Strong sugar cos to benefit from export subsidy

MUMBAI: Sugar stocks ended on a mixed note in response to the government announcing an export subsidy Rs 5833 per tonne, which was more or less priced in by the market. Analysts said, however, that companies with strong balance sheets and better cane to sugar conversion ratio would outperform peers, as the move would put a lid on rising inventory levels.

Balrampur Chini closed down 3% at Rs 176.5, Dhampur Sugar was down almost a percent at Rs 177.70 while Triveni ended three fifths of a percent lower at Rs 78.45. Renuka Sugars was up 2.6% at Rs 13.75 and Eid Parry closed up 1.4% at Rs 342. Bannari Amman Sugars closed flat at Rs 1450.

The government said farmers who were owed arrears by the sugar mills would directly benefit as the subsidy amount of Rs 3500 crore for the current sugar year would be credited to their accounts .

“Sugar prices internationally have moved up by 8-10% over the past few months, and the subsidy will help the likes of Balarampur Chini, Dhampur Sugar Mills and Triveni Engineering, whose conversion ratios (cane to sugar) have been increasing and whose balance sheets are getting more robust, especially north based big mills,” said Kaustubh Pawaskar, AVP, research, Sharekhan by BNP Paribas. “As important is the fact that inventory levels would be maintained, which would cushion prices.”

Vishal Wagh, research head, Bonanza Portfolio Ltd, said that Balrampur Chini would enter a “new orbit” if it surpassed Its January 2020 high of Rs 194. He said Renuka Sugars could rise to around Rs 21 from the current level as it had given a break- out.

“While we were hoping for a Rs 7500 crore subsidy, the international rate has risen and all-in-all, its a step in the right direction,” said Vivek Saraogi, MD, Balrampur Chini.

Atul Chaturvedi, executive chairman, Renuka Sugars, said the move was “welcome” , given higher sugar production of 31 mn tonnes estimated in the current year . Last year’s output was 27 mn tonnes . Domestic consumption is around 26 mn tonnes and carry forward stock at 10.5 mn tonnes.