Govt May Relook At Restrictions On Sugar Exports Only By The End Of CY24: Elara Sec | CNBC TV18

Summary

The transcript discusses the sugar industry's fluctuating stock values, with a focus on the impact of Minimum Support Price (MSP) expectations. Prashant, a sector expert, suggests that despite industry hopes for an MSP increase between 40 to 41 rupees per kilogram, it's unlikely due to current high sugar prices and profitability. He also addresses ethanol pricing stability and the potential for sugar exports, emphasizing that government decisions on these matters will be influenced by the upcoming cane crop's quality and yield. Prashant's top pick for investment in the sector is Balamur Chini, citing its efforts to improve cane quality and yield, and its venture into PLA production.

Takeaways

• 📉 Stock reversals are occurring, with companies like Balamur Damur experiencing mild negative movements.
• 📈 Ruka is currently up by about half a percent, following a significant rally due to expectations of a minimum support price (MSP) hike for the sugar industry.
• 🍬 The sugar industry has been advocating for an MSP of 40 to 41 rupees per kilogram, but the expert, Prashant, does not expect an increase in the next 3 to 4 months due to inflation concerns.
• 💡 Prashant suggests that even if there is an MSP increase, it may be lower than the industry's request and may not impact current sugar prices, which are already resilient.
• 🔄 The profitability of the sugar industry is decent, supported by good ethanol offtake and government support for better grain prices.
• 🌾 The government is expected to assess the cane crop's performance in the current season before making decisions on sugar exports or MSP increases.
• 🌎 Global sugar prices are elevated, but the decision on exports will depend on the domestic sugar stock and the next season's crop yield.
• 🚫 There is no expectation of an immediate increase in ethanol prices for the current season, as the government has already revised the prices.
• 📊 The retail price of sugar is between 48 to 54 rupees, depending on the type, with mill prices varying by region.
• 🚀 Prashant's top pick in the sugar sector is Balamur Chini, which is expected to benefit from resumed blending programs and efforts to increase cane acreage and quality.
• 💡 Balamur Chini is also venturing into PLA production, expected to commence from FY 27, indicating long-term growth potential.

Q & A

What was the reason for the recent rally in sugar stocks?

The rally was triggered by expectations of an increase in the minimum support price (MSP) for the sugar industry.

What is the industry's expectation for the MSP of sugar?

The industry is advocating for the MSP of sugar to be set between 40 to 41 rupees per kilogram.

What is Prashant's view on the likelihood of the government increasing the MSP to the industry's desired level?

Prashant does not expect an increase in MSP in the next 3 to 4 months, and even if there is an increase in the next season, it could be lower than what the industry has been asking for.

How does the current sugar price resilience affect the impact of an MSP increase?

Due to the current resilience of sugar prices, even if an MSP increase is announced, it may not have an impact unless it is at a reasonable level.

What is the current situation with sugar company margins considering the existing sugar prices?

Margins of sugar companies are not expected to be impacted by an MSP increase as prices are already above the MSP and profitability is decent due to good ethanol offtake and government support.

What are the government's current ethanol prices for the heavy and grain ethanol?

The government has already increased the prices for both heavy and grain ethanol for the current season, and there are no further price increases expected for the remainder of the season.

What is the expected impact of the ethanol program on the sugar industry next year?

With high sugar stock in the country, the ethanol program is expected to return to normal levels next year, with the main variable being the ethanol price set by the government.

What are the retail prices of sugar currently?

The retail prices of sugar are between 48 to 54 rupees per kilogram, depending on the type of sugar.

What factors could potentially be the next trigger for sugar stocks, if not MSP or ethanol price hikes?

The next trigger could be related to the export front, with the government's decision on sugar exports and the quality of the next season's sugar cane crop being critical factors.

What is the current projection for sugar closing stock at the end of the year?

The projection is to end the year with around 8 billion tons of sugar as closing stock.

What is Prashant's top pick in the sugar sector and why?

Prashant's top pick is Balrampur Chini, due to its efforts to increase cane acreage and improve quality and yield, as well as its venture into PLA production expected to commence from FY 27.

