Sugar Stocks Surge as Govt Considers MSP Hike Amid Rising Costs

On September 27, 2024, sugar stocks like EID Parry, Shree Renuka Sugars, Dhampur Sugar Mills, and Balrampur Chini Mills saw a significant rise in early trading. Their share prices surged between 1.7% and 7.83% on the BSE. 

This upward trend followed remarks from India’s food minister, Pralhad Joshi, who announced on Thursday that the government is considering the sugar industry’s request to raise the minimum selling price (MSP) of sugar from the current ₹31 per kg, along with potential increases in ethanol prices.

“We are reviewing the sugar production figures for the 2024-25 season, which begins in October, before making any decisions on exports,” said Food Minister Pralhad Joshi at the India Sugar and Bio-Energy Conference, organised by the Indian Sugar and Bio-Energy Manufacturers Association (ISMA). 

He mentioned that the industry has provided some data, and the government has its own estimates based on various inputs. Joshi also noted that sugar production for the 2024-25 season looks promising due to a favourable monsoon.

India last approved large-scale sugar exports during the 2022-23 season, setting the limit at 6.4 million tons. In the previous year, 2021-22, sugar exports had exceeded 11 million tons, making it one of the largest export volumes ever.

Sugar companies are asking for an increase in the minimum selling price (MSP) to match the rising production costs. Reports indicate that the government has raised the Fair Remunerative Price (FRP) of sugarcane to ₹340 per quintal for the 2024-25 season, an increase of ₹25. This hike will directly impact sugarcane prices, driving up sugar production costs. 

Since mills are required to pay for sugarcane within 14 days of delivery, it creates pressure on their cash flow. Sugar producers are calling for a pricing formula that aligns the sugar MSP with the FRP of sugarcane. In a report from September 9, 2024, InCred Equities had a negative outlook on the sugar sector due to low domestic sugar prices.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.