Sugar stocks extend rally; Uttam, Dhampur Sugar gain over 50% in one month

Diverting sugarcane juice for making ethanol is a common practice across the world
Shares of sugar companies such as Uttam Sugar Mills, DCM Shriram Industries, Dalmia Bharat Sugar and Industries, Avadh Sugar & Energy, Dwarikesh Sugar Industries, Mawana Sugars and Ugar Sugar Works rallied up to 16 per cent on Thursday in the intra-day trade on the back of positive development in the sector. In comparison, the S&P BSE Sensex was up 0.20 per cent at 35,977 levels at 02:51 pm.

The hike in minimum selling price of sugar by 7 per cent to Rs 31 per kg from Rs 29 per kg, approved by the union cabinet recently, is expected to address the profitability and liquidity issues of sugar mills, and ease their cash crunch, thereby enabling payment of accumulated arrears to sugarcane farmers.

The hike, though, would be applicable to only the seven-and-a-half months remaining in sugar season (SS) 2019, which extends from October to September.

Given this, the rating agency CRISIL estimates the rise in domestic sugar prices to add Rs 3,200-3,400 crore to millers’ cash-flows.  An increase in international sugar prices would add further Rs 100-200 crore, taking the total fillip this season to Rs 3,400-3,600 crore. Even standalone mills are expected to break even in SS 2019, given the pick-up in sugar prices.

According to rating agency Ebitda earnings before interest, taxation, depreciation and ammortisation) margins expected to improve by 200-300 basis points for mills in the north and by 300-400 basis points (bps) for those in the south, given that cost of cane is lower in the south. However, stagnant cane costs and higher sugar prices would enable mills in the north to make higher margins compared with their southern peers.

With the expected increase in profitability and cash generation, liquidity and debt metrics of millers are likely to improve in fiscal 2020. For instance, the debt-to-EBITDA ratio of CRISIL-rated sugar mills is expected to marginally improve to about 4-4.5 times in fiscal 2020 compared with the estimate of around 5 times for fiscal 2019, it added.

According to PTI report, Indian Sugar Exim Corporation Ltd (ISEC) MD and CEO Adhir Jha said it has exported 2 lakh tonnes of sugar so far in 2018-19 on behalf of mills and is exploring the possibility of exporting sugar to Iran, which is facing sanctions from the US. CLICK HERE TO READ FULL REPORT

In the past one month, Uttam Sugar Mills (up 72 per cent) and Dhampur Sugar Mills (up 52 per cent) have rallied more than 50 per cent each on the BSE. Magadh Sugar, Avadh Sugar & Energy, Dalmia Bharat Sugar and Industries, Balrampur Chini Mills and Dwarikesh Sugar Industries, Triveni Engineering & Industries were up in the range of 30 to 46 per cent. In comparison, the benchmark S&P BSE Sensex was up 1 per cent during the same period.

UTTAM SUG.MILLS 143.50 84.95 68.92
DHAMPUR SUGAR 239.05 158.25 51.06
MAGADH SUGAR 127.45 86.45 47.43
AVADH SUGAR 484.90 344.35 40.82
DALMIA BHARAT 121.30 89.85 35.00
BALRAMPUR CHINI 130.85 98.60 32.71
DHAMPUR.SPL.SUG. 15.85 12.05 31.54
TRIVEN.ENGG.IND. 54.80 42.05 30.32
DWARIKESH SUGAR 28.75 22.25 29.21
GAYATRI SUGARS 3.48 2.78 25.18
UGAR SUGAR WORKS 15.60 12.85 21.40
KM SUGAR MILLS 9.10 7.80 16.67

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