Why sugar sector is in sweet spot from some month...and is the sector is having structural shift for cyclical to normal?
Lets see the basics!
From crushing sugar cane...we can make two things...Sugar or Molasses.
Now Molasses is used to make Industry spirit or ethanol!
Also remember the residue of Sugar cane....called "बगास" is used for power generation.
Now lets first see Sugar!
In 2019 government raised the Minimum Selling Price(MSP) of Sugar to 31 per kg from 29 per kg.
Currently MSP is further expected to rise to 33 per kg.
Brazil & Thailand are key producers of Sugar globally apart from India & China.
Now Brazil & Thailand are expected to Produce around 14 million tonnes of less sugar
India is expected to Produce around 4 million tonnes of surplus sugar while gap in global demand will be of 14...so 10 million tonnes more which is around 33% of Our Country's Total Production.
Which resulted in Global sugar prices surged and Indian companies with high inventory already in books are obvious gainers.
Now What a Turnaround in Ethanol?
Ethanol blended petrol(a move towards environment friendly fuels) is gaining pace in terms of demand.
This Ethanol blending programme was extended to whole of India in 2019.
Now demand for ethanol for blending is seeing a surge for long term .
Look at these data
In 2014 just 1% of ethanol was blended
While recently we clocked 7.2% of blending and now the Target is of 20% by 2023.
And mind you Ethanol blending is very high margin business compared to Sugar.
So the Sugar sector in sweet spot...by Sugar demand globally and turnaround story for ethonal !
Here is the list of Some Stocks from Sugar Sector with their Inventory data:
Magadh Sugar 658cr
Avadh Sugar 1351cr
Dhampur Sugar 1293cr
Balrampur Chini 884cr
Triveni Engineering 873cr
Shree Renuka 999cr
All these stocks are holding such inventory in their books, which attracts Inventory gains and that will lead to profitability in their books.
Now in Next Article we will discuss Top Sugar Stocks you can buy from medium to long term perspective to generate good returns.