Sugar stocks trade higher after government approves export subsidy

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Sugar stocks were trading higher in the morning on December 17, a day after the government approved a subsidy of Rs 3,500 crore to mills for the export of 60 lakh tonnes of the sweetener during the ongoing marketing year.

"The cabinet has taken the decision to help farmers directly by depositing money of subsidy into their accounts. The subsidy will be given on 60 lakh tonnes of sugar exports at the rate of Rs 6000 per tonne," Union Minister Prakash Javadekar said during a briefing on December 16.

At 0927 hours, Balrampur Chini Mills was quoting at Rs 182.10, up Rs 4.95, or 2.79 percent, EID Parry (India) was quoting at Rs 350.50, up Rs 8.40, or 2.46 percent and Shree Renuka Sugars was quoting at Rs 13.80, up Rs 0.20, or 1.47 percent on the BSE.

Dhampur Sugar Mills was quoting at Rs 182.80, up Rs 5.20, or 2.93 percent, Sakthi Sugars was quoting at Rs 11.35, up Rs 0.30, or 2.71 percent and Rana Sugars was quoting at Rs 7.95, up Rs 0.40, or 5.30 percent on the BSE.

Both "sugar industry as well as sugarcane farmers are in crisis" because of high domestic production at 310 lakh tonnes as against the annual demand of 260 lakh tonnes, Javadekar said.

In the previous marketing year, 2019-20 (October-September), the government provided a lumpsum export subsidy of Rs 10,448 per tonne, costing the exchequer Rs 6,268 crore.

Mills exported 5.7 million tonnes of sugar against the mandatory quota of 6 million tonnes set for the 2019-20 season, official data shows.

JM Financial said there was a possibility of a correction in global sugar prices with Indian exports would hit the world market. "We maintain our cautious view on the industry due to structural oversupply scenario," it said.

The subsidy announcement removed uncertainty, while the quantum was modest and delicately balanced.

The announcement validated the risk of government policies that could impact sector sentiment. The government had not yet approved the much-awaited increase in MSP of sugar and even the UP government was yet to announce the state-advised price of sugarcane for the current season, it said.

JM Financial maintained "hold" on Balrampur Chini with the target at Rs 180 per share and "buy" on EID Parry with a target at Rs 370 per share.