Sugar inventory in the country has been at the lowest level of 4.5 mt in the last five years, which has resulted in an uptick in domestic sugar price by Rs 3-4/kg since April. 
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Sugar inventory in the country has been at the lowest level of 4.5 mt in the last five years, which has resulted in an uptick in domestic sugar price by Rs 3-4/kg since April. Sugar stocks such have rallied up to 44 per cent in the past one month, with two of three dozen listed sugar shares seeing their prices surging over 10 per cent during the period. Analysts noted that sugar inventory in the country has been at the lowest level of 4.5 mt in the last five years, which has resulted in an uptick in domestic sugar price by Rs 3-4/kg since April. Fast developing El Nino conditions are likely to result in a decline in net sugar production by 4 mt (12 per cent), specifically in Maharashtra and Karnataka, which may keep domestic sugar prices firm for the next one year, analysts said.
JM Financial said it sees significant optimism returning to the sugar sector, thanks to seasonal factors such as festival period and growing concerns on India’s sugar production estimate for the upcoming season (SS24E). It estimated India's production at 30 million tonnes, higher than domestic consumption of 28-28.5 million tonnes. Export announcement, if any, will come only post May 2024, it said.
"Global prices have rallied to a record high but that is of little consequence for domestic sugar prices. Sugar prices, which have risen sharply in the past 3 weeks, will remain firm though the government will contain any sharp increase given its impact on food inflation apart from implications on impending state/general elections," it said.
Shares of Piccadily Sugar plunged 5 per cent to Rs 29.06 in Thursday's trade. Despite this, the stock is up 44 per cent in the last one month. Magadh Sugar (up 43 per cent), followed by Magadh Sugar (42 per cent), Shree Hanuman Sugar & Industries (up 37 per cent) and Sakthi Sugars (up 36 per cent) have gained up to 43 per cent in the one-month period. Dalmia Bharat Sugar And Industries, Avadh Sugar & Energy, Triveni Engineering & Industries and Uttam Sugar Mills gained over 20 per cent during the period.
DAM Capital Advisors has initiated coverage on the sugar sector with a positive outlook given lower sugarcane yields in Maharashtra and Karnataka, gross sugar production came down to 37.3 mt in 2022-23.
"We believe fast developing El Nino conditions would further hamper sugar production in these states and keep domestic sugar prices above Rs37/kg. This would benefit UP sugar companies with higher sustainable sugar volume and higher sugar realisation. We expect sugar companies to witness strong earnings growth for FY23-26E," it said.
Among large players, shares of Bajaj Hindusthan Sugar climbed 4 per cent to Rs 26.81 in Thursday's trade, taking its one month gains to 24 per cent. Shree Renuka was also up 4 per cent in Thursday trade, delivering 22 per cent 22 per cent return for one-month period. Balrampur Chini surged 6.5 per cent to Rs 442.70in Thursday’s trade and is up 13 for the one month period. Dwarikesh Sugar climbed 7 per cent today to take its one-month return to 11 per cent.
DAM Capital Advisors said: " With a decline in sugar production, India is unlikely to export any sugar. Moreover, export from Thailand is also likely to come down due to the expected lower production. This is expected to result in a surge in global sugar prices post crushing ends in Brazil in November 2023."
In last five years, the government has been able to increase ethanol blending with petrol from 1.5 per cent in 2018 to 11.5 per cent in 2023. The government is also targeting to increase ethanol blending to 20 per cent levels by 2025-26, which is expected to result in further capacity addition in next few years.
"Sugar millers in UP have been changing sugarcane variety to replace ageing Co-0238. This is expected to curb the decline in sugar recovery and expected to reduce cost of production. With sustainable sugar production in UP, higher sugar prices and increasing utilisation of new distillery capacity, UP-based sugar companies are expected to witness strong earnings growth for the next two years," DAM Advisors said.
JM Financial said state advised price (SAP) for sugarcane is likely in October-November. It is pencilling in Rs 150 per tonne increase for SS24. Ethanol momentum remains firmly on an upward trajectory. "We continue to maintain our positive view on the sector and maintain 'BUY' on Balrampur Chini with unchanged June 2024 target of Rs 490. DAM Capital Advisors has buy rating on Balrampur Chini (Target: Rs 510), Triveni Engineering (Rs 415), Dalmia Bharat Sugar (Rs 540) and Dwarikesh Sugar (Rs 120).
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