Sugar Cycles: 7-8 years of losses followed by 2-3 years of super gains!

London refined sugar price is USD 652 per ton - which translates to Rs 55/ kg - much higher compared to wholesale price of Rs. 40 in India. Govt. has done a good job of keeping prices in control by banning exports and ethanol.

Due to this all sugar mills have cancelled their ethanol expansion plans and are looking at alternate uses like CBG, bio-chemicals. Triveni is diversifying into branded alcohol !

On hindsight export and ethanol ban have been good for the industry - companies will focus on higher margin products rather than sugar/ ethanol. Sugar prices are currently about 37-38 ex mill which will lead to higher margins compared to last year (after higher SAP prices). Next year prices are going to be higher by few Rupees which will absorb increase in FRP/SAP and margins will be even higher. By then alternate uses like bio-plastics of Balrampur, etc will be in place and hence prices of sugar will sustain.

Given all this valuation of sugar sector is lower than fair value. I expect more share buybacks to happen next year.

I think ethanol blending target of 20% will happen only by 2030 as not enough cane is available and even grain based ethanol is not making money due to high grain prices. Whatever the scenario, ethanol will not negatively affect the sector. In case Govt allows ethanol sugar prices will increase and profits of sugar mills will be higher.

One thing everyone has to understand (incl govt) is that only profitable sugar companies can make this sector sustainable and ultimately benefit the farmers.

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