Most of the sugar stocks have rallied in the range of 5% to 9% as compared to 0.50% rise in the S&P BSE Sensex at 11:00 am. In past one-month, the market value of sugar companies has rallied by up to 62% on the rising sugar prices.
Both varieties of sugar prices recovered at the Vashi wholesale market in Mumbai on Monday following renewed demand from stockists and retailers.
Medium sugar (M-30) closed at Rs 3,890 per quintal, while small sugar (S-30) ended at Rs 3,781 per quintal, their highest level since September 21, 2012. In past two-weeks, the price of M-30 sugar rose by 2.7%, while of S-30 by 2.8% till yesterday.
The rating agency ICRA expects domestic sugar production to decline to 23.0 million MT during sugar year 2017 (SY2017), a decline of around 9% over the previous year. This is largely on account of lower cane availability in Maharashtra and Karnataka due to poor monsoons last year.
In ICRA’s view, sugar prices are expected to remain firm in the near term, given the tight stock position. With the Fair and Remunerative Price (FRP) of cane for SY2017 fixed at the same level as of the previous year and sugar prices on higher side, the profitability of mills based in Maharashtra and Karnataka is likely to improve, however, the extent of increase in absolute levels of profits could be moderated with the decline in the cane availability in these regions.
Margins are likely to come down somewhat from the levels seen in the previous two quarters (April-September 2016) and they are still likely to be satisfactory for most efficient and forward integrated sugar mills over the next two to three quarters, ICRA said in sugar sector report.
The Indian sugar companies are in a sweet spot, as sugar prices have firmed up to Rs35-36 per kg in the domestic market (from the lows of Rs20 per kg in July 2015) due to a demand-supply mismatch in the international market.
The domestic sugar production in SY17 is expected to be flat or marginally lower, as Maharashtra and Karnataka are expected to post lower production vis-à-vis Uttar Pradesh (expected to see improvement in sugar production). This is likely to keep sugar prices stable in the near term - unless there is a sustained improvement in sugar production, said analyst at Sharekhan in recent report.