Indian Sugar Industry

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Indians have a sweet tooth. We consume approximately 370 lakh tons of sugar a year. But we also produce 650 lakh tons.

Sugar industry is cyclical and market is usually traded by professional traders. But things are changing, partly because of climate and partly government policies. Sugar stocks are poised for long term growth and re-rating & reprising of this sector.

CLIMATE  & INTERNATIONAL MARKETS
Apart from India, Brazil and Thialand are two big producers and exporters of sugar in international market . But due to change in climatic conditions there has been failure of Sugarcane crop in Brazil . Brazilian Sugar production fell and new sowing data is showing there is reduction in Sugarcane crop and it is expected that sugar production will again decline in 2021-2022 by Brazil. There is also secular reduction in sugar production in Thiland. Due to this lower sugar production, prices are rising in international markets. This set to benefit Indian Produces.

ETHANOL PRODUCTION
Sugar producers not only produce sugar but also produce ethanol. They can uroute the sugarcane juice to produce ethand or sugar as per demand of product.
Domestic demand of ethanol is set to explode because of Government ethanol blending in petrol target of 20% by 2025 from Current 8% to cut back on Indian crude import bills. To have things in perspective, total ethanol demand right now is around 350 crore litres and if we have to Achieve our 2025 blending target, we need additional production of 600 crore litres of ethanol.
Also ethanol production will help sugar sector to come out of cyclicality as ethanol can be produced year long & can be sold at spot market for immediate payment.

GOVERNMENT SCHEMES : PLIs & Cheap credit
Government is providing Sugar produces with cheap credit & PLIs (Productioni Linked Incentives) to companies for expansion into ethanol production bussiness.

POWER GENERATION BUSSINESS
Baggas produced from sugarcane after sugar production is used for energy extraction . It is additional source of revenue for these Companies.

HOW TO INVEST
We at Garg Capital believe that fundamentals & new reforms in Sugar- Ethanol sector are game changers and investing in large cap liquid producers of sugar & ethanol with clean balance sheet will provide robust returns without significant risks. Also investing in Ethanol plant builders will provide good returns.
Praj industries, dhampur sugar, triveni engineering,  balrampur China, eid parry and dalmia bharat sugar are top picks.


Akhil Garg
CIO, Garg Capital

Contact us 
akhilgargdps@gmail.com 

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