The Hindu Business Line : Sugar cos continue to rule firm

BACKED by firm sugar prices and a perception that the industry is poised to witness consolidation saw the stock of most sugar companies continue to rule firm in an other wise volatile market.

Brokers said that reports of Bajaj Hindustan emerging as the frontrunner in the race to acquire 24 sugar mills from the Uttar Pradesh Sugar Corporation has only strengthened the theory of `bigger is better'.

"Since size and recovery is of prime importance in this industry to achieve global scales, there is a belief that the industry will further consolidate going forward. As such there is a belief that efficient players like Balrampur Chini, Bajaj Hindustan etc are likely to seize the opportunity as and when they arise," said a market source.

While the stock of Balrampur Chini, which opened on a strong note and hit a high of Rs 441.20 intra-day, ended the day marginally weak in keeping with the overall market trend, sugar stocks such as Bajaj Hindustan, Upper Ganges Sugar and Simbhaoli Sugar hit the five per cent circuit in the course of trading today.

"Despite a weak market, sugar stocks would appear to be on a different trajectory. While the immediate trigger has been the demand-supply gap and the resultant buoyancy in prices, the fact that integrated sugar factories are gaining ground over stand-alone mills should provide a real shot in the arm for the fortunes of these sugar companies going forward. For, the additional revenue stream will impact their working capital management positively which would bring about substantial reduction in their debts," Mr. Jai Prakash Sinha of Kotak Securities said.

Sources maintain that many mills have commenced production and supply of ethanol to refineries for mixing with fuel and this value addition provides better margins as compared to industrial alcohol. "Moreover, with lesser cane output this season, realisations to industrial alcohol has improved compared to last fiscal where there was a bumper crop and this should augur well for sugar companies during the second half of the current fiscal." an analyst tracking the sector said.

Going forward, analysts expect sugar prices to rule firm but do not anticipate it to go out of control.

"Any untoward rise could bring about Government intervention in the form of release of excess quota or a reduction in import duty," an analyst reasoned. Sugar is currently retailing at around Rs 17. The perception that the industry is headed for de-control by 2005 has only added to the feel good factor surrounding the sector.