A: The sugar sector has taken a lot of beating and share prices have corrected by over 50%; but now it seems that sugar, which is getting sold below levy prices in Maharastra and UP is getting sold at Rs 14-14.50, which seem to be lowest realisation for sugar industries. All sugar companies will stop crushing from mid-May, but then the festive season starts from July and there will be higher demand for sugar.
Generally post-closure, the sugar mills' realisations are higher for the product, which is going to be the same scenario this year too. The price is expected to rise by Rs 1.50 per kg in the next 30-45 days and if that happens, then all sugar mills that are carrying huge inventory of production for six months will get sold in the next six months from May to November, which will fetch them higher realisations. And once that happens, the profitability performance of the companies will improve. Even international prices of sugar have started going up.
I think once having corrected, there could be a trading or a momentum or a technical call for short-term traders. For the next three to six months, sugar companies are likely to record a gain of about 25-30%. Since Balrampur Chini is one of the largest in the sugar industry, they will tend to gain a lot and they also have a strong performance because prices have fallen as low as Rs 250/tonne, which gives them a profitability for their co-gen operations.
So taking all these things into consideration, Balarampur Chini appears to be a safe bet in this volatile market, which can give a return of about Rs 12-15 over next three-six months.
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