Sugar Stocks Rally Amid Anticipations of MSP Hike for 2024-25 Season

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Sugar Stocks Surge on Expectations of MSP Hike for 2024-25 Season

Team FS

13/Jun/2024

Key Points:

Sugar stocks surged up to 13% amid expectations of a minimum sale price (MSP) hike for the 2024-25 season.
The sugar industry is demanding an increase in MSP from Rs 31 to Rs 41 per kilogram.
Progress in ethanol blending with a 15% rate achieved, aiming for a 20% target.

In a notable rally on July 13, sugar stocks witnessed a significant surge of up to 13%, driven by expectations of an increase in the minimum sale price (MSP) for the 2024-25 season. The current MSP stands at Rs 31 per kilogram, while the sugar industry is advocating for a substantial increase to Rs 41 per kilogram to address rising production costs and ensure profitability.

Market Reaction

The anticipation of an MSP hike has sparked considerable interest and optimism among investors, resulting in a notable uptick in the share prices of several sugar companies. Mawana Sugars, Simbhaoli Sugars, Shree Renuka Sugars, and KM Sugar Mills saw their shares jump by as much as 13%. Similarly, stocks of Andhra Sugars, Avadh Sugar & Energy, and Magadh Sugar & Energy experienced gains of around 9%.

Other prominent players in the industry, including Bajaj Hindusthan, Bannari Amman Sugars, Dalmia Bharat Sugar & Industries, DCM Shriram Industries, EID Parry, and Dharani Sugars & Chemicals, also traded with gains of up to 10%. Additionally, Rana Sugars, Balrampur Chini Mills, Dhampur Sugar Mills, and Triveni Engineering and Industries registered increases ranging from 3% to 6%.

Historical Context

It is worth noting that since 2019, the minimum selling price of sugar has remained unchanged at Rs 31 per kilogram. The sugar industry has been consistently advocating for an increase in the MSP to Rs 40–41 per kilogram to cope with escalating costs and ensure sustainable operations. The expectation of a potential MSP hike has been further fueled by official government sources indicating that any increase would be reasonable.

Government Actions

In the lead-up to the general elections, the Cabinet Committee of Economic Affairs approved a record 7.4% rise, or Rs 25, in the sugarcane Fair and Remunerative Price (FRP) to Rs 340 per 100 kg for the 2024-25 sugar season (October-September), with a baseline recovery rate of 10.25%. This move is aimed at providing better returns to sugarcane farmers and supporting the overall agricultural sector.

Industry Insights

Atul Chaturvedi of Shree Renuka Sugars highlighted that the industry is not only anticipating an MSP hike but also awaiting an increase in ethanol prices for the upcoming season, given that the FRP for the season has already been announced. The focus on ethanol prices is crucial as it directly impacts the profitability of sugar mills, which produce ethanol as a by-product.

Ethanol Blending Progress

In related news, the Ministry of Petroleum and Natural Gas has reported significant progress in ethanol blending. As of May, the country has achieved a 15% ethanol blending rate, with a target to reach 20% blending in the near future. Currently, E20 fuel is available at 13,569 Public Sector Undertaking (PSU) outlets out of a total of 81,529 outlets. To achieve the 20% blending target, an estimated 1,016 crore liters of ethanol will be required.

Long-Term Impact

The surge in sugar stocks reflects positive market sentiment and the anticipated benefits of an MSP hike. For investors, the potential increase in MSP represents an opportunity for improved returns, while for the sugar industry, it signifies a step towards financial stability and growth.

However, the ongoing discussions and decisions regarding MSP hikes and ethanol prices will be critical in shaping the future landscape of the sugar industry. As the government continues to deliberate on these issues, stakeholders will be closely monitoring developments to gauge the potential impact on their investments and operations.

Conclusion

The rally in sugar stocks on July 13 underscores the significant impact of policy expectations on market dynamics. With the industry pushing for an MSP increase and progress in ethanol blending, the sugar sector is poised for potential growth and transformation. As the hearing date for the MSP hike approaches, all eyes will be on the government's decisions and their implications for the sugar industry and its stakeholders.

The broader context of these developments highlights the interplay between government policies, market reactions, and industry dynamics. For investors, staying informed about policy changes and industry trends will be key to making informed decisions and capitalizing on opportunities in the evolving sugar market.

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