Shares of Ugar Sugar Works surged 12% to Rs 79 per share in intraday trade on Thursday on heavy trading after the company approved a 645-kilo litres per day (KLPD) distillery.

Stocks of sweeteners hit a six-month high, the highest since April 2022. It touched a 52-week high of Rs 86.50 on March 25. The stock is up 32% in the past seven days.

At 12:38 pm, it was trading up 7%, while the S&P BSE Sensex was down 0.81%. The stock has risen 165% in the past year, while the S&P BSE Sensex has lost 6%.

The company said it has completed the establishment of 645 KLPD wineries at the Ugar plant. In addition, they plan to renew the trial run of 645 KLPD wineries in due course.

“The short-term outlook for sugar looks quite good due to stable domestic prices, good sugar exports and a shift to ethanol. However, ethanol supply and exports are proving to be a silver lining for the industry in the coming years,” Ugar Sugar said.

On October 4, CRISIL Ratings reaffirmed Ugar Sugar Works’ long-term bank funding outlook as “stable”.

CRISIL highlighted the rationale behind the upgrade, “The rating reflects a steady improvement in the business risk profile, marked by healthy cane crushing, which is expected to continue in the medium term. Coupled with the steady performance of the brewery and the cogeneration unit bring stability operating profitability.”

Meanwhile, the company has embarked on major capital expenditure of Rs 200 crore in the last and this fiscal year to increase its distillery capacity from 75 KLPD to 845 KLPD. Among them, the company completed the trial operation of 155 KLPD in March 2022, and the remaining 645 KLPD is expected to be put into production in October 2022 (the start of the 2023 sugar season).

The segment will be primarily engaged in ethanol production for direct sales to oil manufacturing companies (OMCs) to meet its ethanol blending goals.

In addition to this, the government has introduced a range of benefits to facilitate ethanol blending, including subsidised loans and paying off-take prices for ethanol.

As such, analysts expect the business risk profile to improve once the winery is operational. They expect operating profitability to improve to over 10% in the medium term.

CRISIL Ratings added: “In the brewing segment, the company plans to focus on ethanol produced through the cane juice route, thereby reducing sugar production, but this will be balanced by higher salaries and higher margins for cane juice ethanol.”