From Uttam Sugar Mills to Balrampur Chini —Sugar stocks surge up to 35% in a week; what is driving the rally?

Several sugar stocks have seen significant gains over the last few days, underpinned by expectations of tightness in local sugar prices due to lower output this season and reduced inventory compared to the previous year.

Shares of Uttam Sugar Mills, Balrampur Chini and Dalmia Bharat Sugar have soared between 15-35 per cent over the last week, while those of Magadh Sugar & Energy, Avadh Sugar & Energy, SBEC Sugar and Mawana Sugars have jumped 9-15 per cent in the same period.

On Wednesday, Balrampur Chini Mills share price jumped 9 per cent in the morning session. Stocks such as Uttam Sugar, Sakthi Sugars and Dalmia Bharat Sugar jumped up to 7 per cent.

What is driving the rally in sugar stocks?

Investors' interest in sugar stocks have grown after India cut production estimates. This is expected to drive prices higher and improve the margin of sugar companies.

According to brokerage firm Centrum Broking, as of March 15, 2025, state-wise crushing data for sugar season year 2025 (SSY25) shows sugar production at 23.72 MMT, down nearly 16 per cent year-on-year.

This decline is largely due to lower cane availability in MH, lower recovery levels and diversion to ethanol.

"For the current season, we expect overall sugar production (net) to be nearly 26.5MMT versus 31.9MMT last year. We maintain a positive outlook on the sugar sector, supported by favourable developments like higher sugar prices and an export quota of 1MMT," said Centrum.

The brokerage firm believes sugar prices may remain firm due to lower sugar production for the season and much lower inventory compared to last year.

"Given the lower sugar production for the season, we expect sugar prices to remain firm and end the season with much lower inventory vis-à-vis last year," Centrum said.

As sugar prices are holding their gains, Centrum expects it to provide a significant boost to EBITDA margin in Q4FY25 and FY26.

Balrampur Chini Mills top pick of Centrum

Among the sugar stocks, Balrampur Chini Mills remains the top pick of Centrum in the sugar sector.

"Using SOTP valuation, we assign EV/EBITDA multiple of 8 times for the sugar and ethanol business (core), reflecting stable cash flows while the PLA (polylactic acid) segment is valued at 20 times FY27E earnings," said Centrum.

"The target price split shows 49 per cent from core business, 45 per cent from PLA and 7 per cent from the NBFC stake, with the latter based on the last FY24 stake sale. We expect the diversification into PLA to enhance Balrampur Chini’s business model, potentially leading to higher valuation multiples than historically seen," said Centrum.

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Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.