Sugarcane season starts in October. Due to bumper crop last year, Mills received more than their share and had to crush as sugarcane is perishable in nature. Usually they carry around 6-7 months of inventory, 90% of which is finished sugar.
Now that sugar prices in open market have crashed from 40 to below 30, inventory can’t be kept at old prices. Hence, companies are required to book inventory losses, otherwise it will create huge mismatch year-on-year.
Sugar stocks getting bashed up…it’s sell on news thing…
Dhampur, dalmia and dwarikesh become value buy only around 200-250 crores market cap…it may happen in the next 2-3 years…
Balrampur becomes a value buy around 35-40 stockprice…
The new sugarcane variety is adopted only 50% in UP…once it becomes 75-80% in UP and is modified for Karnataka and Maharashtra climate…then the total sugar production in India may jump to even 34-35 million tons…
On the other hand consumption is increasing at a slower pace…of 0.5million tons per year…
I am afraid that this time we may see a severe downcycle in sugar…mother of all bear markets in sugar stocks for the next 3-4years…
Maybe the next turnaround in sugar will happen only when mawana simbhaoli Bajaj and renuka collapse
Chinese prez agreed to import sugar and non basmati rice from India to balance trade deficit
Got to keep an eye on how much b-heavy molasses would be diverted for ethanol production. The high oil prices would be supportive for this measure.
Discl: Invested in Dhampur @200 levels
Please help me to find last one month 's chart for sugar prices for Indian market.
The way monsoon is going on it seems bumper production this season also
Yes and as expected the sugar production for next, y,ear is calculated to be around 35 million tons…not only that there is a global glut / huge excess in sugar production
So looks like its a wait, watch and execute strategy for the sugar cycle to play out, one needs ample amount of patience, one question to fellow boarders, should the entry into sugar stocks happen only after 2 years from now and that too the entry shouldnt be big bang but more spread out, am I right in my understanding?
Sugar cycle is not dependent upon govt policy or timeframe but only critical factor is extreme failure of monsoon in Maharashtra and Karnataka. Usually monsoon failed in these areas at least once in five year timeframe which is a natural cycle related with elnino weather condition. Usually up based area has good canal based irrigation cycle so failure of monsoon has only slight effect on up based mills. It is likely that within next 3 years monsoon may fail once which may lead to sugar production less than sugar demand which can increase sugar prices upwards of 40 rs. Also due to elnino effect sugarcane crop in Thailand also get damaged so international markets supply also get reduced and lead to increase in sugar prices in international market as well. Otherwise sugar demand of around 25 million tonne in India and around 175 million tonne in the world is constant.
Dalmia Bharat Sugar: Q1 profit rises to Rs 62.04 crore versus Rs 55.10 crore; revenue increases to Rs 653.30 crore versus Rs 636.55 crore (YoY).
Even if the company was not able to make a lot out of sugar, they managed to post exceptional profits by more than doubling their profits from power segment and more than quadripling their distillery segment profits
Q1 FY19 results are uploaded below
3ae22130-cdff-4835-8720-d6be0b9cda21.pdf (1.5 MB)
Centre extends date for export of sugar. Industry is already loosing Rs 7-8 per Kg.
http://epaper.business-standard.com/bsepaper/svww_zoomart.php?Artname=MjAxODA4MjRhXzAxNTEwMTAwNg==&ileft=190&itop=929&zoomRatio=130&AN=MjAxODA4MjRhXzAxNTEwMTAwNg==
This is extract from Dhampur’s presentation. The power & Distillary are contributing more to profits than last year due to more operational days of sugar crushing, lower molasses price, higher ethonol production etc.
The fixing of lower limit of sugar price @29 rs & other measures by govt seems to giving support for sugar price (31.5 rs/kg according to presentation).
According to Presentation: Dhampur is expanding distillary capacity from 3 to 4 lakh ltr/annum. Considering increasing it by 1 lakh ltr/annum more.
Dhampur is Paying off long term debt slowly and also reducing the short term debt.
The rupee depreciation & high oil rates should support the ethanol blending program & sugar exports.
Need to track how ethanol blending program progresses. The sugar industry re-rating depends on the success of this program.
The bumper crop of next year would increase the cost of holding big inventory in the form of increasing the interest burden, which is the primary negative I can see.
So far things are looking good or may be I am missing something which market knows.
Discl: Have only basic understanding of sugar sector & investing. Invested in Dhampur @200.
Edits: Distillation capacity related mistakes; million → Lakhs; 3 lakh to 4 lakh; Apologies for wrong info
Finally a breakout in Praj…I still think it would be more profitable to play Praj rather than sugar stocks to benefit from the ethanol procurement policy of Govt…
suagr cmpanies are supplying around 140 crore liters of ethanol to OMC now…this may go up to 160 crore liters approx after increase in ethanol procurement price by Govt…
the increase is around 5 ruppes per liter…so the industry gets additional 800 crores from ethanol in this year…quite good but not good enough to cause a cyclical turnaround
Hence I recommend Praj once again
