Sugar Stocks: Do they have the X factor

It would not be deniable to say that Banking and other Financial Institutions (BFSI), Fast Moving Consumer Goods (FMCG) and tech-savvy stocks are known for capturing the attention of the market from decades and associated stocks always remain on the buying list of market veterans, big sharks and financial institutions. Their prolong brand name, strong promoters support and easy access to debt and other instruments for raising funds makes them a compelling pick for investors. These sectors inculcate the potential of generating returns that could tackle the cost of inflation and loss of current purchasing power but manifold returns is likely less expected as the Creme-de-la-crème moment of these stocks have been consumed by initial investors and elephants take a substantial time to move.

Old school sugar companies

Previously, sugar companies were banking upon single product, sugar, which is used in consumption mainly by households and hospitality business. The financial statements of the sugar companies were driving by sales of the sugar only having no other potential source of revenue. Moreover, the sugar companies were selling sugar below Minimum Support Prices (MSP) due to cash crunch.

Factors that has pushed the sugar companies

  • Regulation of Sugar Companies: The introduction of National Federation of Cooperative Sugar Factories Ltd is keeping a check on the sugar lobby in case of violation of the stipulations drafted regarding sugar prices. Moreover, Niti Aayog is keeping a continuous check on the Minimum Support Prices by increasing it to support the sugar mills.
  • Ethanol for producing oil: The Indian administration is constantly pushing for ethanol-blended petrol (EBP) target year by year (from 5% to 10 %and now pushing for 20% by 2030). Ethanol is a bio-fuel derived from sugarcane, which is blended with petrol to restrict carbon discharge. This has supported the sugar companies to add one more revenue source in their product portfolio. This has also pushed the sugar companies to increase their production capacities and opt for expansion plans.

New savior in the town

The emergence of Covid-19 in the world economy has spooked the general public and one thing, which has been advised by the doctors, is the carry of sanitizers whose recipe requires ethanol. There is no denying the fact that sanitizers have been used in bulk this year and will continue to remain a major part in personal care list of general public as economy is getting more savvy to healthcare products to avoid getting infected with Coronavirus as movement of men has started after easing norms. The long-term story of the sugar companies for producing ethanol will remain intact and sugar companies are expected to find place in the investor’s portfolio having immense potential of generating manifold returns.

Also read: Why Indian specialty chemicals sector is the new normal in investment domain?

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