SUGAR SECTOR STOCKS - REPEAT

 I have recommended Sugar sector stocks in January and thereafter most  of the recommended scrips gained over 60 % .But now these stocks again corrected sharply in recent times .After my previous posting ,some favorable developments happened in this sector like permission to export sugar under  open general license,depreciation of rupee, slightly improved realisation from local sale,appointment of a committee to study and recommend the possibility of a sugar price decontrol..etc.All together I believe it is again the time to consider stocks from this sector with a long term view and hence repeating my old recommendation


 Old posting below :

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I know, many of you  will not  support an idea of buying the shares of companies from sugar sector at this point of time.Yes, there is lot of negatives like lower sugar price,high interest burden,excess government control ...etc.But we can't ignore the fact that all these negatives and more are reflecting in the stock price of each and every sugar company. Most of them are trading at their 5 to 10 year lows and such a situation is surely an opportunity to buy these type cyclical stocks at rock bottom prices for investors with patience.Sugar companies are currently going through rough weather mainly because of lower product price worldwide .But this situation is expected to reverse in one year due to lower production.( Generally it is the nature of many agri commodities) .The expected rise in crude prices going forward may  also influence the sugar price positively  in coming years.Whenever the crude price moves higher and sugar price comes down large manufactorors like Brazil will surely give much preferance for the production of Ethanol over sugar and such a situation will create lower supply situation of sugar in world markets.Moreoevr the current worst situation may lead to the closure of many small sugar mills and the chances of a consolidation in this industry is very much.The most important factor at this point of time regarding the sugar industry in India is the high probability for a reduction in goverment control in  this sector.Chances are very high for some favourable developments in this direction after the upcoming state elections.All together, I feels many sugar companies are value buys at current market price for a genuine investor with long term view.Consider at current market price , Shree Renuka @ Rs.26/- , Rajshree Sugar @ Rs.32/-,Dhampur Sugar@ Rs.31/- and Thiru Arooran @ Rs.70/-

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 Stocks like Bajaj Hindustan ,Balrampur Chini and Sakthi sugar ..are also at attractive valuation

BAJAJ HINDUSTHAN - BUY

 

We have discussed stocks from sugar sector few months back when most of them at their all time lows.( For old posting Click HERE) Even if many of them appreciated more than 30 % in an average from that level,there is still chances in this sector for long term investors.Even now there is full of skepticism about this sector and these skeptics are looking only to the negative factors around and not considering the sharp correction in the prices of stocks from sugar  sector. I have mentioned three stocks in my earlier note .Today ,let us take Bajaj Hindusthan which is one of the largest sugar producers in our country.Company having 14 sugar plants in India with a  crushing capacity of 136,000 TCD (tonnes crushed per day) and has Industrial Alcohol/Ethanol producing capacity of 800 KL per day.It also having a co generation facility for producing 428 MW of power.Under three SPV’s ( Bajaj Energy Private Limited, Lalitpur Power Generation Company Limited, Bajaj Power Generation Private Limited )company is in the process of setting up thermal power capacity of 4410 MW in Uttar Pradesh.Its another subsidiary Bajaj Eco-Tec Products Limited (BEPL) is Manufacturing Medium Density Fibre (MDF) boards and Particle boards from sugarcane baggese. BEPL is expected to break even in next few years. This integrated nature of the company is reducing the risk of sugar price volatility to a certain extent. As all of you are aware, sugar companies are currently going through a difficult situation due to price erosion of sugar because of over supply situation.Now in whole sale market ,sugar is traded even below its production cost.But this situation is expected to change in coming years due to crop loss in major producing countries on account of weather conditions,shift of farmers to other crops..etc.In countries like Brazil more cane is expected to divert for ethanol production due to rise in crude prices. All these factors are pointing  to a recovery in sugar prices in next few years.Being a company with huge capacity ,such a situation will immensely benefit Bajaj Hindusthan.In December quarter company posted a loss of Rs.45 Cr .Last year company collected 1,479.75 crore through a rights issue to part finance its various expansion programs and retire a part of its debt. At current market price of Rs.35/- ,Bajaj Hindusthan is a good bet for long term investors with enough patience.