ICICI Securities has 'Buy' on these sugar stocks, sees upto 50% upside

The brokerage believes margins in the sugar business would move up despite expected hike in sugarcane prices in UP

2 min read . Updated: 23 Aug 2021, 09:12 AM IST Livemint

The brokerage believes the uptick in sugar prices at a rational level would add to profitability and maintains its positive stance on the sugar sector

Domestic brokerage and research firm ICICI Direct in a report said that it has maintained its positive stance on the sugar sector and believes that the uptick in sugar prices at a rational level would add to profitability. Global sugar prices have crossed US cents 20/lb while simultaneously domestic prices have also moved up to ₹36/kg (UP).

“Our view on sugar prices has been materialising. We maintain our stance that the sugar industry would be able to export 6-7 million tonnes (MT) of sugar in the 2021-22 sugar season without export subsidy given global sugar prices are higher than cost of production for Indian sugar companies," the brokerage said.

ICICIDirect has a Buy on these sugar stocks, with upto 50% upside seen: Balrampur Chini (target price of ₹515 per share), Dalmia Bharat Sugar (target price ₹650), Triveni Engineering ( ₹270 target price), Dwarikesh sugar (target price ₹110), Dhampur Sugar (target price ₹500), Avadh Sugar (target price ₹685).

The brokerage said that the government has supported the sugar industry through temporary measures (buffer subsidy, MSP, export subsidy) in the last three years. "With an improvement in fundamentals due to ethanol blending programme, reduction in sugar inventories, the government has withdrawn the buffer subsidy in August 2020. Moreover, with global sugar prices inching up to above cost of production, it may not continue the export subsidy in the 2021-22 sugar season as sugar millers can export without government support. Further, we believe domestic prices would remain firm above ₹34/kg, which makes minimum selling price (MSP) irrelevant in present context," it added.

The progress of the ethanol blending programme is faster than its expectations, therefore, ICICIDirect believes ethanol blending would cross 10% by November 2022 given sugar companies are increasing distillery capacity 2-3x in the next two years.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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