Sugar stocks rally: Dalmia Bharat, Dwarikesh, Avadh Sugar share prices zoom 20%; should you book profit?

Sugar stocks such as Dalmia Bharat Sugar and Industries, Dwarikesh Sugar, Avadh Sugar & Energy rallied up to 20 per cent in Monday’s intraday deals on BSE. On World Environment Day, Prime Minister Narendra Modi said the government has resolved to meet the target of 20 per cent ethanol blending in petrol by 2025. Currently, the ethanol blending level in petrol is around 8.5 per cent. “This can divert a sizable amount of sugarcane to ethanol production and reduce sugar production. This should essentially bode well for the sugar industry as the situation of a supply glut will automatically get addressed and will support pricing discipline in the industry in the long run,” Binod Modi, Head – Strategy, Reliance Securities, told Financial Express Online.

K.M.Sugar Mills shares price surged 20 per cent, Dwarikesh Sugar Industries 16.12 per cent, Dhampur Sugar Mills 9.7 per cent, Avadh Sugar & Energy 18.34 per cent, Dalmia Bharat Sugar and Industries 18.67 per cent. Triveni Engineering & Industries stock soared 15.18 per cent and Balrampur Chini Mills 8.4 per cent in intraday session.

Under the Ethanol Blended Petrol (EBP) programme, the government has already reintroduced the administered price mechanism for ethanol procurement, allowing ethanol production from multiple feedstocks like heavy molasses, sugarcane juice, sugar, sugar syrup, damaged food grains, maize and surplus rice stocks with Food Corporation of India (FCI).

Apart from the news of India advancing its target of 20 per cent ethanol blending in petrol by five years, frantic buying in mid and smallcap stocks have led to a surge in the sugar stocks. “Technically, Dalmia Bharat Sugar and Industries, Dwarikesh Sugar Industries and Avadh Sugar & Energy are overbought and investors are best advised to book profits in their current buy positions and wait for a 25-30 per cent dip to buy,” AR Ramachandran, Co-founder & Trainer, Tips2Trades, told Financial Express Online.

A production shortage by large sugar-producing countries such as Brazil has led to some momentum in sugar stocks. The rally got a further push from the government’s decision to advance the deadline of achieving the 20 per cent ethanol blending target, said an analyst. “From an industry perspective, this is a positive, especially for the companies with bigger capacities and strong balance sheets. That said, the cyclicality in the industry is not going to go away. As such, one should have a good understanding of the industry cycle and specific insights to consider sugar stocks from a long term perspective,” Richa Agarwal, Senior Research Analyst, Equitymaster, told Financial Express Online.

India’s sugar production rose by 13 per cent to 305.68 lakh tonnes in the first eight months of the current marketing year ending September, mainly due to higher output in Maharashtra, according to the Indian Sugar Mills Association (ISMA). Sugar marketing year runs from October to September.