Sugar - Subdued quarter - Quarterly Preview by Elara Capital
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Sugar sales up 5% YoY and realization 5-6%
Domestic sugar sales grew 6.9mn tonnes, up 5% YoY, but sugar sales for Elara Sugar universe declined due to exports embargo this year and lower quota allocations YoY. Expect Balrampur Chini Mills’ domestic sales to decline 5% but total sales may reduce 35% due to absence of exports in Q4FY24. Realizations are expected to clock a 6% growth to INR 38 per kg in Q4E but have fallen ~5% QoQ from ~INR 40.
Ethanol but feedstock mix may play spoilsport
According to Meir Commodities, an agri commodity trading company, oil marketing companies (OMCs) have achieved ethanol blending of 11.8% till 17 March 2024.
Among different types of ethanol feedstock, procurement of B-heavy and Juice ethanol, which currently fetch low margin, has been more versus other feedstock. Hence, we have penciled in higher sales of juice and B heavy ethanol for Elara Sugar universe, which has impacted segmental profitability.
India’s sugar production to decline 10% this year
Indian Sugar Mills Association (ISMA) expects India’s sugar production before diversion to decline 10% YoY to 33mn tonnes this season, driven by a 16% and a 24% drop in sugar production in Maharashtra and Karnataka to 1mn tonnes and 0.5mn tonnes, respectively. Sugar production for Uttar Pradesh is expected to rise 1% to 12mn tonnes.
The industry association has also requested the government to allow 1 mn tonnes of export in the current season anticipating healthy closing stock by the season end.
Outlook: Expect normalization from H2FY25
The changes in Ethanol Procurement Policy this year are likely to be oneoff (as a precautionary measure against the risk of lower sugar production) and valid between November 2023 and October 2024. Hence, these may impact only H2FY24-H1FY25 financials.
We expect normalization from H2FY25. We have a neutral view on the Sugar sector in the short term given the earnings strain in the next nine months, but we maintain our positive stance, medium-to-long term due to ethanol blending program. Balrampur Chini is our top pick in the sector. We have a BUY on Dwarikesh Sugar and Industries (DSIL) but are set to revisit valuations/rating post clarity from the management on growth drivers.
Please refer disclaimer at Report
SEBI Registration number is INH000000933
