Sugar stocks have experienced a significant rally, with some rising as much as 13% in Friday’s intraday trading on the Bombay Stock Exchange (BSE). This surge comes in the wake of the Indian government’s decision to remove the cap on sugar diversion for ethanol production for the 2024-25 Ethanol Supply Year (ESY), which runs from December to November. The policy shift has been seen as a positive move for the industry, allowing greater flexibility for sugar mills and distilleries in ethanol production, which is expected to have a favorable impact on sugar stocks.
As part of the new guidelines, sugar mills and distilleries are now permitted to produce ethanol from a variety of sources, including sugarcane juice or syrup, B-Heavy molasses, and C-Heavy molasses during ESY 2024-25. These production activities will be carried out under the terms of agreements with oil marketing companies, ensuring a structured and regulated approach to ethanol production. This policy change is expected to increase ethanol output, benefiting both the sugar industry and the government’s ethanol blending program.
Sugar Stocks Rally on BSE
Following the announcement, several sugar stocks saw a substantial rise. Notably, Dalmia Bharat Sugar and Industries surged by 13% to Rs 497.40, marking a significant gain. Shree Renuka Sugars and Avadh Sugar & Energy also saw their shares rise by 10%, reaching Rs 52.01 and Rs 774.15, respectively. Triveni Engineering & Industries followed with a 9% increase to Rs 479, while Balrampur Chini Mills climbed 8% to Rs 625.85. Dhampur Sugar Mills also saw a 9% rise to Rs 228.85, and Dwarikesh Sugar Industries gained 8%, reaching Rs 79.40. EID Parry (India) wasn’t left behind, with its shares increasing by 7.5% to Rs 875.45. This collective surge in sugar stocks reflects investor optimism following the government’s policy shift.
In comparison to these substantial gains in sugar stocks, the BSE Sensex saw a modest increase of 0.33%, rising to 82,406 by 09:29 AM. The sharp contrast in performance between sugar stocks and the broader market highlights the significant impact of the government’s decision on this specific sector.
Government Policy and Future Outlook for Sugar Stocks
The government’s notification regarding the removal of the cap on sugar diversion for ethanol production is seen as a strategic move to enhance the ethanol blending program. This initiative is part of the broader goal to increase the use of renewable energy sources and reduce dependency on fossil fuels. The ability to produce ethanol from diverse sources like sugarcane juice, B-Heavy molasses, and C-Heavy molasses provides sugar mills with more avenues to optimize their operations and profitability.
In addition to lifting the cap on ethanol production, the government has proposed a significant change in the sugar industry’s regulatory framework. According to a report by The Economic Times, the government is considering allowing the sale of raw sugar in the domestic market. This proposal, part of the draft ‘Sugar (Control) Order, 2024’ issued by the Ministry of Consumer Affairs, Food, and Public Distribution, would overturn a regulation that has been in place for over six decades, which restricted raw sugar sales exclusively for export. If implemented, this could open up new revenue streams for sugar producers and further boost sugar stocks.
As of September 30, 2024, India’s sugar inventory is expected to be around 8.55 million tonnes, with an anticipated production of 32 million tonnes (before diversion) for the Sugar Season (SS) 2024-25. With domestic consumption estimated at 29 million tonnes, the government appears to have ample flexibility to continue the ethanol blending program under the Juice & B-Heavy routes without imposing any limitations, as was the case in the previous year. The closing stock of 5.5 million tonnes is considered sufficient to meet domestic demand, leaving room for potential exports.
In a recent report, Sharekhan highlighted that a normal monsoon is expected, which could positively influence the industry. The firm anticipates favorable updates in the Ethanol Policy for ESY 2024-25 and the Export Policy for SS 2024-25. These developments are likely to sustain the current momentum in sugar stocks, providing further growth opportunities for investors.
Individual Stock Performance and Market Expectations
Among individual stocks, Balrampur Chini Mills hit a new high of Rs 625.85, driven by an 8% surge amid heavy trading volumes. The company’s management has expressed optimism about the future, particularly if the current projections for sugar production, consumption, and inventory hold true. They believe that, based on historical data and the government’s responses to such data, there could be announcements regarding sugar exports midway through the season. This potential for exports, combined with the government’s supportive policies, is likely to keep sugar stocks buoyant in the near term.
In summary, the recent rally in sugar stocks can be attributed to the government’s proactive measures to support the ethanol blending program and the broader sugar industry. By lifting the cap on ethanol production and proposing changes to long-standing regulations, the government has created a more favorable environment for sugar producers. As the market reacts to these developments, sugar stocks are likely to remain in focus, offering investors opportunities for growth.
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