No sugar exports! Should you hold, sell or buy Balrampur Chini stock?

InCred Equities in its latest note cited media reports suggesting a likely ban on sugar exports for the second straight year and said it would keep maintaining its contra-negative view on the sugar sector. The domestic brokerage said sugar sector will always see the mirage of exports but it is the high-time for sugar analysts to know about the illusion.

The domestic brokerage said the viability of sugar exports no longer exists.

“The numbers for the sector would have to be cut for the Street consensus, due to a reduction in sales on account of exports, and a reduction in realisations within the domestic market, due to surplus sugar,” it said.

The brokerage said low domestic sugar prices, no sugar exports and higher sugarcane prices will reduce sugar spreads.

It noted that the minimum selling price (MSP) of sugar was first fixed at Rs 29 per kg in June 2018 and was later increased to Rs 31 per kg in Feb 2019. MSP is the ex-factory price --excluding Goods and Service Tax or GST and transportation charges, below which no mill can sell sugar in India.

Industry hoped that MSP will be fixed at over Rs 40 per kg. However, the prevailing macroeconomic and political environment does not provide a conducive environment for changing the MSP, the brokerage said.

Even if sugar export is allowed, the subsidy on exports is a thing of the past, InCred Equities said adding that the prevailing sugar prices do not favour exports.

“The outlook on Brazil harvest points towards lower international sugar prices against the current stance - higher sugarcane prices,” it said.

InCred Equities said sugarcane prices have been increased to unimaginable levels already by state governments. Uttar Pradesh sugar prices are currently at Rs 370 per quintal. With all eyes on the forthcoming Uttar Pradesh assembly elections, the demand for higher sugarcane prices is likely, it said.

“We have a Reduce rating on Balrampur Chini Mills target price of Rs 264 on 10 times FY26F EPS. We have not considered any earnings from the PLA (polylactic acid) venture of the company, the implementation of which is slated in FY27F,” InCred said.

Recently, sugar stocks were in focus after the government removed sugar diversion cap for ethanol production, allowing distilleries to participate in rice auctions.

Upside risks for sugar stocks include a rise in sugar prices and their sustenance in the domestic market above Rs 40 per kg and a clear directives on FRP and SAP with no increase in pricing.