DAM Capital has initiated coverage on sugar stocks with a 'buy' rating as it expects sugar companies to witness strong earnings growth for financial year 2023-2026. The brokerage firm believes that fast developing EI Nino conditions would further hamper the sugar production, keeping domestic sugar prices above Rs 37/kg. This would benefit Uttar Pradesh sugar companies with higher sustainable prices volume and realisation. Analysts at JM Financial Institutional Securities, too, see significant optimism returning in the sugar sector due to seasonal factors (festival period and hence increase in sugar prices), and growing concerns on India's sugar production estimate for the upcoming season (SS24E).

 

According to the brokerage firm, India production could be around 30mnt (+/- 1mnt), higher than domestic consumption of 28-28.5mnt; hence, the situation is comfortable. The export announcement, if any, will come only post May’24 (once the season is over). "The global prices have rallied to a record high but that is of little consequence for domestic sugar prices, and sugar prices, which have risen sharply in the past 3 weeks, will remain firm though the government will contain any sharp increase given its impact on food inflation apart from implications on impending state/general elections," it said in a recent sector report.

 

The State Advised Price (SAP) for sugarcane is likely in Oct-Nov’23 as we pencil in Rs 150/tonne increase for SS24, and ethanol momentum remains firmly on an upward trajectory, it added. Meanwhile, sugar output in Maharashtra, India's top producing state, is likely to fall 14 per cent in the 2023/24 crop year to its lowest in four years due to lower cane yields following the driest August in more than a century, news agency Reuters has reported. Higher domestic prices will, however, improve margins for producers such as Balrampur Chini, Dwarikesh Sugar, Shree Renuka Sugars and Dalmia Bharat Sugar, helping them makes payments on time to farmers.

 

The Indian government’s target for blending ethanol with petrol has been revised upwards. The current target requires the country to achieve a 20 per cent ethanol blending ratio by 2025 from the 10.02 per cent achieved in ESY 2021-22. To achieve these targets, the government has implemented a range of measures to promote the production and use of ethanol in India. Last week, the Indian government announced the Global Biofuel Alliance at the G20 Summit and urged nations to join the initiative with a plea to increase ethanol blending with petrol globally to 20 percent by reducing reliance on fossil fuels.