Sugar stocks rally on MSP hike; positive Q4 estimates

Sugar stocks have spiked upwards ever since the government hiked the minimum selling price (MSP) for sugar mills by Rs. 2 per kg. The MSP now stands at Rs. 31 per kg.

The MSP denotes the minimum rate below which the mills are not permitted to sell sugar in the open market to wholesalers and bulk consumers such as beverage and biscuit makers.

According to the Food Minister, Ram Vilas Paswan, the MSP was scaled up on account of the rising sugarcane arrears to farmers. As of January-end, these arrears were reported at around Rs. 20,000 crore.

Thursday’s trading session witnessed a 10 per cent rise in the shares of Avadh Sugar as well as Andhra Sugars. The shares of Dwarikesh Sugar advanced 9.82 per cent while those of Dhampur Sugar climbed 8.71 per cent.

The outperformance exhibited by sugar stocks can be attributed to yet another reason, namely, the investors’ optimistic expectations of superior Q4FY19 earnings results as well as increased sugar production.

Based on data shared by the Indian Sugar Mills Association (ISMA), 507 sugar mills produced 219.30 lakh tons of sugar as of February 15. This is 7.8 per cent greater in comparison to last year’s production.

ISMA is of the opinion that the hike in MSP bodes well for the sugar industry as it will result in greater revenue generation and aid sugar mills in payment of cane price arrears.