Neal Bhai Reports — Sugar Stocks on a High, but Experts See Limited Upside — Shares of sugar producers soared on Friday, outperforming the broader market, after domestic prices hit a threeyear high on Thursday.
Analysts said a decline in production and steady demand may keep sugar prices stable. But, gains in shares could be limited as valuations appear stretched and prices may not rise in a big way going ahead.
Balrampur Chini Mills rose 4.5% to `. 107.05, Triveni Engineering gained 6.6% to ` . 55.50, Bajaj Hindusthan advanced 2.1% to . 17.20, Dhampur Sugar gained ` 3.2% to `. 118.05 and Sakthi Sugars rose 3.6% to ` . 40.05 on Friday “Prices have shot up on the domestic front. The kharif sowing season is over but it seems that cane sowing is lower by 6-8%.Next year starting October (sugar season), its availability will be lower. All these factors have given fillip to sugar stocks,“ said G Chokkalingam, founder, Equinomics Research & Advisory.
Sugar prices have moved from . 20 per kg last year to ` ` . 50 now mainly on account of the reduced acreage, said the local festive season, thus keeping prices at elevated levels.
Analysts are, however, sceptical whether shares of sugar producers can repeat the performances they have put up in the last year or so. Most shares have at least doubled in the last so many months, with Upper Ganges Sug ar & Industries surging over 1,100%, Mawana Sugars soaring over 700% and Oudh Sugar Mills advancing 500%. In comparison, the mid-cap index has gained 24% and the small-cap index has risen 20% in this period.
The strong returns in the last year have made the valuations of these shares expensive, said analysts.
“The stock performances which have gone up by 3-4 times in the last 6 months to a year may not get repeated in the next few months,“ said Debashish Mazumdar, chief managerequity research, Edelweiss Capital.
Investors could turn cautious on worries that the government may crack down on prices following the rapid increase in recent months. Sugar prices have been a politically sensitive issue for the government.Analysts said the government might not want high prices ahead of the Assembly elections in Uattar Pradesh next year.
“The industry might not want prices to go above ` . 50. They’re comfortable that their cost is ` . 30.There are running profits for ` . 35 . 36 on per kg of sugar. For an into ` vestor, the market is already building expectations based on . 36. Thus upside will be limited,“ ` said an analyst with a brokerage, requesting anonymity. — Gold Silver Reports