In Nov 2017, shares of Dhampur Sugar Mills was comfortably trading in the range of Rs 320 plus. As we write, the shares have crashed to Rs 87. Most of the North Indian based sugar companies have seen their share prices coming crashing down.
Balrampur Chini, a stock that was trading at Rs 180 in November is now down to Rs 67 and is trading at a 2-year low. Uttam Sugars, Simbhaoli Sugars, Shree Renuka Sugars are other examples where the share prices have fallen sharply.
Why are sugar stocks falling?
The simple answer is that production has risen over the last few months. The country has produced 23.05mn tonnes of sugar by the end of Feb 2018, in the current season (sugar year 2017-18) against 16.26mn a year ago. That is up by a huge 42% year-on-year.
On the other hand, high cane costs continue to worry sugar producers, most of whom could now report losses. The government has been trying to implement measures. It has levied import duties in Feb 2018 on raw and refined sugar to 100 per cent. The government is also expected to improve norms for exports if the situation worsens for sugar mills.
Sugar prices have already declined to their lowest level in more than 2 years. The cost of production is now higher than the selling price. Many mills have now been forced to sell sugar at very low rates, due to renting and storing issues.
Should you buy sugar stocks now?
It makes very little sense to buy sugar stocks, as a further downside cannot be ruled out. The government is also unlikely to take any major decision, given that there would be elections to a new government in 2019.
Globally too, prices are falling and there is no respite. Investors would need to hold shares of sugar companies for a very long time, in case they want to reap sweet returns.