Sugar stocks are on a high, fueled by anticipation of favorable measures in the upcoming Union Budget. The industry is optimistic about potential policy changes, including lifting the export ban on sugar, increasing the Minimum Support Price (MSP), and permitting the use of sugar syrup for ethanol production.
Deepak Ballani, Director General of the Indian Sugar & Bio-Energy Manufacturers Association (ISMA), said, “The Sugar industry is optimistic and looks forward to the upcoming budget for the Sugar and Bioenergy Sector in India."
Most sugar stocks have gained in the run-up to the Union Budget. KCP Sugar, Shree Renuka Sugars, Balrampur Chini, Rana Sugars, Bajaj Hindusthan Sugar, EID Parry, Triveni Engineering and Industries, and Ponni Sugars (Erode) have gained between 2-18 percent in the past one month alone. In the same period, Ugar Sugar and Simbhaoli Sugars saw a decline of 3 and 4.5 percent, respectively.
The sugar industry is also advocating for a higher procurement price for ethanol, and a longer term policy for sugar import-export and ethanol production.
Also Read | Hopes of MSP hike and ethanol policy adjustments drive sugar stocks higher
The Cabinet Committee on Economic Affairs has already set the Fair and Remunerative Price (FRP) payable by sugar factories to sugarcane farmers at Rs 340 per quintal for the 2024-25 sugar season, which is nearly 8 percent more than the FRP for the previous season. The updated FRP will take effect from October 1.
The government's initial MSP for sugar, set at Rs 29 per kg in 2018 and raised to Rs 31 per kg in 2019, is also overdue for another upward revision, Centrum Broking said in a recent research note. Although current market prices are higher than the MSP (Rs 36 in Maharashtra and Rs 39 per kg in UP), raising the MSP would establish a baseline and boost investor confidence in companies, the brokerage pointed out.
Despite industry associations' requests for an increase in the minimum support price (MSP) of sugar and the resumption of exports, Elara Securities does not anticipate any action from the government in the next 5-6 months. The brokerage said that MSP is unlikely to increase as sugar prices are resilient and overall company profitability remains strong.
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Elara Securities maintains a neutral view on the sugar sector in the short term due to the expected earnings strain in H1FY25. However, it retains a positive stance in the medium-to-long term, driven by the ongoing Ethanol Blending Program (EBP).
The EBP program is an initiative by the Government of India to encourage the use of ethanol in petrol, thus reducing fuel imports, conserve foreign exchange, and enhance value addition in the industry.
Ballani said that the focus will be on stabilising sugarcane production to meet EBP targets by proposing to leverage existing government schemes with a budget allocation of Rs 37,996 crore for 2024-29. "This will help to enhance sugarcane yield and expand cultivation areas,” he said.
In a research report, DAM Capital said that any permanent changes in ethanol blending policy or molasses quota obligations could dampen sentiment in sugar stocks.
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