Outlines

00:00

📉 Stock Reversal and Sugar Industry MSP Expectations

The script discusses a reversal in stock gains, particularly for companies like Balamur Damur, following a rally triggered by expectations of a minimum support price (MSP) hike for the sugar industry. The industry has been advocating for an MSP between 40 to 41 rupees per kilogram. Prashant, VP of institutional equity research, provides insights, suggesting that due to inflation concerns, the government is unlikely to increase the MSP in the next 3 to 4 months. Even if an increase occurs, it may be lower than the industry's request, and given the current resilience of sugar prices, it's unlikely to impact the market significantly. The discussion also touches on the potential lack of impact on sugar company margins and the ethanol pricing situation.

05:00

🌾 Sugar Stocks and Ethanol Market Outlook

This paragraph delves into the factors affecting sugar stocks and the ethanol market. Prashant forecasts an end-of-year closing stock of around 8 billion tons of sugar, indicating sufficient stock for potential exports. However, government policy decisions are expected to be influenced by the quality of the current sugar cane crop and production expectations for the next season. The ethanol program, disrupted this year, is anticipated to return to normal levels next year, contingent on government pricing decisions. Prashant identifies Balamur as a top pick in the sector, citing the company's efforts to increase cane acreage and improve quality and yield, as well as its venture into PLA production from FY 27. The summary concludes with a brief mention of a short break and an upcoming discussion on commodity market trends.

Keywords

💡Gains

Gains in the financial context usually refer to profits or increases in value. In the video, it is mentioned that 'gains are coming off,' indicating a reversal or decrease in the value of stocks, particularly in the sugar industry. This is a key theme as it sets the stage for discussing market dynamics and expectations.

💡Reversal

A reversal in stock trading signifies a change in the direction of the stock's price trend. The script mentions a 'reversal on stocks,' which is directly related to the fluctuation in the sugar industry stocks, showing how market sentiment can quickly shift due to various factors.

💡MSP (Minimum Support Price)

MSP is the minimum price that the government assures to the producers of certain commodities. The script discusses expectations of an 'MSP hike' for the sugar industry, which is a central topic as it influences the profitability and stock prices of sugar companies.

💡Ruka

Ruka, mentioned as 'Ruka is also just about half a percent higher,' seems to be a stock or company name that is experiencing a slight increase in value. It is an example of how individual stocks can perform differently even within a sector that is generally seeing a downturn.

💡Profitability

Profitability refers to the ability of a company to generate profit. The script discusses the sugar industry's profitability in the context of MSP and ethanol prices, indicating that despite higher production, the industry remains profitable due to resilient sugar prices and good ethanol offtake.

💡Ethanol Offtake

Ethanol offtake refers to the consumption or purchase of ethanol, often used as a biofuel. The script mentions that 'ethanol off has been quite good,' which is a positive factor contributing to the sugar industry's profitability, as it provides an additional revenue stream for sugar producers.

💡Cane Crop

The cane crop is the raw material for sugar production, derived from sugarcane plants. The script suggests that the government will assess the 'sugar cane crop quality,' which is crucial for determining future sugar production and export policies.

💡Stocks

In the context of the video, stocks refer to shares in companies, particularly those in the sugar industry. The discussion revolves around the performance and future prospects of sugar stocks, influenced by factors such as MSP, ethanol prices, and global market conditions.

💡Exports

Exports in this context refer to the shipping of sugar from one country to another. The script mentions the potential for increased sugar exports, which could be a 'booster' for the industry if global demand is high and domestic supply is sufficient.

💡Balamur Chini

Balamur Chini is a company mentioned in the script as a top pick by the guest from Lara Securities. It is highlighted as a company that is taking efforts to increase cane acreage and improve quality and yield, making it an attractive investment in the sugar sector.

💡PLA (Polylactic Acid)

PLA is a biodegradable plastic derived from renewable resources like corn starch or sugarcane. The script mentions that some companies are venturing into PLA production, which is a diversification strategy that could potentially impact their future growth and stock performance.

