In the era of health-conscious eaters, sugar seems to take a back seat in diet plans. But did you know sugar stocks are taking centre stage in India? From being a staple in Indian kitchens to contributing to the country’s sustainable energy landscape, these are some exciting times for the Indian sugar industry. But what are sugar stocks?
As the name suggests, these are publicly traded shares offered by companies operating at different levels of the sugar supply chain. Sugar stocks are definitely an off-beat investment instrument amidst the basic categories in the share market. Sugar sector stocks are for those investors who are looking to invest for the long-term and leverage on the time frame to gain higher profits. These stocks can also be an exciting investment opportunity for risk-tolerant investors who wish to explore the risky landscape of commodity prices and regulated sectors.
The Indian sugar sector is now experiencing a golden period as the government has special subsidies and loan benefits for the sugar industry. It is a part of the government’s elaborate plan towards achieving 20% ethanol blending by 2025. Yes, the sugar industry is closely entwined with ethanol production, and renewable fuel is going to power the growth of the sugar sector in India.
Therefore, if you are looking for a new investment avenue, sugar sector stocks will hit the sweet spot! This article will tell you why.
A spoonful of sugar stocks: An important asset in 2024
Sugar sector stocks are an excellent investment instrument for long-term investors. However, agricultural enthusiasts and adventurous investors can also benefit from investing in sugar stocks. Here are five reasons emphasising the importance of sugar sector stocks in 2024:
- Major economic booster: Globally, India comes second after Brazil in sugar production. It is an essential agricultural sector offering extensive employment in the rural areas. Additionally, the sugar sector significantly contributes to India’s economy. It is also important to remember that the sugar sector is heavily reliant on government policies and subsidies. Changes in export quotas, price regulations on sugarcane and sugar, or tariffs can impact profitability. Additionally, geopolitical tensions could disrupt exports, affecting revenue.
- Diversified portfolio: Every portfolio has tech or finance stocks. However, an agricultural stock is a unique way of diversifying your portfolio. In the long run, sugar stocks can generate better returns than broader category stocks. But beware that sugar stocks can be vulnerable to the cyclical nature of agricultural commodities, which are influenced by weather patterns, monsoons, and global price fluctuations. Poor crop yields or unexpected climatic events can result in volatile stock performance.
- Defensive Investment: Sugar is a staple commodity in India, which means demand is relatively inelastic, even during economic downturns. This defensive nature offers a stable revenue stream for sugar companies, providing investors with more stable returns during these periods. Moreover, sugar stocks can serve as an inflation hedge, helping to protect investments during uncertain times.
- Ethanol push: Although sugar is a consumable commodity, its by-product ethanol is a biofuel which is currently in high demand. The Indian Government is offering sugar mills special benefits for producing ethanol. Since there is a new line of products that sugar mills can leverage, they are likely to remain profitable in the coming times. Ethanol market is still heavily dependent on government policies, subsidies, and fuel blending mandates. Any reduction in government support like stopping ethanol production to meet sugar demand or changes in global crude oil prices could reduce the profitability of ethanol production for sugar companies.
Why is ethanol blending boosting sugar stocks in India?
Before answering that question, let’s understand what ethanol blending is and why the Indian government is focusing on it in 2024. Ethanol, a renewable fuel, is a by-product of feedstock like sugarcane, maize, wheat, sorghum, etc. Ethanol is mixed with petrol or other fossil fuels to reduce greenhouse gas emissions and dependency on non-renewable energy sources and achieve better fuel efficiency.
In June 2021, the Indian government released a detailed plan, known as the “Roadmap for Ethanol Blending in India 2020-25”. It is a well-laid pathway that leads to achieving 20% ethanol blending by 2025. Since 2018, the government has been offering several subsidies and benefits to the sugar sector to boost ethanol production. For instance, the government provided soft loans to sugar mills through banks under the Ethanol Blended with Petrol (EBP) Programme. Under the EBP Programme, there will be a guaranteed demand for the ethanol market.
Therefore, sugar mills will have a steady second source of revenue. The sugar mills will also get tax reliefs that will indirectly benefit ethanol production.
It was reported that in May 2024, the country achieved 15% ethanol blending. Therefore, it is safe to say India is closer to the target percentage. To incentivize the sugar mills and keep them motivated the government will continue to offer financial support to the industry. This will positively impact the sugar sector stocks and its investors with guaranteed returns.
Top Sugar Stocks in India
Balrampur Chini Mills Ltd: Balrampur Chini Mills is one of the largest sugar manufacturing companies in India. Besides sugar production, the company has diversified into ethanol production and cogeneration of power. It has multiple distilleries and plays a key role in the production of ethanol, helping the country’s ethanol blending programs.
Shree Renuka Sugars: Shree Renuka Sugars is a leading sugar company with a significant presence in ethanol manufacturing. It operates integrated sugar complexes, which include distilleries to produce ethanol. The company is known for its efficiency and large-scale ethanol output, contributing to India’s biofuel initiatives.
Triveni Engineering & Industries Ltd: Triveni is a diversified industrial group with a major focus on sugar and alcohol production, including ethanol. It operates multiple sugar mills and distilleries, making it one of the key players in the ethanol production space in India. The company has been expanding its ethanol capacity to meet the increasing demand.
EID Parry (India) Ltd: EID Parry, a part of the Murugappa Group, is a prominent sugar manufacturer in India. It is also involved in ethanol production, leveraging its sugarcane byproducts for biofuel manufacturing. The company is recognized for its innovation in the sugar industry and its growing role in the ethanol market.
The Bottom Line:
With new policies, subsidies and ambitious goals, the Indian sugar sector is ready to experience some good times. As an investor, now is the right time to explore sugar stocks and consider it as an investment opportunity.
We hope this article helps you take the first step towards investing in sugar stocks. The Dayco app guides you through all your investment endeavours.
-Nischay Avichal
