Govt May Relook At Restrictions On Sugar Exports Only By The End Of CY24: Elara Sec | CNBC TV18
Summary
TLDRThe 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
📉 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.
🌾 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.
Mindmap
Keywords
💡Gains
💡Reversal
💡MSP (Minimum Support Price)
💡Ruka
💡Profitability
💡Ethanol Offtake
💡Cane Crop
💡Stocks
💡Exports
💡Balamur Chini
💡PLA (Polylactic Acid)
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
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