Business Desk – Sugar Stocks: The month of August was great for Sugar Stocks in the stock market. There was strong buying in many shares of Chinese companies and some stocks gave returns of more than 50% in a month. The biggest rise was in Avadh Sugar & Energy. Its share increased from Rs 504.65 on July 31 to Rs 804.15 at the end of August. That means the share rose by 59.35% with a rise of about Rs 300.
More than 20% rise in many sugar stocks
In August, shares of Dwarikesh Sugar Industries rose 38.01%, Dalmia Bharat Sugar & Industries 35.63% and Dhampur Sugar Mills 26.57%. Bajaj Hindusthan Sugar gained 26.06%, Dhampur Bio Organics gained 26.45% and Triveni Engineering & Industries gained 27.01%.
Apart from this, The Ugar Sugar Works rose 24.45% and DCM Shriram Industries rose 19.40%. Among the big companies of the sector, shares of Balrampur Chini Mills increased by 10.63% to Rs 648.90. On July 31, it was at Rs 586.55. Whereas EID-Parry (India) was up by 4.73%, Shree Renuka Sugars was up by 7.19% and Zuari Industries was up by 4.73%. However, not every sugar stock gained momentum. Godavari Biorefineries shares fell 8.51% to Rs 239.30 in August.
Sugar price and supply increased expectations
The main reasons behind this rise in sugar stocks were the strengthening of sugar prices and concerns about domestic and global supply. Due to strong sugar prices, companies are expected to get better realization and increase their earnings. Due to this expectation, investors increased purchasing in this sector.
However, in the stock market, expectations of future earnings are already factored into prices. Therefore, after the sharp rally of August, the question now is how far the companies will live up to the market's expectations in the upcoming quarterly results.
Ethanol and E20 are also big factors
Sugar companies are no longer dependent only on sugar business. Businesses like Ethanol, Biofuel and Green Energy have also become a part of their growth story. Sugar mills are getting additional revenue opportunity due to increase in ethanol blending in India.
Expectations have also increased from companies regarding blending of 20% ethanol in E20 i.e. petrol. But the question being raised in the market is how much of the potential profit from E20 has already been included in the share price. For further upside, companies may have to show better-than-expected earnings.
Valuation is a big challenge for further growth
Valuation has now become important after many stocks rose 20% to 60% in August. After a sharp rally, shares of some companies may look expensive compared to their near-term earnings. In such a situation, profit booking can also be seen in case of weak results.
The direction of Sugar Stocks in the coming time will depend on FRP, production, cost, inventory, earnings and government policy along with sugar and ethanol prices. FRP has increased by 16%, while the increase in ethanol procurement prices, especially B-Heavy Molasses ethanol, has been relatively slow.
Overall, the boom in August has definitely increased the interest of investors in the sugar sector. But now the further rally will not be decided only by the sentiment sector, but by the actual profit growth and financial performance of the companies.
