Sectoral Spotlight: Export relaxation, ethanol story brings sugar sector in focus; Balrampur Chini top pick

Commodity and currency expert Anuj Gupta sees this relaxation as a strong positive for the sugar industry. This along with growing demand for ethanol will likely hold the sector in good stead, Gupta said adding that investors could look to ride this high to maximise their gains.

Gupta, who is Vice President (VP), Commodity and Currency Research at IIFL Securities is bullish on stocks including Balrampur Chini Mills, Dwarikesh Sugar Industries, Dhampur Sugar Mills and Dalmia Bharat.

Over the last five financial years, the cap on sugar exports has varied. In 2018-19, 2019-20, 2020-21 and 2021-22, sugar companies were allowed to export 3.8 million tonnes, 5.9 million tonnes, 7 million tonnes and 11 million tonnes, respectively.

In an exclusive interview to ET Now, Pramod Patwari, Chief Financial Officer (CFO) at Balrampur Chini called the ethanol a big picture story.Throwing some statistics Patwari said that sugar companies purchased around 370 to 375 lakh tonnes of sugarcane from the farmers worth nearly Rs 1.3 lakh crores. Against this, if we take 27.5 million tonnes as the national consumption and average sugar price of around Rs 34-34.50 (as Maharashtra sells at lower price) the annual realisation comes to around Rs 90,000 to 95,000 crore.

So, the gap between 1.30 lakh crore to Rs 90,000-95,000 crores is filled by exports and ethanol. Last year industry supplied almost 400 crore litre of ethanol at an average price of Rs 55 per litre, which translates into Rs 22,000 crore of revenue from the ethanol. So, there lies the big picture, he added.

Patwari also lamented domestic sugar prices not keeping up pace with the international prices. He said that international prices of sugar remain decoupled with the domestic prices. Domestic prices have not really moved up in the last couple of years though the cost has increased significantly in terms of cane price increase, lower yield as well as lower recovery, he told ET Now.The reason behind 6-7 years of high international sugar prices is some sort of physical tightness in the system in terms of availability gaps, Patwari further said.
Stocks to Buy or Hold

Anuj Gupta

— Buy Balrampur Chini at Rs 360-370 with a stop loss of Rs 320 and target of Rs 470.

— Buy Dhampur Sugar between Rs 200 and Rs 210 with a stop loss of Rs 170 and target of Rs 279.

— Buy Dwarikesh Sugar between Rs 75-80 with a stop loss of Rs 60 and target of Rs 105.

— Buy Dalmia Bharat between Rs 320 and 330 with a stop loss of Rs 270 and target of Rs 400.

Nilesh Jain
Technical Analyst Nilesh Jain is positive on Balrampur Chini shares and recommends a buy in the stock for target of Rs 425-Rs 440. He sees up to 10% upside in this stock. He said that the sugar stocks have come back to focus after the government allowed additional sugar exports.

Jain’s advice to investors is to exercise a wait and watch strategy on sugar stocks as he argued that the current traction in them was based on news.

Jain is Assistant Vice President (AVP), Equity Research Technical and Derivatives at Centrum Broking.

The stock has underperformed the broader market Nifty50 by 16% versus negative 4.9% returns returned by the latter.

Sanjiv Bhasin
Market Expert Sanjiv Bhasin recommends Balrampur Chini, EID Parry and DCM Shriram calling them outperformers.

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(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)