Category
🗞
NewsTranscript
00:00Prashant Biyani, Vice President, Institutional Equity at Ellara Capital joining us to tell
00:04us what are the topics on sugar and how beneficial is this fundamentally.
00:10Prashant, a very good morning.
00:11Let's just get your first take on which are the companies likely to benefit the most with
00:17this restriction on sugar diversion being lifted.
00:21The entire sector is going to benefit from it.
00:25Along with the resumption of ethanol blending, FCI rice has also been allowed for sale.
00:34So I think because of that, the dual feed manufacturers are going to benefit most for
00:40the likes of Balrampur, Triveni also has, I think, some dual feed capacities.
00:45So I think both these stocks should benefit.
00:49But the benefit is going to be for the entire sector because of this.
00:53So here, Sri Renuka, Balrampur, all of them are buzzing, Praj, etc.
00:58But where do you see the most upside?
01:03So right now we have Balrampur in our coverage along with Dwarkesh.
01:07So we will restrict to that in terms of upside.
01:12Both these companies I think we are positive upon.
01:16Nishant, this is one sector that constantly gets impacted by regulatory changes and in
01:22the sector that the promoters have not made enough money in that sense, right?
01:28And investors as well, I don't know whether they've made, sugar as a sector has not created
01:33significant wealth in that sense for investors.
01:37Do you feel like this move or this removal of this cap could be long term in nature?
01:41And if yes, if it does impact the earnings, will it be over the next couple of quarters?
01:46Will it be immediate?
01:47I know sentimentally it's a positive day, but getting beyond today?
01:51Yes, but sugar has been a cyclical sector previously, but once in the last five years,
01:59once the ethanol blending has been followed strictly, so I think the cyclicality has certainly
02:06been removed and the sector has given good return as such.
02:11There was a temporary disruption last year, but it was temporary and we were already expecting
02:17ethanol blending to resume.
02:20So I don't think that it is not a wealth creating sector as such, it is just that sometimes
02:26it is cyclical, but because of ethanol blending, I think we are now on a secular uptrend in
02:34terms of business growth for these companies.
02:38Raj Industries, Prashant, EID, PERI and Srinivasa are all expected to get a 5% to 10% gap up.
02:46Too late you think to jump in or is it okay?
02:49For a medium term time horizon, these stocks could still be bought despite this 5% to 10%
02:55gap up this morning or would you wait it out?
02:59One needs to have a long term view right now, I think at this point of time, the stocks
03:04have rallied in the last one month as well, quite sharply.
03:08So for the likes of Balrampur and all which are venturing into PLA as well and the benefit
03:14of this resumption of blending is likely to come in from H2.
03:19So the benefit will be back ended in terms of both FY25 and FY26, but the full scale
03:27benefit in terms of volume growth will be more towards FY26.
03:31So I think one needs to have a medium term view if someone wants to enter the sector
03:38here.
03:39Having said that, we don't expect any negative news as such for the sector in the near term
03:46because I think before elections all the negative news that should have come had come in terms
03:53of temporary disruption of blending as well as gain price increase.
03:59Now I think the future triggers would be in terms of increase in sugar MSP, then revision
04:06in ethanol price and if government allows export then I think that will be the additional
04:12trigger.
04:13One last bit around festive season, do you see any concerns of rollback on this sugar
04:22diversion decision if prices start rising up or that's out of the question right now?
04:30Certainly not.
04:31We are as a nation, we already are likely to have 8.5 million tonnes of closing stock
04:37of sugar by the end of this season and maybe similar number or around 7.5 million tonnes
04:44of sugar stock by the end of next season, even after considering 4 million tonnes of
04:50diversion for ethanol blending and before allowing export.
04:55Typically we need around 5.5 million tonnes in terms of closing stock.
05:01So we still have headroom for 1 or 2 million tonnes of export.
05:05So even if there is a temporary price increase, I don't think there is going to be any rollback
05:09from this decision.
05:11I think because that will also be very sentimentally negative plus I don't think anyone would be
05:18in a mood for that right now when government wants to increase the ethanol blending from
05:24petrol from diesel and various other sources.