Farmer protest, delay in crushing pull sugar stocks down

Sugar mills in Uttar Pradesh are yet to begin crushing for this season, which typically begins in November, due to non-availability of raw materials. Reports suggest that sugar mill owners have agreed to pay Rs 180 per quintal for sugarcane, which is Rs 50 higher than the fair and renumerative price fixed at Rs 129.84 per quintal. Farmers are demanding Rs 280 per quintal and have stopped supplies in anticipation of a higher price.

Meanwhile, Parliament was adjourned on the first day of its winter session due to protests by opposition parties against the Centre's sugarcane price move that discourages states from fixing higher prices. Thousands of farmers protested in Delhi against the low, state-controlled sugarcane price. The protests highlights the rural discontent over the government's sugar ordinance. Raw-sugar prices have almost doubled this year, with future contracts recording a 28-year high in September.

Sugar stocks tumbled on news of a delay in the crushing season and protest by farmers outside Parliament. Bajaj Hindusthan, Balrampur Chini, Dhampur Sugar, Dharani Sugars, Dwarikesh Sugar, Shree Renuka, and Triveni Engineering fell 5-8%. Andhra Sugar, EID Parry, KCP Sugar, Oudh Sugar Mill, Ponni Sugars (E), Simbhaoli Sugar, Upper Ganges Sugar, and Uttam Sugar were down 2-4%.

Ambareesh Baliga of Karvy Stock Broking says the risk-reward ratio is not in favour of sugar stocks. "If you assume that the sugar prices will move up 10-15% from here, Balrampur Chini or Bajaj Hindusthan could possibly move another 10-15% more from here. But if you see the sugar prices coming down 20% over the next 4-5 months, these stocks will crash by more than 30-40% because the good news is already there in stock prices. Sugar prices move in cycles and this is clearly a cyclical industry. We have seen a good part of that over the last 6-8 months. Going ahead, whatever adverse news comes, it will actually batter these stocks."