Highlights

Stocks like Balamur and Damur are experiencing a reversal after a rally due to expectations of a hike in the minimum support price (MSP) for the sugar industry.

The MSP for sugar is expected to be set between 40 to 41 rupees per kilogram, which is a key factor for the industry's profitability.

Prashant, Vice President at Arara Securities, discusses the prospects for sugar stocks in light of the MSP hike expectation.

The current rally may not be sustained as the MSP increase might not materialize in the next 3 to 4 months due to government concerns about inflation.

Even if an MSP increase is announced, it might be lower than the industry's expectations, limiting its impact on sugar prices.

Current sugar prices are resilient despite high production, suggesting that an MSP increase may not significantly affect the market.

The profitability of the sugar industry is decent, supported by good ethanol offtake and government support for better grain prices.

Ethanol prices for the current season have already been increased by the government, with no expectation of further hikes.

The ethanol program is expected to return to normal levels next year, supported by high sugar stocks in the country.

Sugar stocks are currently above the MSP, indicating that an increase in MSP may not impact the margins of sugar companies.

The retail price of sugar varies between 48 to 54 rupees per kilogram, depending on the type of sugar.

The X Mill price for Maharashtra is around 37-37.50 rupees, and for North India, it's around 38.50-39 rupees.

Global sugar prices are elevated, but the government is cautious about allowing more exports to ensure domestic availability.

The government will assess the quality of the sugar cane crop before making decisions on sugar exports or MSP increases.

Ending the year with around 8 billion tons of sugar stock, India has ample room for exports if the government decides to do so.

Prashant suggests that between 1 to 2 billion tons of sugar exports could be reasonable, depending on the stock and crop quality.

Balamur Chini is identified as a top pick by Arara Securities due to its efforts to increase cane acreage and improve quality and yield, as well as its venture into PLA production.

