Shares of sugar companies moved higher by up to 6 per cent on the BSE in Wednesday's intra-day trade as prices of the commodity soared in the global markets. Sugar prices in India have also climbed more than 6 per cent in the past two weeks, and are likely to rise further as production is set to fall and demand from bulk consumers could strengthen during the peak summer season, news agency Reuters reported quoting industry officials.
As per a Bloomberg report, London's white-sugar futures surged by 2.7 per cent, reaching their highest level since November 2011. As a result, the white premium, which signifies the price difference between refined and raw sugar, also reached record highs during Tuesday's trading. Meanwhile, raw sugar in New York settled 2.6 per cent higher, marking its highest level since October 2016.
Meanwhile, the government has allocated additional domestic quota of 2 lakh tonnes (10 per cent) for April-2023. This is over and above 2 million tonnes allocated earlier. Despite additional quota, ICICI Securities believes sugar prices would remain firm at around Rs 37/ kg. Sugar production is expected to end at 32.8 million tonne (MT), and consumption and exports put together would reduce sugar inventory by 1 MT in 2022-23 season. The brokerage firm believes sugar prices would remain in a range of Rs 36-39 until at least till November 2023.
That apart, elevated domestic and international sugar prices and increased ethanol volumes would support sugar companies operating profits.Over the medium term, the sector's operating profits are likely to be less volatile than the historical levels, driven by the expected continuation of MSP and excess cane diversion towards ethanol production by the industry.
"An upgrade will be backed by a continued period of firm sugar prices, driven by favourable demand-supply dynamics and benefits from investments in forward integration, which will lower the volatility in cash flows from the sugar business and improve the operating profitability and debt coverage metrics on a sustained basis. Additionally, an improvement in the scale of business coupled with the diversity in revenues would be critical for a rating upgrade," ICRA said in a recent report on Dwarikesh Sugar Industries.