Sugar stocks have been in focus as the government brought forward the target date for achieving 20 percent ethanol-blending with petrol by two years to 2023 to help reduce the country's dependence on costly oil imports.
This would encourage sugar companies to further add sugarcane juice and grain-based ethanol capacities, ICICI Securities said. The government is also setting up stiff timelines for auto OEMs to comply with blending requirements. This would be positive for sugar companies, the brokerage said in a report.
Analysts are of the view that the sector is well poised to benefit from, both, global and domestic factors. Tight global demand supply situation, favourable government policies and push for higher ethanol blending in India will keep the inventory under control, they say.
Dilip Bhat, Joint MD at Prabhudas Lilladher in an interview to CNBC-TV18 said, the government's ethenol policy is adding good balance to the sugar companies and ethanol is someting that can turn out to be very profitable. I think the government is going to give more support to ethanol.
"At the current level, stocks like Balrampur Chini and EID Parry look pretty good and solid without any doubt, and can give anywhere between 30-40 percent return over next one and one and half years," he added.
"The outlook for the distillery business appears positive. There is a greater government focus in increasing the blending of ethanol with automotive fuel, increasing to in excess 7.23 per cent today and likely to increase further following Brazil’s example of 48 per cent," the management of Dwarikesh Sugar Industries said in its annual report for financial year 2020-21 (FY21).
With the government's move for achieving 20 percent ethanol-blending with petrol which will help sugar companies to further add sugarcane juice and grain-based ethanol capacities, share price of sugar companies rallied intraday on June 28 with Shree Renuka Sugars hitting 5 percent upper circuit followed by Bajaj Hindustan, Rana Sugar, KM Sugar Mills, Mawana Sugar, Uttam Sugar, KCP Sugar, Sakthi Sugar, Ponni Sugars and Rajshree Sugars all hitting upper circuit on BSE.
Share of Shree Renuka Sugars hit upper circuit on BSE after the company announced that it will invest Rs 450 crore to expand its ethanol capacity.
"Considering the huge untapped demand for ethanol due to the policies of Government of India on ethanol blending, the Board of Directors of the company approved further capacity expansion for ethanol production from 970-kilo litre per day to 1,400-kilo litre per day," the company said.
Dhampur Sugar Mills share price jumped over 6 percent hitting new high on BSE. The stock more than doubled investors’ wealth so far in 2021 compared to over 13 percent rise seen in the Nifty50 in the same period.Disclaimer: The views and investment tips expressed by experts on moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.