Sugar stocks are rallying!
Comp Gain in last one month
1. Triven.Engg.Ind 17%
2. Dhampur Sugar 29%
3. Uttam Sug.Mills 17%
4. Mawana Sugars 66%
Should you invest in Sugar #stocks? Let's find out!
Comp Gain in last one month
1. Triven.Engg.Ind 17%
2. Dhampur Sugar 29%
3. Uttam Sug.Mills 17%
4. Mawana Sugars 66%
Should you invest in Sugar #stocks? Let's find out!
Sugar Industry is Cyclical♻️
Sugar is a commodity and just like other commodity businesses, it's cyclical i.e its prices depend on the demand-supply mechanism, which means when the supply is higher, the prices of sugar will tank and so would the profits of sugar companies.
Sugar is a commodity and just like other commodity businesses, it's cyclical i.e its prices depend on the demand-supply mechanism, which means when the supply is higher, the prices of sugar will tank and so would the profits of sugar companies.
For ex, During a bad monsoon when the output is less, prices of sugar would go up and similarly during a good monsoon, the supply would be high and the prices would go down.
Some facts about the Indian Sugar Industry
- India is the second-largest producer of sugar in the world.
- It contributes around 20% to the global supply.
- India is the second-largest producer of sugar in the world.
- It contributes around 20% to the global supply.
Flaw in the law
Sugar cane crop becomes highly perishable once it's harvested, therefore sugar companies have to set up their mills in close proximity to the farms.
Sugar cane crop becomes highly perishable once it's harvested, therefore sugar companies have to set up their mills in close proximity to the farms.
Sugar farming is lucrative, Sugar manufacturing is not!
- Sugarcane is a cash crop and has a high MSP.
- Govt. mandates sugar companies to buy from producers within a specific radius, due to which farmers know they have a specific market to cater to
- Sugarcane is a cash crop and has a high MSP.
- Govt. mandates sugar companies to buy from producers within a specific radius, due to which farmers know they have a specific market to cater to
- Sugarcane is a sturdy crop due to which it can withstand weather fluctuations.
Due to all these incentives, sugar is always in abundance in India. Due to this sugar companies have to sell sugar at losses.
Due to all these incentives, sugar is always in abundance in India. Due to this sugar companies have to sell sugar at losses.
Sugar comp now want to divert their production towards sources that generate higher margins. And one of those sources is Ethanol.
Ethanol is a by-product of sugar and can be blended with petrol, and govt is now pushing automobile companies to produce vehicles with flex-fuel engines which would run completely on Ethanol.
As per reports, TVS Motor and Bajaj Auto have already started producing flex-fuel engines. Usage of ethanol would improve the profitability and cash flows of sugar companies, not just that it can cause a fundamental change in the industry.
As the revenue from ethanol goes up, margins would improve and profits of these companies would be less impacted by the change in sugar prices. So has the time come for Sugar companies to shrug off their cyclical tag? Comment and tell us!
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