India Can Delay Sugar Export Ban Till February 2024: Systematix
Higher ethanol contributions and firmer prices will drive the profitability of sugar companies, says the brokerage.
Systematix Research said on Friday that the Union government might consider exporting the surplus sugar to international markets in order to maintain sugar prices above Rs 36 per kg.
"We believe the government may ban exports to ensure sufficient sugar availability in the domestic market and to keep sugar prices under check in the election year (2024)," the brokerage said in a note.
However, to allow exports this year, the government could also delay its decision until January or February as production volumes would become clearer by then, according to Systematix.
The brokerage retained its positive outlook on the sugar sector, saying higher ethanol contributions and firmer prices would drive the profitability of sugar companies.
It selected Balrampur Chini Mills Ltd. as its top pick from the sugar pack. The company has recently doubled its distillery capacity to 350 million litres per year and is projected to clock a 43% and 47% EBIT and net profit compound annual growth rates over fiscal 2023–25.
Government Can Delay Export Ban
Systematix said erratic rain in key sugarcane-growing areas and extra diversion to ethanol production were key reasons behind lower sugar production in the current season.
This led to speculation that the government might impose a ban on sugar exports during the September 2023–October 2024 sugar season to ensure surplus sugar availability within the domestic market.
However, forecasts from the Indian Sugar Mills Association project that India will generate 31.7 million tonnes of sugar and consume 27.5 MT in the 2023–24 sugar season, resulting in a surplus of 4 MT. The opening inventory for the upcoming season stands at 6.2 MT, equivalent to 2.7 months of consumption, which should be enough to meet any exigencies.
"Thus, we believe, the government may consider evacuating the surplus in international markets to retain sugar prices above Rs 36/kg level," Systematix said.
Ethanol Price Hike
Oil marketing companies have recently raised the price of their damaged grain produced ethanol by Rs 3.71 per litre to Rs 64 per litre.
From Aug. 7, the cost of ethanol produced from damaged rice also saw a rise of Rs 4.75 per litre as the Food Corp. discontinued the subsidised rice supply to distilleries, according to Systematix. This increase was crucial to motivating producers, given the recent surge of Rs 4–5 per kg in the cost of damaged grain over the past month.
Systematix said this increase would likely counterbalance the increased expenses related to damaged grains and the elevated ethanol prices would contribute to enhanced earnings for sugar companies.
The price elevation initiative also reinforces the government's dedication to achieving a 20% blending target. As a result of this move, distilleries will operate at their highest capacity, which in turn could encourage further capital expenditure, according to Systematix.