Ups and Downs of Sugar Industries

On 31st August, the share price of Shree Renuka Sugars was Rs64. On 11th November it was trading at Rs107, a rise of 70%. Sugar is a commodity; a lot is going right for sugar companies these days and all sugar stocks should be doing well. But look at Balrampur Chini Mills.

The stock has gained only about 15% over the past two months. This underlines the need for proper stock selection, especially from among the leaders. Sometimes, the ‘worst’ players in the sector rise the fastest, at other times it is the industry leader that forges ahead when the going is good.

The going has, indeed, been good for the sugar industry for some time now. In New York, raw sugar prices have climbed to a 29-year high. In Australia, the sugar crop is expected to be the lowest ever in 20 years due to heavy rains. Brazil, one of the world’s top sugar producers, is suffering a dry spell in certain areas and its ports are overloaded; this is creating another supply problem.

In India, the story is somewhat different. In February, there were fears that domestic sugar production would be a dismal 15 million tonnes (MT). Sugar prices the world over soared, as India’s imports/exports have a significant bearing on world prices. But for a figure as important as domestic sugar production, estimates made by the government are notoriously fickle. Then came the news that production in India was not going to be so bad (it was about 19MT) and sugar prices fell drastically. Now, global factors have surfaced. Sugar prices are soaring on speculation that there could be deficit in global sugar supplies. It is against this backdrop that sugar stocks are surging.

But, as we said, rewards for shareholders of different companies have been extremely uneven. Shree Renuka is by far the most aggressive player in the industry, with operations in Brazil, and the stock price rose the highest through October and November. Another stock that has done as well in 2010 is EID Parry. The Shree Renuka share hit an all-time high of Rs124 in January, fell to a low of Rs51 in May and then doubled from there. Whereas, EID Parry shares dipped marginally from Rs419 in January to Rs338 in May and then rocketed to Rs567 in November. Other stocks like Balrampur Chini, Thiru Arooran Sugars and Bajaj Hindusthan Sugar are languishing far behind. Interestingly, EID Parry is the only one of the large sugar companies that is not a part of the futures and options segment.

source: moneylife