However, with the surging prices, the government is thinking of controlling this and so the rally in stocks has paused. After hitting a 52-week high in March-April, most stocks of major manufacturers (Balrampur Chini, EID Parry, Dhampur Sugar, etc) are trading lower.
However, analysts feel prices will stay firm, though not rising at the same pace, and that the government is unlikely to take any severe measures to curtail these.
Prices rose because output estimates for production in the current sugar
year (October 2015-September 2016) got continuously lowered. The latest ICRA estimate is for output of 25.5 million tonnes (mt), 10 per cent less than the previous year, mainly driven by drought in Maharashtra, among the largest producing states. Lower production, with export of around two mt, is likely to bring down the closing stock to around 7.6 mt at the end of the sugar
year in September, from 9.5 mt in SY2015.
Thus, with supply under check, prices are likely to remain firm and even gain a bit. Possible government intervention is one reason; millers are also thought to be keen to liquidate stocks to clear their cane payment arrears and reduce their working capital loans.
Overall, with prices likely to remain firm, the financial performance of companies will continue improving for the next few quarters, feel analysts. For instance, Balrampur Chini is likely to see a 233 basis points improvement in operating margin for the march quarter, from the one in December, says financial services company IIFL. For 2015-16, its earnings per share (EPS) are anticipated at Rs 3.5, against a loss of Rs 2.4 in FY15, and to Rs 10.3 in FY17. Return ratios are also likely to improve. EID Parry is likely to see its fully diluted EPS improve from Rs 1.4 in FY16 to Rs 15.5 in FY17, feels ICICI Securities. The return on equity will jump from 1.9 per cent (FY16) to 19.6 per cent in FY17. All this bodes well for stock prices too. ICICI Securities has a target price of Rs 250 for the stock trading at Rs 227 levels.