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

23 Aug , 2021 By : Kanchan Joshi

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 Rs36/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 Rs515 per share), Dalmia Bharat Sugar (target price Rs650), Triveni Engineering ( Rs270 target price), Dwarikesh sugar (target price Rs110), Dhampur Sugar (target price Rs500), Avadh Sugar (target price Rs685).

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an improvement in fundamentals due to ethanol blending programme, reduction in sugar inventories, the government has withdrawn the buffer subsidy in August 2020.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 Rs34/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.