Systematix Institutional Equities remains positive on the sugar sector, anticipating favorable government policies on ethanol feedstock usage and prices after the election.
The brokerage house has given a buy rating on Balrampur Chini with a target price of Rs 501 a share, Triveni Engineering (target price Rs 421 a share), Dwarikesh Sugars (target price Rs 96 a share) and Praj Industries (target price of Rs 607 a share).
Systematix believes the government remains committed to the 20% blending target, viewing the ethanol policy change as temporary. With ISMA's revised estimate of 8.85 million tonnes of sugar surplus, they expect the government to relax restrictions on juice and B-Heavy molasses next season.
The brokerage expects more cane to be diverted to ethanol, potentially increasing FY25 ethanol volume estimates. Additionally, a positive monsoon forecast could boost sugarcane cultivation.
As of March 31, 2024, millers had higher sugar inventory, impacting working capital and increasing interest expenses. This is expected to improve as inventory is being liquidated. For the 2024-25 season, Systematix anticipates significant improvement in millers' operating performance.
Amid general elections, India’s sugar industry faced policy shifts that increased input costs, unsold inventory, reduced ethanol sales, and lowered capacity utilization. Erratic monsoons and red rot disease also hurt yields, affecting millers' profitability in 4QFY24.
The distillery segment saw a significant decline in profitability due to a 19% YoY drop in volumes and lower plant utilization affecting margins from feedstock mix changes. Sugar segment profitability remained subdued with a 25% YoY decrease in sales volumes, leading the government to reduce sugar release quotas and halt exports. However, stable sugar prices at Rs38/kg (up 6% YoY) mitigated the decline, resulting in improved YoY EBIT per tonne.
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