Transcripts

gains are coming off in fact there's a

reversal on stocks like balamur damur

mild negative on many of these names as

we see yeah Ruka is also just about half

a percent higher right now yesterday the

big rally happened because of

expectations of a hik in minimum support

price for the sugar industry and of

course this is an industry that's been

advocating for the MSP of sugar to be

set anywhere between 40 to 41 rupees per

kilogram to talk about this in the

prospects for some of the sugar stocks

going forward we have with us Prashant

be

vice president institutional equery

research and sector lead for agre inputs

sugar and hotels at arara Securities

thanks very much good to have you on the

show so your first thoughts I mean about

this whole rally that kind of came in

because there's an expectation of an MSP

hike uh do you see this figure actually

playing through 4041 rupees considering

uh the government will also be cognizant

of inflation which food inflation which

has been very sticky at close to 7 and a

half% correct so we don't expect a

increase in MSP at least in the next 3

to four months and even if in the next

season if there's an increase in MSP uh

I think uh the yesterday's one of the

news article also suggested that it

could be lower than what industry has

been asking for so we don't see even in

the medium term if MSP is announced

unless it is at a reasonable level it is

going to have any impact on the current

sugar price because the prices already

are quite resilient

despite high sugar production so we

don't see

a to sum it up we don't see an impact of

any uh increase in MSP even if it is in

the next six months if the price hike is

not

enough right Prashant good morning

thanks a lot for joining in and that was

my question actually the next one as

that because you since mentioned that

that does not seem to be an impact I'm

assuming there would be no impact on the

margins of the sugar companies as well

considering the fact that the price

currently are already above the MSP so

what do you believe so what do will that

have any impact on the margins if at all

an MSP increase is put in

place we don't see an impact of it at

all in case of increase in Sugar MSP

obviously it also depends on Quantum of

hike what they want to do but typically

in the past we have seen increase in MSP

happens when sugar prices are quite

subdued or if the industry is bleeding

in terms of profitability and neither of

these two are the scenarios right now as

I mentioned despite higher than

anticipated sugar production prices have

been quite resilient and the

profitability is also decent on the

overall basis because ethanol off has

been quite good and government has

supported in terms of better prices also

for grain and sea heavy

Aton um speaking of ethanol is there an

expectation of higher prices on that

front as well rant and again uh you know

one can expect and hope the question is

what will actually be delivered what's

your view on the ethanol side in terms

of pricing yeah so for the remaining

part of current season most of the

ethanol off should be of C heavy ethanol

and grein ethanol so for both of these

government has already increased the

prices so at least for the current

season we don't see any further increas

in price uh for the next season again

government has to see what price they

want to keep it at because the ethanol

price is revised every season so for

this season the prices have already been

uh

changed okay so let's talk about uh you

know sector Dynamics and profitability

now you're saying that obviously even if

MSP is hi it's an optical thing because

prevailing prices are probably close to

this level I guess would be around what

40 rupees uh at the retail level I mean

what would be the prevailing

prices at the retail level uh it is

between 48 to 54 depending on what kind

of sugar you want to consume but at The

X Mill price for Maharashtra is I think

somewhere around 37

3750 and for up or North India it would

be around 3850 39 something okay so then

then tell us what would be the more

critical factors that play uh in I'm

just talking about you know from from

sugar stocks perspective if uh MSP is

not really a a big trigger and ethanol

price hack you're not expecting anytime

soon either then what could be the next

trigger something on the export front uh

I mean how are Global I think Global

prices have also been elevated so do you

see more exports being allowed at all

and maybe that could be the next

booster so government will first try to

get a sense on how is the cane crop

doing in the current season so given

that we have an expectation of good

Monsoon so the can crop should yield

some bit better than

some bit better yield of sugar than what

we were estimating but before taking any

action on the on the policy front for

sugar exports or any increase in MSP

government will first try to get a sense

on the sugar cane crop quality which

again will take some time uh then coming

to Sugar I think we should end this year

with around 8 billion tons of closing

stock so we have enough sugar stock in

the country if Government wants to

export it there is headro to export uh

but again it will depend on next year

production expectation uh government may

be earing on the side of caution to see

that there is adequate availability of

sugar uh so it largely depends on the

next season how the crop is going to be

on the sugar price as I told you the

prices are quite resilient right now uh

now coming on the ethanol side uh this

year the all program got disrupted a bit

but uh because we have a high sugar

stock in the country we expect ethanol

program to reinstate to its normal level

going into next year uh the only

variable within ethanol would be the

ethanol price at what level they want to

keep

it you know Prashant I wanted to go back

to the exports bit now you mentioning

that you'd end the year with 8 billion

tons of sugar and isma is pushing for

exports of close to 2 billion tons

do you see now that there are enough

reports that are also saying that there

is comfortable Supply in the market as

well that do you see that this 2 billion

ton demand ask is reasonable considering

the stock that you currently have or you

projecting to end the year

with uh I would say between one to two

would be reasonable uh not exactly two

but again I think government will uh

certainly look at the stock the can crop

quality for next season on export front

also we expect a decision only uh during

the end of this calendar or maybe early

part of next year this year I don't

think in the next three to four months

there's going to be any decision on

export if there is any it would it could

be a bold decision on the part of the

government okay well I guess the Hope

trade is based on uh you know the the

idea that some of these bold decisions

will come through either in terms of you

know higher export sport so maybe higher

ethanol pricing finally Prashant leave

us with your calls on the sector on in

terms of stocks do you like anything

what are your buys and what's the

rationale if if you have any

picks yeah so we like balamur in the

space uh again this year was disrupted

for the industry due to lower blending

uh but next year we expect uh the

blending program to resume balamur is

taking uh quite a bit of efforts to

increase the cane cane acreage within

its area the to improve the can quality

as well as yield uh we like we like

bampur in the space and the companies

also venturing into pla which is likely

to commence production from FY 27 though

it's a bit back ended but I think the

growth for the company in fi 26 and

Beyond looks quite good so we our topic

would be

balam balamur Chini then the top pick

for Lara Securities prashan thanks a lot

for joining in sharing your views on the

sector and your top pick as well which

is balamur Chini time for a short break

here on trading R up next we'll discuss

what's buzzing in the commodity space

Manisha Gupta joins us on the other side

[Music]

[Music]

[Music]