Sugar Stocks Rally After Govt Brings Forward Ethanol Blending Target Date

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08 June 2021, New Delhi: Sugar stocks rallied Monday after the government last week advanced the deadline for 20% ethanol blending in petrol by two years to 2023 from 2025.

Rising ethanol demand and aggressive ethanol capacity addition would drive a compounded earnings growth of 15-20% over FY21-24, said analysts who are very bullish on Uttar Pradesh-based sugar companies’ stocks such as Balrampur Chini, Triveni Engineering, Dhampur Sugar,Dalmia Bharat, DCM Shriram Industries and Dwarikesh Sugar.

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“The latest government move can divert a sizeable amount of sugarcane to ethanol production and this should essentially bode well for the sugar industry as the situation of a supply glut will automatically get addressed and will support pricing discipline in the long run,” said Binod Modi, head-strategy, Reliance Securities.

Most of sugar company stocks including Dalmia Bharat Sugar, Dwarikesh Sugar, Bajaj Hindusthan, Dhampur, Shree Renuka and Avadh Sugar rallied between 20% and 40% in the past month and are currently trading at a premium to their five-year average price-earnings (PE).

“We have been extremely bullish on UP-based companies for the last year based on the premise that the ethanol story will pan out well and capacity additions were being built up,” said S Ranganathan, head of research, LKP Securities.

The tight supply situation in the global market has pushed sugar prices to a four-year high. Analysts say global prices may stay firm for the next 3-4 months unless output from other major sugar exporters starts coming in for the next season in 2021-22. With the 20% increase in global sugar prices, India’s sugar industry has been able to complete 90% of the 6 million tonnes exports in the current season. 

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