugar & Energy and Dhampur Sugar Mills gained between 1.9% and 7.5% on Friday.

The government’s notification removes the limit that exists on the diversion of sugar for ethanol production. “Since ethanol is a high-yielding product, this removal of cap would help the sugar mills and distilleries to manufacture more ethanol and improve their revenue mix directly, which will improve cash flows and stabilize the sugar industry,” said T Manish, research analyst, Samco Securities.

In an attempt to achieve the target of E20 (20% ethanol blending into petrol) by 2025, the government has removed the cap on ethanol production. Manish said that as of 2022-23, the percentage of ethanol blended in petrol stood at 12.01%.

“Earlier the sector was not under limelight but now things are starting to get better and we are seeing a gradual recovery in sugar stocks,” said Dharmesh Shah, head of technical research at ICICI Direct.

Shah’s top picks in this sector are Balrampur Chini Mills and Dalmia Bharat Sugar.Many sugar stocks like EID Parry, Balrampur Chini Mills, Triveni Engineering and DCM Shriram have surged between 31% and 49% in 2024 so far, outperforming the benchmark BSE SmallCap and BSE 500 which have gained 31.3% and 21.9% this year respectively.”Sugar prices have been hovering at 12-month high levels leading the companies to sustain their levels before this cap was removed,” said Sandip Sabharwal, founder, asksandipsabharwal.com, an investment advisory. “Since the announcement has come a month in advance to the start of the sugar season, companies can plan well in advance to apply for tenders and plan ethanol supplies, which will lead to improved cash flows.”