According to Crisil, sugar offtake in the current sugar season (SS 2020; October 2019-September 2020) is expected to remain around te same levels seen during the last season levels despite the Covid-19 pandemic. The optimism is due to buoyant exports. The rating firm expects over 30 per cent spurt in sugar exports to nearly 5 million tonne in SS 2020 due to lower production in Thailand. Other key countries which import sugar from India include Kenya, Bangladesh, Afghanistan, and Iran.
That apart, analysts with Elara Capital note that the five-year ethanol contract from the oil marketing companies (OMCs) will be a big positive. "In our view, this is a major positive for the sugar industry as it provides them with long-term demand visibility. Until last year, OMC issued tenders valid only for one year," the brokerage said. Through this tender, OMCs have invited indigenous manufacturers to bid to supply from December 2020 until November 2025.
"We believe the industry will produce adequate sugar to meet domestic demand while excess cane will move toward producing ethanol. Higher contribution from ethanol would drive profitability while firm sugar prices would further aid earnings. We retain our positive stance on the sector," wrote Pratik Tholiya, an analyst at the brokerage firm.
Among the lot, Elara is bullish on Balrampur Chini given its new 160-kilo litre per day (KLPD) distillery commissioned in January, 2020, free cash generation of Rs 13.5 billion over FY21-22E and expected new downstream capital expenditure (capex).