Sugar stocks: Sugar stocks could continue their rally after the surge in ethanol

Mumbai: Sugar stocks are set to continue the bullish momentum of the past two weeks as the domestic policy framework for the sweetener is supportive, with New Delhi continuing to push the Ethanol Blending Program (EBP) to help offset any excesses supply and reduce import bills. gained 20% over the past two weeks, while EID Parry, Triveni Engineering, Dalmia Bharat Sugar and rallied over 15%. Dwarikesh Sugar, Avadh Sugar and Uttam Sugar Mills have jumped 34%, 37% and 27% respectively in the past two weeks.

“With Karnataka, the country’s third-largest sugar-producing state, also keen to join the ethanol push, we believe the current season also bodes well for sugar companies when it comes to ethanol sales despite a 75% increase in ethanol revenue over the past season,” said S Ranganathan, head of research at LKP Securities.

“In addition to improving sugar mills’ balance sheet and cash flow, increased ethanol sales also ensure timely payment of cane duties to farmers and balance sugar inventories. We also remain optimistic for the sector for CY2022,” he added.

Oil marketing companies have already contracted for 3.69 billion liters of ethanol for the current marketing year (December-November). An additional 0.94 billion liters will be contracted in the coming weeks. Meanwhile, domestic and global sugar prices remained firm, with sugar production in India reaching 11.6 million tonnes through December.

“We remain optimistic on the sugar sector as government policies on the price of sugar cane, MSP, buffer stock, export subsidies and ethanol prices would ensure the survival of the weak,” said Achal Lohade, analyst at JM Financial Services. “Well run sugar companies could generate huge profits/cash flow in the process.”

“We believe that ethanol prices are currently significantly higher than gasoline and alcohol import parity prices, as the government pursues a dual objective of diverting surplus sugar to ethanol and reducing emissions. carbon emissions and dependence on crude imports,” he added.

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