Shares of sugar companies were on a roll on Friday with frontline stocks like Balrampur Chini Mills, Triveni Engineering & Industries, Dhampur Sugar Mills, Avadh Sugar & Energy and Dwarikesh Sugar Industries hitting their respective record highs. These shares had rallied up to 11 per cent each in intra-day trade on strong outlook and foreign institutional investors (FIIs) buying. In comparison, the S&P BSE Sensex was flat around 55,457 as of 02:32 pm.
With a favourable mix of ethanol towards B-heavy/juice (feedstock) coupled with higher sugar realisations; operating margins of sugar companies are expected to improve.
Among individual stocks, Dwarikesh Sugar Mills hit a new high at Rs 129.70, and soared 9 per cent on the BSE. In the past 10 trading days, the stock has zoomed 61 per cent from a level of Rs 80.40 on February 24, 2022.
On March 9, 2022, EAM Emerging Markets Small Cap Fund LP had purchased 1.6 million equity shares representing 0.85 per cent of Dwarikesh Sugar Mills for Rs 18.58 crore. FIIs bought shares at an average price of Rs 116.04 on the NSE, the bulk deal data shows. The name of the seller was not ascertained immediately.
In the October-December quarter (Q3FY22), the company reported a near four-fold jump in profit after tax (PAT) at Rs 28.88 crore, as against Rs 7.47 crore in Q3FY21. Total income grew 56 per cent year-on-year to Rs 602 crore from Rs 385 crore in a year ago quarter. Sugar segment sales growth was led by higher domestic sales quota and increase in sugar realisation.
Meanwhile, analyst at Systematix Shares and Stocks (India) believe the sugar industry is on the cusp of a mega transformation and has emerged as a potent driver of clean energy, driving India’s shift to renewable energy faster than ever.
Ethanol demand should grow at a 15 per cent CAGR over FY22-30E driven by the government’s mandate of 20% ethanol-blending in petrol. Further, higher diversion of cane towards ethanol will solve the problem of surplus sugar inventory and reduce business volatility. Improved profitability and reduced working capital will ensure superior cash flows, which along with the improvement in RoE/RoCE, would lead to sector re-rating, the brokerage firm said in February report.
According to ICRA, with majority of the expanded distillation capacities becoming commercialised in FY23 of sugar companies, their credit profile would strengthen materially in FY24 driven by growth in profits, cash accruals, reduced working capital intensity and thus lower debt level; assuming that the Government policies would continue to favour the industry, the rating agency said in recent sugar sector update.