Sugar Stocks To Get Sweeter Ahead; Triveni, Avadh Sugars, 4 Others Hit New 1-Year Highs; More Steam To Buy?

In recent times, Indian sugar stocks attracted a bullish bandwagon despite supply shortages fear in the global market. The latest biofuel alliance proposed at the G20 summit is likely to boost the country's sugar industry prospects ahead. Brokerages are bullish on this segment and have recommended buying some of the stocks of the sweetener. On Monday, sugar stocks recorded a sharp rally with Shree Renuka Sugars rising over 7%, and Triveni Engineering & Industries along with five others hitting a new 52-week high. Majority of the stocks currently trading higher from 1% to 7%.

Despite the supply constraints, Religare Broking expects sugar stocks to see fresh upward momentum ahead and has recommended buying four stocks that are trading from Rs 50 to Rs 550 currently.

In its latest report, Religare Broking took into consideration the Equal Weighted Index of Sugar stocks, which comprises of top 10 stocks with market cap ranging from Rs 11,000 crore to Rs 1,500 crore.

According to the brokerage's report, the index witnessed a tremendous rally from March 2020 to April 2022, wherein it surged from 975 to 4523 levels. Post that, it went into a corrective phase for more than one and a half year. It has now registered a decisive breakout from Volatility compression pattern (VCP) which indicates resumption in prior trend.

"Also, it has witnessed a breakout from downsloping resistance trendline and trading well above its key moving averages, adding to the positivity," the brokerage added.

Hence, Religare believes " overall Sugar stocks to attract fresh upward momentum and perform well in the medium term. Technically, our preferred picks are RENUKA, EIDPARRY, BALRAMCHIN, and TRIVENI."

These four companies are the top four sugar stocks in terms of market share. Shree Renuka has an m-cap of nearly Rs 11,809 crore, EID Parry with m-cap of nearly Rs 9,515 crore, Balrampur Chini Mills with m-cap of nearly Rs 8566 crore, and Triveni Engineering with m-cap of nearly Rs 7,767 crore till now. With the latest robust surge, the m-caps are likely to go higher.

Also, JM Financial analyst Achal Lohade in a report on Monday said, "We see significant optimism returning in the sugar sector, thanks to a) seasonal factors (festival period and hence increase in sugar prices), and b) growing concerns on India's sugar production estimate for the upcoming season (SS24E). In our opinion, a) India production could be around 30mnt (+/- 1mnt), higher than domestic consumption of 28-28.5mnt; hence, the situation is comfortable, b) export announcement, if any, will come only post May'24 (once the season is over), c) global prices have rallied to a record high but that is of little consequence for domestic sugar prices, d) sugar prices, which have risen sharply in the past 3 weeks, will remain firm though the government will contain any sharp increase given its impact on food inflation apart from implications on impending state/general elections, e) State Advised Price (SAP) for sugarcane is likely in Oct-Nov'23 as we pencil in Rs 150/ trillion increase for SS24, and f) ethanol momentum remains firmly on an upward trajectory.

Thereby, Lohade continues to remain positive on the sector and maintain BUY on Balrampur Chini with unchanged June'24 target price of Rs 490. On Balrampur Chini Mills, Lohade's note said, " specifically think Balrampur Chini a) is amongst the leading players in the sugar industry with optimal ethanol capacities, b) has shown consistent profit distribution to shareholders (dividend+share buyback), c) has made significant capacity additions in the recent past in distillery segment, and there is scope for further addition, given the increase in cane crushing volume led by industry leading sugarcane development programme."

On Monday, Shree Renuka Sugars' share price hit an intraday high of Rs 55.77 apiece, rallying by 7.3%. While EID Parry (India) jumped nearly 3% with an intraday high of Rs 534.50 apiece compared to the previous closing.

Further, Balrampur Chini Mills stock gained by at least 3.5% with an intraday high of Rs 420.80 apiece which was also closer to its 52-week high level of Rs 430.85 apiece. Meanwhile, Triveni Engineering & Industries hit a new 52-week high of Rs 360 apiece and advanced by 3.2% so far on September 11 trading session.

Other stocks that touched a new 52-week high today are -- Avadh Sugar & Energy touched a fresh 1-year high of Rs 696.35 apiece, Dalmia Bharat Sugar and Industries at Rs 444.85 apiece, Gayatri Sugars at Rs 17.94 apiece, Magadh Sugar & Energy of Rs 700 apiece, Shree Hanuman Sugar & Industries of Rs 8.37 apiece.

On the current performance, Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services said, "Since there is a global consensus on sustainability and renewable energy, the biofuel alliance proposed at the G20 summit is likely to be taken up in right earnest. Since India is the second largest producer of sugar, after Brazil, the Indian sugar industry stands to gain from the decision to increase ethanol blending with petroleum products. Sugar prices have gone up by around 3 percent during the last one month, the prospects for sugar companies have improved. But the good news is already in the price with many sugar stocks trading at 52-week highs."

It is expected that extreme weather conditions in India are likely to restrain the world's second-largest supplier of sugar from shipping to overseas markets.

Bloomberg last week reported that Mauro Virgino, trading intelligence lead at Alvean in an interview said that extreme weather in India will probably keep the world's No. 2 supplier from shipping any sugar overseas for the season starting in October, according to Virgino. Below-average monsoon rains will also probably keep Indian farmers from planting sugar cane, harming future production.

In the minutes of the meeting of the August 2023 policy, RBI said that there has been significant improvement in the progress of the monsoon and kharif sowing in July; however, the impact of the uneven rainfall distribution warrants careful monitoring.

Expecting a spike in headline inflation in the near months, RBI's minutes said that there are risks from the impact of the skewed southwest monsoon so far, a possible El Niño event and upward pressures on global food prices due to geopolitical hostilities. Domestic economic activity is holding up well, supported by domestic demand despite the drag from weak external demand.

Disclaimer:

The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.