In a report, domestic brokerage and research firm ICICI Direct stated that it has maintained its bullish attitude on the sugar business and believes that a reasonable increase in sugar prices will boost profitability. Global sugar prices have surpassed 20 cents per pound, while domestic costs have risen to 36 cents per kilogramme (UP).
“Our view on sugar prices has been materialising. We maintain our stance that the sugar industry would be able to export 6-7 million tonnes (MT) of sugar in the 2021-22 sugar season without export subsidy given global sugar prices are higher than cost of production for Indian sugar companies," the brokerage mentioned.
Balrampur Chini (goal price of 515 per share), Dalmia Bharat Sugar (target price of 650), Triveni Engineering (target price of 270), Dwarikesh Sugar (target price of 110), Dhampur Sugar (target price of 500), and Avadh Sugar (target price of 685) all have Buy ratings from ICICIDirect.
In the last three years, the government has aided the sugar business with temporary measures (buffer subsidies, MSP, and export subsidies), according to the brokerage. "The government has discontinued the buffer subsidy in August 2020 due to an improvement in fundamentals due to the ethanol blending scheme and a reduction in sugar stockpiles. Furthermore, with global sugar prices steadily rising beyond cost of production, the export subsidy may be phased away in the 2021-22 sugar season, as sugar millers can now export without government assistance. Furthermore, we expect domestic prices will remain stable above 34/kg, rendering the minimum selling price (MSP) obsolete in the current environment "It was also added.
Because the ethanol blending programme is progressing quicker than expected, ICICIDirect estimates ethanol blending will reach 10% by November 2022, given sugar businesses' plans to increase distillery capacity by 2-3 times in the next two years.
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