The sugar industry, once an unattractive sector for investment due to its natural and induced (cane arrears) cyclicality, is transforming -- with a change in the business model from high capex to higher growth. This will aid its re-rating.
Enhanced ethanol blending is leading the current growth, thanks to the constructive government policies with a focus on clean energy. This emphasis on bio-energy has made the industry self-reliant and less cyclical. We believe that the rising sugar offtake by OMCs (oil marketing companies), coupled with a progressively declining inventory, will lead to long-term sectoral sustainability.
Prudent govt policy on Enhanced Ethanol Blending Programme (EBP)(Key Highlighsts)
- Robust, sustainable results on back of structural changes
- Large ethanol growth headroom
- Cane diversion to ethanol to reduce surplus sugar
- Distillery business transforming revenue mix and profitability
- Spike in global sugar prices encourage higher exports
- Sugar prices to remain firm with inventories at four year’s low
- Role of weather remains a blip
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