Sugar decontrol: Top five stocks to sweeten your portfolio
We expect sugar mills to breathe a bit easy as sugar companies no longer have to bear the levy sugar obligation for two years, LKP said.
By ET Online | Updated:
NEW DELHI: In a much awaited move, the Cabinet Committee on Economic Affairs (CCEA) on Thursday cleared partial decontrol of sugar by abolishing the requirement for private sugar mills to sell a specified amount of sugar to the government at concessional rates.
The government has thrown open the sugar market and continuing the burst of reforms that began last September with a more liberal regime for foreign investment in retail.
The government has abolished the decades-old practice of regulating how much sugar a mill can sell in the market and the "levy" system in which a company is forced to sell 10% of the output at a loss to sweeten supplies to the public distribution system, reports ET.
This comes into effect for output since September 2012, the start of the sugar year, and will be reviewed after watching its impact on the market and farmers for two years, said the ET report.
“With the CCEA nod for sugar decontrol, we expect sugar mills to breathe a bit easy as sugar companies no longer have to bear the levy sugar obligation for two years,” LKP said in a report.
“Now that the release mechanism has been abolished and with the front end cleared, the back end needs to be looked into as per the recommendations of the Rangarajan committee report,” added the LKP report.
To continue subsidised supply to the poor, states will now have to buy sugar at market rates and maintain the existing PDS sale price of Rs 13.50/kg, which has not been revised for a decade.
“States would now be free to decide on the cane price as well as to buy sugar from the open market for PDS sale,” say industry experts.
However, the Centre will pay the states for this, and its sugar subsidy burden will rise to Rs 5,300 crore from Rs 2,600 crore a year.
Sugar mills will continue to be subjected to controls by the state governments, which decide cane prices and regulate various aspects of cane cultivation and sale, said the ET report.
LKP Advisory in a note recommended five sugar stocks poised for upside after partial decontrol of sugar:
1. Balrampur Chini Mills (CMP - Rs48): BUY with a price objective of Rs65
2. Triveni Engineering (CMP- Rs17): BUY with a price objective of Rs23
3. KCP Sugar (CMP - Rs20): BUY with a price objective of Rs30
4. Dharani Sugars (CMP – Rs 29): BUY with a price objective of Rs45
5. Dhampur Sugars (CMP - Rs46): BUY with a price objective of Rs70
The government has thrown open the sugar market and continuing the burst of reforms that began last September with a more liberal regime for foreign investment in retail.
The government has abolished the decades-old practice of regulating how much sugar a mill can sell in the market and the "levy" system in which a company is forced to sell 10% of the output at a loss to sweeten supplies to the public distribution system, reports ET.
This comes into effect for output since September 2012, the start of the sugar year, and will be reviewed after watching its impact on the market and farmers for two years, said the ET report.
“With the CCEA nod for sugar decontrol, we expect sugar mills to breathe a bit easy as sugar companies no longer have to bear the levy sugar obligation for two years,” LKP said in a report.
“Now that the release mechanism has been abolished and with the front end cleared, the back end needs to be looked into as per the recommendations of the Rangarajan committee report,” added the LKP report.
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To continue subsidised supply to the poor, states will now have to buy sugar at market rates and maintain the existing PDS sale price of Rs 13.50/kg, which has not been revised for a decade.
“States would now be free to decide on the cane price as well as to buy sugar from the open market for PDS sale,” say industry experts.
However, the Centre will pay the states for this, and its sugar subsidy burden will rise to Rs 5,300 crore from Rs 2,600 crore a year.
Sugar mills will continue to be subjected to controls by the state governments, which decide cane prices and regulate various aspects of cane cultivation and sale, said the ET report.
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LKP Advisory in a note recommended five sugar stocks poised for upside after partial decontrol of sugar:
1. Balrampur Chini Mills (CMP - Rs48): BUY with a price objective of Rs65
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2. Triveni Engineering (CMP- Rs17): BUY with a price objective of Rs23
3. KCP Sugar (CMP - Rs20): BUY with a price objective of Rs30
4. Dharani Sugars (CMP – Rs 29): BUY with a price objective of Rs45
5. Dhampur Sugars (CMP - Rs46): BUY with a price objective of Rs70
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