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DAM Capital initiates coverage on sugar sector; bullish on UP sugar companies

Brokerage firm DAM Capital has initiated coverage on the sugar sector with a highly positive outlook, citing low sugarcane yields in key states. The brokerage, in its latest report, said that the lower sugar yields in Karnataka and Maharashtra have led to a drop in gross sugar production to 37.3 mt in 2022–23.

Further, it believes fast-developing El Nino conditions will hamper sugar production in these states and said this will keep domestic sugar prices above 37/kg. This, according to DAM Capital, will benefit UP sugar companies with higher sustainable sugar volume and higher sugar realisation.

Given the sustainable crop pattern in UP due to the easy availability of water, sugar companies would be the biggest beneficiary of higher sugar prices. Thus, it initiated coverage on Balrampur Chini, Triveni Engineering, Dalmia Bharat Sugar, and Dwarikesh Sugar with a ‘buy’ rating.

Balrampur Chini Mills: The company is the second largest sugar company with a sugar crushing capacity of 78,000 tonnes crushed per day (TCD), a distillery capacity of 1,050 kiloliters per day (KLD), and a co-generation capacity of 175.7 MW.

The company has most of its sugar plants located in eastern Uttar Pradesh, which helps it utilise distillery capacity in the most efficient way. In the last two years, the company has changed the sugarcane variety in its catchment area to reduce the dependence on ageing Co-0238 seed, which would help enhance sugar recovery and reduce the cost of production, stated the brokerage.

The brokerage has a favourable view of Balrampur Chini Mills due to several key factors, including its substantial ethanol production capacity, a growing supply of sugarcane within its operational region, and its agility in adapting to changes in the ethanol-sugar balance. Consequently, it has assigned a ‘buy’ rating to the stock and set a target price of 510 apiece.

Triveni Engineering: It is one of the largest sugar companies in India, with a sugar crushing capacity of 61,000 TCD, a distillery capacity of 660 KLD, and co-generation power of 104.5 MW. It also has a power transmission and waste-water management business contributing 10% to revenues.

The company is increasing its distillery capacity from the current 660 KLD (220 mn litre per annum) to 1100 KLD (320 mn litre per annum) by FY25 to utilise B-heavy, grain, and sugarcane juice route to produce ethanol, it said.

The brokerage stated that the company is well poised to reap the benefit of higher sugar prices, large ethanol capacity addition, and robust engineering business. It has assigned a ‘buy’ rating to Triveni Engineering with a target price of 415 per share.

Dalmia Bharat Sugar: The company is the only sugar company present in UP as well as Maharashtra. It is expanding its distillery capacity from 220 mn litre in FY23 to 320 mn litre by FY25. It is aggressively expanding grain-based ethanol capacity to reap the benefit of the government’s target of 20% ethanol blending with petrol, as highlighted by the brokerage.

DAM Capital believes DBHS would be the beneficiary of an increase in ethanol prices along with higher sugar realisation in the next one year. Thus, it initiated coverage on Dalmia Bharat with a ‘buy’ rating and a target price of 540 apiece.

Dwarikesh Sugar: The brokerage said the company has one of the highest sugar recoveries in UP, which makes it one of the lowest-cost sugar producers in the country. After the completion of distillery capex last year, it is diverting 15-20% of its sugarcane towards juice ethanol, it noted.

The higher ethanol diversion would help the company to produce less sugar and more ethanol during a depressed sugar pricing scenario. Given high sugar prices and the lowest cost of production, the brokerage points out that Dwarikesh Sugar is expected to see strong earnings growth in the next two years.

In light of these factors, DAM Capital initiates coverage on DSL with a ‘buy’ rating and a target price of 120 apiece.

The above news was originally posted on

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