Why Indian Sugar Sector Surging?

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Recently indian sugar/ethanol stocks surged upto 100%.

More good news sent another wave of buying.

Long term prospects are excellent.

human hand with white sugar packet and pouring in hot black coffee , in soft focus
Ratana21/iStock via Getty Images

Indian sugar industry generates revenue mainly through three ways that is 

1 Sugar production and export

2 Ethanol production 

3 Power generation through bagass 

All three revenue streams are set for upward trend.

First thing first, major news for the sector came when Indian government preponderance the deadline for ethanol blending target of 20% from 2030 to 2025. Currently it's 8%, decision was made to reduce crude dependency of India. And recently, on Monday, again deadline was being preponed to 2023. It's ridiculously bullish for these stocks. In just next 2 years, India is aiming for 20%, up 12% from Current 8% ethanol blending. This will create huge demand for ethanol, on which sugar industry has the highest margins (30-50%) and no cyclicality, which has been major drawback for these stocks in the past.

Secondly, Brazil had bad sugarcane crop last year, leading to decrease in sugar production and also this year's sowing data has not been great. It's clear that largest sugar producer, ie Brazil, is having climate aberrations making it unfit for sugar production. Same goes with Indonesia and Gautemala. Thus, international sugar prices are quite high boosting margins for Indian Producers.

Thirdly, India is growing at very fast rate and outlook is bright. With growcomes demand for power. In environment of rising coal and gas prices, power generation through baggas is crucial for the country. 

Lastly, India is the only emerging country with best demographics and macroeconomics outlook that China had in 2000s. India will see huge wave of money coming in this decade and it will lift all stocks a like. Also most sugar stocks in India are small caps with very less foreign institutional attention, as this sector  will boom and earnings and upgrades come, you have great chances to see fireworks in this sector.

Prominent names are Praj industries, Balrampur chini, Dhampur sugar mills, Triveni engineering, EID parry and Hindustan dalmia group.

We see 200-300% upside in next 12-18 months.

Akhil Garg

CIO, Garg Capital

akhilgargdps@gmail.com 

Twitter @gargcapital

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.


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