Shares of sugar companies were in focus, rising 13% in intraday trading on the BSE on Tuesday, with operating results expected to remain steady in an otherwise weak market.

Ugar Sugars rose 13% to Rs 75.35, while Shree Renuka Sugars, Avadh Sugar & Energy, Uttam Sugar, Dalmia Bharat Sugar, Dhampur Sugar, Triveni Engineering, Dwarikesh Sugar and Balrampur Chini Mills rose 2% to 5%. In contrast, the S&P BSE Sensex was down 0.50% at 57,702 at 11:00 am.

According to rating agency ICRA, despite higher FRP, the FY23 operating margin is likely to remain in the range of 13.0% to 13.5% (in line with FY22 levels) due to higher sugar and ethanol realisations. In the FRP, follow state will increase the production cost. Also, operating margins remain vulnerable to cane supply.

Besides expected healthy sugar exports (which may be lower than FY22) and higher ethanol production at most integrated sugar mills, ICRA sample revenue is expected to remain stable in FY23, supported by increased sugar realisations and ethanol realisations. However, domestic sugar sales from a handful of integrated mills will likely decline as inventory levels ease. Favourable international demand for sugar exports could provide an upside for ICRA samples’ revenue and profits due to more diversion to ethanol or a short-term drop in Brazil’s next crop, the rating agency said in its September Indian sugar report.

Among individual stocks, Shree Renuka Sugars rose 5% intraday today to an 11-year high of Rs 68.70. The stock is currently at its highest level since September 2011. The stock has surged nearly 40% over the past month, while the S&P BSE Sensex has lost 3.5%.

With the arrival of the monsoon in the country, the management of Shree Renuka Sugars expects better sugarcane supply in the upcoming season (October-September). In addition to improving the mill’s balance sheet and cash flow, higher ethanol sales ensure timely payments of cane taxes to farmers and balance sugar inventories. Management remains very optimistic about the company’s financial performance and overall growth.

Shree Renuka Sugars (SRSL) is India’s major agricultural and biofuel company. The company is one of the world’s largest sugar producers and one of the world’s largest sugar refiners.

Meanwhile, the board of Wilmar Sugar Holdings Pte Ltd (the holding company) has provided the company with a letter of support to cover the shortfall in working capital requirements related to normal trading for the period ending May 31 2023. In addition, the company is guaranteed to the bank by a corporate guarantee provided by the ultimate sponsor company (Wilmar International Limited).

Rating agency India Ratings & Research (Ind-Ra) has reiterated its ratings on the long-term bank facilities provided by SRSL and the company’s non-convertible bonds (NCDs). Ind-Ra continues to consider SRSL’s strong legal, operational and strategic links with its ultimate parent company, Wilmar International Limited (Wilmar), and its continued strong support from Wilmar International in achieving the rating.

The positive outlook reflects the potential for continued improvement in SRSL’s business profile, doubling of its brewery capacity, and potential for gradual deleveraging as new capacity additions lead to improved financials, Ind-Ra said on August 18, 2022.