The rally in sugar stocks is likely to sustain given the overall strength and optimism in the industry backed by a number of factors including a tight global demand-supply situation, favourable policies, and push for higher ethanol blending in India, Motilal Oswal said in a report.
Sugar stocks have witnessed a robust rally led by rising international prices for the commodity, and high demand amid supply constraints.
The shares of sugar companies such as Andhra Sugars, Balrampur Chini Mills, Dalmia Bharat Sugar and Industries, Dhampur Sugar Mills and Dwarikesh Sugar Industries, among others have surged more than 50-130 percent in 2021 so far.
Sugar production in Brazil and Thailand, the two largest sugar exporter in the world, is expected to be lower at around 7-8 MMT each as compared to last year given the challenges faced due to dry weather.
“This would result in higher opportunities for domestic exporters as the surplus inventory for the current season is expected to be around 9.5MMT,” Motilal Oswal said.
Further, the shortfall in global sugar production has resulted in a sharp increase in global prices of sugar to more than 16.5 cents/lb, which is likely to sustain.
Also, if global sugar prices increase from 16.5-17.5 cents/lb to 19-20/lb, then a higher amount of sugar is expected to be utilised for conversion to ethanol, leading to a further increase in global sugar prices.
In April 2021, sugar prices saw a spurt to Rs 33-34 per kg, reflecting higher demand due to the summer season. Going forward, prices are expected to sustain at higher levels, added the brokerage.
Among sugar stocks, Motilal Oswal has a 'buy' call on Dhampur Sugar Mills with a target price (TP) of Rs 350, Balrampur Chini Mills with a TP of Rs 380, Dalmia Bharat Sugar and Industries with a target of Rs 345, Andhra Sugars with a target at Rs 500 and Dwarikesh Sugar Industries with a TP of Rs 65.