Decline in output may hit sugar stocks

The sugar stocks can be expected to trade lower due to the low production numbers reported in the trading period till January 15, 2020. The production is down by nearly 26 per cent on YoY basis. The sector registered an average sales growth of 35 in the second quarter of current fiscal. The third quarter result may see a decline due to a decrease in the production.

Indian Sugar Mills Association (ISMA) in its latest report stated that India’s sugar production dipped by 26.15 per cent to 10.88 million tonnes during October 1, 2019 and January 15, 2020 of the current marketing year (October-September), as compared to the output, which was 14.74 million tonnes during October to January of 2018-19 marketing year.

The mills in Maharashtra have produced 2.55 million tonnes of sugar, which declined from 5.72 million tonnes during the same period, a year ago. The production in Karnataka declined by 18.16 per cent to 2.19 million tonnes, as against 2.67 million tonnes, in the same period, whereas, the production in Uttar Pradesh rose to 4.37 million tonnes so far, when compared to 4.19 million tonnes, a year ago.

The net returns of the sugar stocks have been robust since end of the second quarter of current fiscal. The average returns of sugar stocks since September 2019 to January, 2020 stood at 30 per cent, as against 21 per cent gain over Sensex, during the same period. Due to the declining production numbers, the overall revenue growth can be expected to decline for the current quarter.