InvestorQ : Why have sugar companies been rallying in the past few days, especially stocks like Balrampur Chini, EID Parry, Dwarikesh and Dalmia Bharat?
Juvina Maggie made post

Why have sugar companies been rallying in the past few days, especially stocks like Balrampur Chini, EID Parry, Dwarikesh and Dalmia Bharat?

Answer
image
Deepa Salunkhe answered.
8 months ago
Follow

It has been a sharp rally in sugar stocks in the last few days. The only difference is that this time around, the rally in sugar stocks is not about sugar supply, demand or prices. It is about the newly emerging ethanol story. Indian sugar companies may once again be having a sweet time as ethanol comes to their rescue this time around.

In fact, if you look at stocks like Balrampur Chini, EID Parry, Dwarikesh, Dhampur and Dalmia Bharat; they all had rallied by over 7% on Monday and this is a continuation of the trend seen in the last few days. The trigger for the stocks to rally arose after prime minister Narendra Modi announced last week that the target of blending 20% ethanol in petrol would be advanced by a period of 5 years from 2030 to year 2025.

Ethanol is expected to be a key driver for the sugar industry in the coming quarters. Apart from the basic ethanol story, now sugar mills, have more flexibility. This flexibility is with respect to diversion of surplus cane and B-heavy molasses to produce ethanol for blending with petrol. In addition, differentiated pricing for ethanol is also likely to be attractive for most of the sugar manufacturers.

In the past, the government had been subsidizing exports of sugar since the domestic prices of sugar were much higher compared to Brazil and Thailand. This had resulted in the government being forced to give liberal export subsidies to reduce the level of sugar inventories in India so as to support price. But that was not sustainable as it had a cost to the exchequer and also entailed objections from other countries at the WTO.

1 Views