Sugar stocks rally as prices hit six-year high; Avadh Sugar zooms nearly 12%

An increase in sugar prices boosted the demand for sugar stocks in Wednesday's trading session. According to a Reuters report, sugar prices in India have jumped by more than 3 per cent in a fortnight to their highest level in six years.

All sugar stocks were trading in green in the afternoon trade. Among individual names, Avadh Sugar was up nearly 12 per cent, Dalmia Bharat Sugar and Industries Ltd was up over 6 per cent, Dhampur Sugar Mills shares were up over 5 per cent, Shree Renuka Sugars was up over 5 per cent, and Sakthi Sugars was up nearly 5 per cent in the last hour of the trade.

Meanwhile, EID-Parry India traded over 7 per cent, KCP Sugar and Industries Corporation shares were up over 4 per cent, Rana Sugar was up over 4 per cent, Magadh Sugar and Energy was up over 4 per cent, Triveni Engineering and Industries shares were up over 3 per cent, Bajaj Hindusthan was up over 3 per cent, and Rajshree Sugar gained over 2 per cent.

Why are sugar prices increasing?

According to a Reuters report, limited rainfall in the country's key growing regions raised production concerns for the upcoming season, which could add to food inflation and discourage the government from allowing sugar exports, supporting global prices, which are near their highest in more than a decade.

The report added that higher prices will improve margins for producers such as Balrampur Chini, Dwarikesh Sugar, Shree Renuka Sugars, and Dalmia Bharat Sugar, helping them make payments on time to farmers.

Brokerages' views

Systematix has retained a positive stance on the sugar sector for the following reasons:

- This hike should offset the higher cost of damaged grains, with the remunerative ethanol prices boosting sugar companies’ earnings;

- A higher ethanol contribution and firmer sugar prices would cumulatively drive the profitability of sugar companies.

According to Shivangi Sarda, Derivatives & Quantitative Research Analyst, Motilal Oswal Ltd, the sugar space is very volatile and there is a lot of upswing due to many factors. 

According to Shivangi Sarda, Derivatives & Quantitative Research Analyst, Motilal Oswal Ltd, the sugar space is very volatile and there is a lot of upswing due to many factors.

"Export ban on sugar by government and elections are some factors that will cap the sugar prices in India. The rally in the sugar stock is short term," said Sunny Agrawal, Head of Fundamental Equity Research Team of SBICAPS Securities Ltd.

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