Sugar stocks jump on pressure from ethanol, analysts see more upside

MUMBAI: Shares of sugar producers were among the top gainers on exchanges on Friday after the government said the industry will be allowed to use sugarcane juice or syrup to produce ethanol from November 1. There is an upside potential for these stocks as the move will boost the company’s revenue. 35 of the 37 sugar stocks listed on the BSE closed higher on Friday. Shares of Triveni Engineering jumped 8.6%. EID Perry, Balrampur Chinese, Sri Renuka Sugars, Dalmia Bharat Sugar, DCM Sriram, Awadh Sugar & Energy and Dhampur Sugar Mills rose between 1.9% and 7.5% on Friday.

The government’s notification removes the existing limitation on diversion of sugar for ethanol production. Research analyst T Manish said, “Since ethanol is a high-yielding product, removal of this cap will help sugar mills and distilleries to produce more ethanol and directly improve their revenue mix, which will improve cash flow and stabilize the sugar industry. ” , Semco Securities.

In an effort to achieve the target of E20 (a blend of 20% ethanol in petrol) by 2025, the government has lifted the cap on ethanol production. Manish said that by 2022-23, the percentage of ethanol blended in petrol was 12.01%.

“Earlier the sector was not in the limelight but now things are picking up and we are seeing a gradual recovery in sugar stocks,” said Dharmesh Shah, head of technical research at ICICI Direct.

Shah’s top picks in this sector are Balrampur Chinese Mills and Dalmia Bharat Sugar.

Several sugar stocks such as EID Perry, Balrampur Chinese Mills, Triveni Engineering and DCM Sriram have jumped between 31% and 49% so far in 2024, outperforming the benchmark BSE Smallcap and BSE 500 which have gained 31.3% and 21.9% respectively this year. is

“Sugar prices are hitting a 12-month high, prompting companies to sustain their levels before the cap is lifted,” said Sandip Sabharwal, founder of investment advisory asksandipsabharwal.com. “Since the announcement comes a month before the start of the sugar season, companies can plan well in advance to apply for tenders and plan ethanol supply, which will improve cash flow.”