Sugar stocks in focus as govt plans to hike MSP for 2024-25 season. Balrampur Chini, Dalmia Bharat among top picks

Sugar stocks are trading higher today after news reports surfaced that the government is considering raising the minimum sale price (MSP) for the 2024-25 sugar season. Shares of Shree Renuka Sugars (up over 5%), Ugar Sugar Works (up over 3.5%), Avadh Sugar & Energy (up 2.6%), Rana Sugars (up 4%), KM Sugar Mills (up 3%), Balrampur Chini Mills (up 3,2%), Dhampur Sugar Mills (up 5.2%), Simbhaoli Sugars (up 3.5%), Magadh Sugar & Energy (up 2.5%), Triveni Engineering and Industries (up 2.2%), and Andhra Sugars (up 2.5%) are in focus on Thursday's session. 

Sugar stocks have been on a bull run over the past month, rising 10% to 20%. According to Ruchit Jain, Lead Research Analyst at 5paisa, this sector has gone through a long consolidation phase in the last few months. 

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“However, now stocks are witnessing a consolidation breakout with good volumes. Hence, we expect the sector to do well in the short term. One can trade with a stock-specific approach in stocks from this space. We prefer Dalmia Bharat Sugar and Balrampur Chini,” advised Jain. 

Amit Trivedi, CMT. Vice President - Research at YES Securities is bullish on Avadh Sugar & Energy, Balrampur Chini Mills, and EID Parry (India). 

According to an Informist news report that cited a senior officer, the government is considering boosting the minimum selling price of sugar for the next season, which begins in October. Since 2019, the sweetener's minimum selling price has remained unchanged at ₹31 per kg. The industry has been seeking that the minimum selling price of sugar be increased to ₹40–41 per kg.

As per Informist news report, Deepak Ballani, director general of the All India Sugar & Bio-energy Manufacturers Association, stated that when the Fair and Remunerative Price (FRP) rises, so should the sugar minimum selling price.

Before the elections, the Cabinet Committee of Economic Affairs approved a record 7.4% rise, or ₹25, in sugarcane FRP to ₹340 per 100 kg for the sugar season 2024-25 (Oct-Sep), with a baseline recovery rate of 10.25%.

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Sugar production so far

According to Brokerage Centrum's most recent sugar sector analysis, Uttar Pradesh state saw a steep reduction (-10% YoY) in crushing activities for sugar season 2023-24, owing mostly to poorer yields caused by red rot disease. However, sugar production in Maharashtra was 11.0 MMT, up from 10.5 MMT in SSY23. On a nationwide scale, the sugar recovery data for SSY24 have improved on YoY basis at 10.09% which is same as month before - owing to lesser diversion.

As of May 31, 2024, state-by-state crushing data for SSY24 show that sugar output is down at 31.7 MMT compared to 32.6 MMT previous season at the same time. Sugarcane crushing activity decreased by 5.4% to around 314 MMT, compared to 332 MMT in SSY23.

"Looking forward (FY26), we anticipate positive developments in the sector, with stable sugar prices and increased sugar diversion for ethanol production. We forecast a significant +3.5 MMT vs. ~2MMT sugar diversion in current season, facilitating efficient use of distillery assets in FY26. Also, we anticipate a +3% ethanol price hike next season (BH/Direct). Further, we believe that the worst is over for the sector in terms of negative news flow and maintain positive stance," said Centrum in its report. 

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Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.