Sugar stocks are making sweet gains in the year 2021. On the BSE, there are about 13 sugar stocks with a market-cap of over Rs 500 crore. Out of these, 8 have already doubled investors' wealth in this calendar year so far. ICICI Direct has 5 of these in its coverage universe with a buy rating. The research firm has a positive outlook on the sugar sector and companies under its coverage.
These 8 sugar stocks rallied over 100% out of which Dalmia Bharat Sugar led the pack with a gain of nearly 200 percent. Dalmia Bharat Sugar, Triveni Engineering, Dwarikesh Sugar, Balrampur Chini Mills, and Avadh Sugar & Energy are also on the "Buy" list of ICICI Direct research.
ICICI Direct research report says: "The sugar industry would be able to export 6-7 million tonnes (MT) in the 2021-22 sugar season without export subsidy, given that the global sugar prices are higher than the cost of production for Indian sugar companies. This would lead sugar inventory levels to come down to below 7 MT by September 2022, keeping sugar prices firm (Rs 34-38/kg). Companies under our coverage universe are undertaking 2-3x increase in distillery capacities, which would improve profitability given B-heavy & sugarcane juice route to produce ethanol is far more profitable compared to sugar & C-heavy ethanol at current prices (parity closer to | 40/kg). Moreover, we believe the uptick in sugar prices at a rational level would add to profitability."
ICICI Direct report stated that sugar stocks are still trading at 6-10x FY23E PE multiples & warrant higher multiples given strong & sustainable profit growth (15-30% CAGR in FY21-24E) in the next three years.
