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Sugar company stocks bucked the bearish trend and registered impressive gains with the government raising the ethanol price for blending with petrol.
Some of the sugar company stocks that gained include Dharani Sugars (7 per cent), Dalmia Bharat Sugar (6 per cent), Sakthi Sugars (6 per cent), Bajaj Hindusthan (5 per cent), Balrampur Chini (5 per cent), Dhampur Sugar Mills (4 per cent) and Shree Renuka Sugar (4 per cent). The benchmark Sensex closed down 229 points on Thursday.
Fundamentals still weakThe Cabinet Committee on Economic Affairs announced a range of ₹48.50 a litre to ₹49.50 a litre for ethanol depending on the distance between the sugar mill and the oil marketing company’s depot. The government has fixed the price at ₹47.50 a litre in October. Last year, oil firms had to pay ₹29.
In November last year, the Government made it mandatory to blend 5 per cent ethanol with petrol but it was implemented only in a few centres as the price was not remunerative. Sugar companies were finding it more profitable to supply ethanol to alcohol companies which were paying ₹41 a litre.
Paras Bothra, Vice-President (Equity), Ashika Stock Broking, said the revision of ethanol prices is a positive development, but the fundamentals for the sector still remain weak with sugar prices languishing at the bottom and huge inventory weighing heavy.
Prices under pressureVarious sops offered by the Government have ensured that sugar companies’ arrears to farmers have reduced to ₹1,200 crore from ₹6,500 crore a few months back. According to the Indian Sugar Mills Association, sugar production in the first two months of this sugar season (October 2014 to September 2015) was up 56 per cent at 17.81 lakh tonnes against 11.4 lakh tonnes in the same period a year ago.
With the sharp fall in sugar prices many mills have delayed crushing by a month. Ex-factory sugar prices have now dipped to about ₹2,500 a quintal from ₹2,700 a quintal at the beginning of the season and may come under further pressure as crushing gains momentum in Karnataka and Uttar Pradesh.
“We have to watch the progress of the crushing season before revising the rating on the sector to positive,” said Bothra.
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