Sugar stocks in focus; Uttam Sugar, Dwarikesh, Dhampur Sugar surge over 10%

From the 2018-19 sugarcane season starting October, the Centre not only increased the base recovery rate from 9.5 to 10 per cent, but also raised the premium extra yield in sugar from Rs 2.68 per quintal to Rs 2.75 a quintal
Shares of sugar companies have rallied by up to 19% on the BSE on back of heavy volumes in an otherwise weak market. Uttam Sugar Mills, Dhampur Sugar Mills, Dwarikesh Sugar Industries, Thiru Arooran Sugars, KCP Sugar & Industries and Bajaj Hindustan Sugar were up in the range of 10% to 19% on the BSE. At 11:13 am; the S&P BSE Sensex was trading 0.21% lower at 34,404 points.

In past one month most of the sugar companies have outperformed the market by surging up to 70% against 10% decline in the benchmark index.

The Cabinet Committee on Economic Affairs (CCEA) has approved a comprehensive policy package of Rs 55 billion on 26th September 2018, to improve the liquidity of sugar mills and provide assistance for clearing cane arrears, which stand at Rs 130 billion for sugar season (SS) 2017-18.

Due to depressed market sentiments and crash in sugar prices, the liquidity position of sugar mills was adversely affected in the sugar season 2017-18 leading to accumulation of cane price dues of sugarcane farmers which reached an alarming level of about Rs 220 billion in May 2018, highest in the last five years.

In order to stabilize sugar prices at a reasonable level and to improve the liquidity position of the mills thereby enabling them to clear the cane price arrears of farmers, for the current sugar season 2017-18, Central Government took the slew of measures in past six months. In last month, the government increased prices of Ethanol produced from B heavy molasses and cane juice to Rs 52.6 per litre and Rs 59.2 per litre respectively, from the previous Rs 47.3 litre.

“However, in SS 2018-19, with the export quota announced well in advance and a slew of measures including raw material subsidy and transport subsidy, exports are expected to get a boost,” CRISIL Research said in recent report.

Integrated mills typically earn higher margins than standalone sugar mills owing to the better operational economics of their distilleries and power segments with revenues from the distillery and power segments accounting for 9-10% each of overall revenues.

CRISIL expects EBITDA margins for its sample set of 24 companies (large proportion being integrated public listed entities) to improve to 600-800 bps in SS2018-19 from (5)-(7)% expected earlier to 0-2% in SS 2018-19.

COMPANY LATEST PREV CLOSE GAIN(%)
UTTAM SUG.MILLS 111.70 95.80 16.60
THIRU AROOR. SU. 27.45 24.10 13.90
DHAMPUR SUGAR 143.55 126.35 13.61
DWARIKESH SUGAR 25.85 22.95 12.64
BAJAJ HINDUSTHAN 9.70 8.65 12.14
KCP SUGAR &INDS. 21.10 19.05 10.76
DALMIA BHARAT 74.55 68.30 9.15
TRIVEN.ENGG.IND. 43.10 39.65 8.70
BANNARI AMM.SUG. 1541.95 1431.00 7.75
BALRAMPUR CHINI 83.55 77.65 7.60
DCM SHRIRAM INDS 172.10 161.30 6.70
SH.RENUKA SUGAR 12.41 11.82 4.99
AVADH SUGAR 406.10 386.80 4.99
UGAR SUGAR WORKS 14.15 13.48 4.97
DHAMPUR.SPL.SUG. 10.77 10.26 4.97
SAKTHI SUGARS 12.95 12.34 4.94
KM SUGAR MILLS 9.77 9.31 4.94
MAWANA SUGARS 51.05 48.65 4.93
SIMBHAOLI SUGAR 11.95 11.39 4.92
RANA SUGARS 3.87 3.69 4.88



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