Aug 2, 2008

Sectorial View : Sugar Sector

Sugar Sector Starting to Regain Sweetness ?

Sector Outlook

Sugar production in the current season (Oct 2007-Sep 2008) is estimated at about 26mn tons, which together with 3.5-4.0mn tons of export would lead to September 2008 inventories equivalent to about six months worth of consumption. However, assuming an 20% decline in next year’s production due to the uncertain cane prices in Uttar Pradesh (UP).

Sugar prices likely to show an upward bias

On the back of declining inventory next year, sugar prices are unlikely to decline significantly from the current levels, though threat of government intervention, on account of inflation control, would mean that prices are unlikely to exhibit a runaway trend.

By-product revenues provide healthy contribution

Most sugar companies have set up facilities to produce power and alcohol from bagasse and molasses respectively to enhance revenues and provide healthy contribution as associated costs are negligible. With mandatory 5% ethanol blending, companies with large distillery capacities such as Renuka Sugars are well placed to supply ethanol to oil marketing companies at fixed prices currently at Rs21.5 per litre.

Stocktrendz View :

Accumulate Sugar stocks for Near term Rally. Our Top Pick in this Sector is Balrampur Chinni Mills & Eid Parry.

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