Here's why sugar stocks have seen bittersweet days recently: CNBC-TV18 Explains
Elara Securities told CNBC-TV18 that it expects the first half of financial year 2025 to be negative for companies with juice ethanol capacity and that ethanol volumes can decline by 20% during that period.
Sugar stocks like Balrampur Chini, Praj Industries, Dhampur Sugar and Dwarikesh Sugar have declined between 15% and 20% over the last week on news that the government has asked sugar mills to not use sugarcane juice and syrup for ethanol output for the 2023-24 season.
However, supply of Ethanol from existing offers received by Oil Marketing Companies from B-Heavy Molasses will continue.
While the others are sugar producers, Praj Industries is a provider of technology for ethanol production.
In terms of numbers, 65% of the ethanol production is done via B heavy molasses, 25% comes from sugarcane juice, while the rest comes from C heavy molasses.
First, Sugar production will increase by another 2-2.5 million tonnes.
Second, Sugar volumes will remain unchanged as demand will be stable, according to Elara Capital.
Third, Sugar prices are likely to fall due to more supply. Balrampur Chini's Vivek Saraogi, in an interaction with CNBC-TV18 said that sugar prices can decline at least by 5% from the current selling price of ₹39 per kilogram.
and Fourth, Ethanol volumes are likely to decline for companies which have capacity for Juice Ethanol. Ethanol is generally the high margin business for sugar companies.
Elara Securities told CNBC-TV18 that it expects the first half of financial year 2025 to be negative for companies with juice ethanol capacity and that ethanol volumes can decline by 20% during that period. Overall EBITDA (Earnings Before Interest, Tax, Depreciation, Amortisation) is also likely to fall by 4% to 5% over the next 18 months.
The brokerage also said that C-heavy ethanol and B-heavy ethanol have better margins but they await the impact on operating leverage and on fixed costs for juice ethanol plants, in case they are lying idle.
Balrampur's Saraogi told CNBC-TV18 that tenders for B-heavy molasses until now will be executed but there is no clarity on new tenders. However, the company, like other industry experts believes that its a temporary move.
Saraogi's views were echoed by Consumer Affairs Secretary Rohit Kumar Singh, who in an exclusive interaction with CNBC-TV18 said that the review is a constant process and they continue to review production numbers. Domestic availability of sugar is the supreme criteria for the government, the secretary said, adding that prices are expected to remain under control because of the actions taken by the government.
Sugar stocks, after witnessing pressure through last week, saw some relief on Monday after meeting the Secretary of Petroleum & Natural Gas.
The Prime Minister's Office is also likely to hold a meeting with the sugar sector on this issue later this evening.
(Edited by : Hormaz Fatakia)
First Published: Dec 12, 2023 9:30 AM IST
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