Roll sugar broth; Balrampur, Triveni, Dhampur and Dwarikesh reach new heights


Sugar company stocks were on a roll on Friday with frontline stocks like Balrampur Chini Mills, Triveni Engineering & Industries, Dhampur Sugar Mills, Avadh Sugar & Energy and Dwarikesh Sugar Industries hitting their respective records. Those stocks had climbed as much as 11% each in intraday trading on good prospects and buying from foreign institutional investors (FIIs). By comparison, the S&P BSE Sensex was stable around 55,457 at 2:32 p.m.

With a favorable blend of ethanol to B-heavy/juice (raw material) coupled with higher sugar realizations; sugar companies’ operating margins are expected to improve.

Among individual stocks, Dwarikesh Sugar Mills hit a new high at Rs 129.70 and climbed 9% on BSE. Over the past 10 trading days, the stock has climbed 61% from a level of Rs 80.40 on February 24, 2022.

On March 9, 2022, EAM Emerging Markets Small Cap Fund LP had purchased 1.6 million shares representing 0.85% of Dwarikesh Sugar Mills for Rs 18.58 crore. FIIs bought shares at an average price of 116.04 rupees on the NSE, according to data from the wholesale transaction. The name of the seller was not immediately determined.

In the October to December quarter (Q3FY22), the company reported a near quadruple in profit after tax (PAT) to Rs 28.88 crore, from Rs 7.47 crore in Q3FY21. Total revenue rose 56% year-on-year to Rs 602 crore from Rs 385 crore in the prior year quarter. The sugar segment’s sales growth was driven by the increase in domestic sales quota and the increase in sugar realization.

Meanwhile, the Systematix Shares and Stocks (India) analyst believes that the sugar industry is on the verge of a mega transformation and has become a powerful engine of clean energy, driving India’s shift to energy renewable faster than ever.

Ethanol demand is expected to grow at a CAGR of 15% in FY22-30E, due to the government’s mandate to blend 20% ethanol in gasoline. In addition, greater diversion of cane to ethanol will solve the problem of excess sugar stocks and reduce business volatility. Improved profitability and reduced working capital will ensure higher cash flow, which together with improved RoE/RoCE would lead to a revaluation of the sector, the brokerage said in its February report. .

According to ICRA, with the majority of expanded distillation capacity commercialized in FY23 of the sugar companies, their credit profile would strengthen significantly in FY24, driven by earnings growth, accruals cash flow, the reduction in the intensity of working capital and therefore the reduction in the level of indebtedness; assuming government policies continue to favor the industry, the rating agency said in a recent sugar sector update.

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