Shares of sugar companies were among the top gainers on Monday on news reports the government may allow higher exports in January.  
The government’s decision over the weekend to reduce the Goods and Services Tax (GST) on ethanol for blending with petrol to 5% from 18% also boosted sentiment. Ethanol is a biofuel derived from sugar. 
Dalmia Sugar soared 14. 3%, Dhampur Sugar jumped 11. 7%, Bajaj Hindusthan rose 10% and Shree Renuka Sugar gained 5. 2% on Monday. 
“Sugar stocks are on the rise be-cause of the likelihood of additional exports, possibility of more use of ethanol and recent strength in international prices,” said Hemang Jani, head, equity strategy, broking and distribution, Motilal Oswal Financial Services. He is bullish on Balrampur Chini, Triveni Engineering and Praj Industries, an ethanol plant maker. 
Balrampur Chini shares declined 0. 4%, while Triveni advanced 2% and Praj gained 1. 2% on Monday. 
Sugar stocks had spiked on Friday after food secretary Sanjeev Chopra said the government will consider an increase in exports in January after assessing the domestic production of sugar. 
“If the government allows additional sugar exports, it will be a big boost for the profitability of many of the domestic companies,” said Kranthi Bathini, equity strategist at WealthMills Securities. “While domestic price controls will be there, higher exports are good news for the sector. ”
Bathini expects shares of sugarcompanies to gain at least 15-20% from the current levels. Like Jani, he is most bullish on the sector leader Balrampur Chinni. India aims to double ethanol blending with petrol to 20% by 2025 from the current 10%. 
“We believe this is a positive development, which is likely to boost government target of ethanol blending to 20% by 2025,” said brokerage Prabhudas Lilladher, which recommended a buy rating on Praj. “Thereby, likely to benefit ethanol manufacturers and ethanol plant manufacturers such as Praj Industries. ” It has set a price target of ₹520 on the stock, implying an upside of almost 39%. 
“If you are betting on the sugar price strength, it would be better to have a short-term optimistic outlook on the sector. If your optimism is around ethanol blending, then you could buy these stocks for the long-term,” said Jani. 
Some analysts warned that export quota relaxations, reduction in GST rates for ethanol production, and early forecasts of production shortfall were only shortterm triggers. 

Stocks of sugar firms rally further

Sugar company stocks have rallied up to 20 per cent on hopes of the government enhancing export quota after assessing the domestic production numbers in January and advancement in availability of ethanol-blended petrol at retail outlets.

Companies such as Dalmia Bharat Sugar and Industries rallied 14 per cent to ₹420, while Rajshree Sugar & Chemicals and Sakthi Sugars were up 20 per cent and 15 per cent to ₹67 and ₹33 on the BSE on Monday.

The government plans to launch 20 per cent ethanol-blended fuel and it will be available at select outlets from next month.

“We have achieved 10 per cent blending of petrol in June, which was well ahead of the November deadline. We have also accelerated efforts to reach the ambitious goal of 20-per cent ethanol blending by 2025-26. In fact, it will be available at selected outlets from next month,” Hardeep Singh Puri, Petroleum Minister, had said at the curtain raiser of the India Energy Week 2023 event last Friday.

K Dileep, Head - PMS, Geojit Financial Services, said sugar stocks reacted to the government plans to advance 20-per cent blending ethanol with petrol from December 2022/January 2023 against earlier plan to start from April 2023.

Sugar exports

In November, the government allowed the export of 60 lakh tonne of sugar for the 2022-23 marketing year (October-September). India exported a record 111 lakh tonne of sugar in the 2021-22 marketing year and earned about ₹40,000-crore foreign exchange besides becoming the world’s second largest exporter of sugar.

India produces about 320-360 lakh tonne of sugar a year against the domestic consumption of 260 lakh tonne. This results in huge carry-over stock of sugar with mills. The huge inventory leads to blockage of funds and delays payment of cane dues to farmers.

As per Indian Sugar Mills Association’s estimates, the total production is expected to be the highest ever at 410 lakh tonne (before diversion for ethanol) in the 2022-23 marketing year.

Sugar production has increased 5 per cent to 82 lakh tonne between October and December 15, while mills have contracted to export 45-50 lakh tonnes of sweetener.

Manish Chowdhury, Head of Research, Stoxbox, said sugar stocks have rallied amid hopes that the government may allow additional sugar exports which would help absorb the additional supply expected.

“We believe that there is a structural shift in the sugar sector towards ethanol and any additional supply would be diverted towards it,” he added.