Sugar stocks hit upper circuit limits. Here is what’s driving this surge

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New Delhi: Sugar stocks created some buzz in Friday’s session, with multiple stocks hitting upper circuit limits. Industry watcher said they anticipate a spike in sugar prices to Rs 36-37 per kg in the coming months. Domestic brokerage firm ICICI Securities in a report reiterated the positive stance on the sugar sector and said a re-rating is imminent. It is important to note that sugar stocks have run up 2-4 times in four months, the report said.

“The sector has seen a turnaround from being a cyclical to a structural growth story backed by the government’s aggressive ethanol blending programme,” it said. “With aggressive distillery capacity addition in India, sugar companies under our coverage should see strong earnings growth over the next three years.”

and Industries surged 5 per cent each to Rs 78.40 and Rs 475, respectively on Thursday. Magadh Sugar and Energy jumped 4 per cent to Rs 340, whereas EID Parry India gained 2 per cent to Rs 417.70

In June, the government released a roadmap for the ethanol blending programme which clearly set forth all important factors and guidelines for OMCs, auto OEMs, sugar and related industries. “With the government’s programme, increasing molasses and grain-based ethanol capacity is achievable. The industry would divert 6 MT of equivalent sugar toward producing ethanol. This would reduce sugar inventory and drive domestic sugar prices upwards,” ICICI Securities said.

Smaller sugar stocks like Mawana Sugars, Kesar Enterprises,

and Allied Industries, Indian Sucrose, , ,Davangere Sugar Company and Simbhaoli Sugars also hit upper circuit limits of 5 per cent each.

Global sugar prices have moved up 50 per cent in the last one year after two consecutive years of lower sugar output in Thailand. Moreover, despite the ongoing Brazilian crushing season, sugar prices have been firm. “With a massive increase in distillery capacities by sugar firms, ethanol sales are likely to double for most of our coverage companies. Ethanol sales would contribute 25-30% to revenues of major sugar companies by FY24,” the brokerage said. “Despite the huge runup in sugar stocks, we remain positive on the sector.”

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