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After being hammered for the last four days, sugar company stocks bounced back with the government allowing companies to fulfil the ethanol orders already received using sugarcane juice.
Shree Renuka Sugar and Bajaj Hindustan gained 5 per cent each to ₹47 and ₹28 while Trieveni and Balrampur Chini were up 4 per cent and 1 per cent to ₹345 and ₹397 on Monday.
Dwarikesh Sugar Industries, Dhampur Sugar Mills, Mawan Sugars and Rana Sugar increased 3 per cent each to ₹87, ₹247, ₹96 and ₹24.
Last Thursday, the government directed sugar companies not to use cane juice to produce ethanol as it tried to increase sugar supplies by curtailing ethanol production. However, the government allowed supply of ethanol from existing offers received by oil marketing companies from B heavy molasses, C heavy molasses and grains.
Output down
Sugarcane and sugar production are expected to decline by 9 per cent and 3 per cent, due to the scanty rainfall seen in the key sugarcane-producing States of Maharashtra and Karnataka.
Ethanol production may fall by 20 per cent, which could bring the ethanol blending rate to less than 10 per cent in ethanol supply year 2023-24, against 12 per cent in 2022-23, said rating agency Crisil.
Manish Chowdhury, Head of Research, StoxBox said the move to curb ethanol production using sugarcane juice is transient as it has come on the back of the government’s effort to stabilise sugar prices domestically following erratic monsoon which affected the sugarcane crop.
Considering the large capex diverted towards ethanol manufacturing by sugar companies, he said the structural story of the sugar sector remains intact and the current unprecedented government move will be reviewed at an appropriate time in the future.
VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services said since sugar price can be a sensitive issue during the election time, it would be unrealistic to expect any relaxation in this measure till the elections are over.
The development is certainly a negative from the perspective of sugar companies which have invested heavily in producing ethanol, he added.
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