Sugar stocks look up lower 2009 production target

MUMBAI: A spurt in sugar prices saw shares of sugar producers surge on the bourses on Wednesday.

Analysts maintain that sugar prices have been looking up in the recent past in the wake of lower production target for 2009. Cane production is projected to decline with farmers shifting to more lucrative crops. This is expected to bring down the acreage under cane production.

But, while higher cane prices would mean higher incomes for cane growers and may well encourage other farmers to switch to cane, it is likely to directly pose a threat to the profit margins of sugar producers.

The difference between procurement prices set by the Centre and state governments has put an additional burden on sugar producers that could result in higher sugar prices.

Thus, drop in cane output could lead to an increase in cost of production which would impact the profit margins of sugar companies. It is, however, the recent transport strike that is being attributed to the 50 paise per kg rise in realisation by mills.

Mills in Uttar Pradesh are said to be realising Rs 18.50 per kg currently. As such, the price of sugar ex-mills is said to be high.

While most sugar stocks are up today, LKP Shares told ET that right now Balrampur Chini and Triveni Engineering look good in terms of investment purposes.

Balrampur Chini was up 5 per cent at Rs 46.35, while Triveni Engineering higher by 4 per cent at Rs 45 at 10:50 am on the BSE.