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  • Oct 31, 2023 - Top 5 Sugar Stocks Under Rs 100 to Add to Your Watchlist

Top 5 Sugar Stocks Under Rs 100 to Add to Your Watchlist

Oct 31, 2023

Top 5 Sugar Stocks Under Rs 100 to Add to Your Watchlist

India is one of the largest producers, consumers, and exporters of sugar in the world.

Despite this, the Indian sugar industry is battling so many challenges. The yield of sugarcane in India is very low compared to other major exporters. The production cost of sugar is also very high compared to other crops.

Moreover, sugar has a short smashing season, and with a growing population, the demand for sugar is only going to go up. These challenges are hindering India's progress with respect to sugar exports.

In recent weeks, Indian sugar stocks have been in the limelight amid concerns about a global sugar shortage.

With all that's been going on in the industry, let's look at the top sugar stocks below Rs 100 that still have enough headroom to grow.

#1 KCP Sugar

First on this list is KCP Sugar & Industries.

The company is engaged in the manufacturing of sugar as well as its associated products such as rectified spirit, extra neutral alcohol, ethanol, incidental cogeneration of power, etc.

Interestingly, the stock is part of Dolly Khanna's portfolio as the latest shareholding pattern shows that she holds 1.26% stake in the company as of September 2023.

The company currently trades at Rs 37 with a marketcap of Rs 4.2 billion (bn).

In the past three months, shares of the company have seen a decent rise, in line with the rally witnessed in other sugar stocks.

In the past one year, the stock is up around 70%.

Sugar stocks overall have seen a decent rise in the quarter gone by as increase in sugar prices boosted the demand.

Reportedly, sugar prices got a boost as limited rainfall in India's key growing regions raised production concerns for the upcoming season. Higher sugar price is expected to improve margins of sugar producing companies like KCP Sugar.

The other reason why shares are on an uptrend is because of its strong Q1 results. The company reported a total income of Rs 1.2 bn during the quarter under review as compared to Rs 0.5 bn in the March 2023 quarter.

It also turned profitable and posted a net profit of Rs 306.8 million (m) as against a net loss of Rs 84.7 m in March 2023 quarter and a net loss of Rs 14.3 m in the year ago quarter.

Taking into account better future prospects due to the ethanol story, the company's performance in the coming years is expected to improve.

The company is present in this domain since decades and enjoys a strong relationship with farmers due to long standing presence in the region.

As part of diversification and not relying on single source of income, the company has also forayed into processing of Urad Dal with installed capacity 22,000 MT.

The revenue contribution from this division is yet to make an impact on overall numbers.

Going forward, the company also has plans to foray into engineering and chemicals manufacturing segments.

#2 Dollex Agrotech

Next on this list is Dollex Agrotech.

Indore based Dollex Agrotech is engaged into trading and manufacturing of sugar and jaggery from its manufacturing plant located in Madhya Pradesh.

It procures sugarcane which is the key raw material from the local farmers and sells majority of its product domestically.

Shares of the company currently trade at Rs 39 with a marketcap of Rs 97.4 m.

The company was listed in December 2022 on the NSE. Since listing, it has gained 13%.

Coming to its financials, the company has posted strong growth in the past five years.

It's one of those companies having a double digit ROE and ROCE of 16% and 12.7%, respectively as of FY23.

The company has even brought down its debt in the past four years and its current debt to equity stands at 0.9x.

Financial Snapshot

Rs m FY20 FY21 FY22 FY23
Net Sales 253.0 771.9 794.0 1,104.5
Sales Growth (%) - 205% 3% 39%
Operating Profit 50.5 69.9 90.1 129.3
OPM (%) 20% 9% 11% 12%
Net Profit 5.8 16.7 32.7 61.1
NPM (%) 2% 2% 4% 6%
ROE (%) 5.0 9.6 13.2 16.0
ROCE (%) 5.0 7.0 9.3 12.7
Debt to Equity (x) 4.5 2.2 1.7 0.9
Data Source: Ace Equity

In its FY23 annual report, the company has listed multiple tailwinds that could work in its favour as the sugar industry grows overall and as the ethanol blending also happens.

It remains to be seen how Dollex Agrotech takes a part in the ethanol megatrend and captures a slice of the pie.

#3 Dwarikesh Sugar

Third on this list is Dwarikesh Sugar.

From humble beginnings in 1993 with a single plant of capacity 2,500 TCD, the company has come a long way in becoming one of the leading sugar manufacturers in India.

The company has been raising the crushing capacity regularly and the capacity has since been increased to 21,500 TCD.

Dwarikesh Sugar currently trades at Rs 91 with a marketcap of Rs 17.1 bn.

It more or less trades near the same level it was trading a year ago.

Shares of the company have fallen in the past few weeks in line with broader market and because of its Q2 performance.

In the second quarter of FY24, the company's profit parameters were negatively affected by an additional levy obligation imposed by the state government. This levy treated both B and C heavy molasses equally, despite the fact that they have different potential ethanol outputs.

According to the company's filing, this has led to an additional expense of Rs 199.2 m during the same time. This has also deprived the company of the opportunity to convert the molasses into ethanol, which is a more profitable.

Going forward, the performance is likely to be upbeat due to steady sugar realisations and higher volumes from the distillery segment.

The sales volume of industrial alcohol has also gone up this year. The company is hoping to leverage this given its forward-integrated operations.

#4 Kothari Sugars

Next on the list is Kothari Sugars.

The company is an integrated sugar company with units at Kattur and Sathamangalam in Tamil Nadu. It has a combined capacity of 6,400 TCD.

It also has a distillery capacity of 60 KLPD and a total power co-generation capacity of 33 MW.

Kothari Sugars share price currently trades at Rs 50 with a marketcap of Rs 408.2 m.

It has gained around 10% in the past one year.

In FY23, the company posted its best ever performance in terms of revenue and net profit. It looks set to surpass that feat in FY24 going by its numbers so far this financial year.

It has also reduced debt. The debt to equity currently stands at 0.2x.

Financial Snapshot

Rs m FY19 FY20 FY21 FY22 FY23
Net Sales 3,322.2 3,528.1 4,194.9 4,234.9 6,099.7
Sales Growth (%) 16% 6% 19% 1% 44%
Operating Profit 473.2 326.6 373.7 564.6 691.6
OPM (%) 14% 9% 9% 13% 11%
Net Profit 127.1 194.2 190.2 340.3 419.2
NPM (%) 4% 6% 5% 8% 7%
ROE (%) 8.7 12.2 10.8 16.8 17.6
ROCE (%) 11.3 10.1 12.1 17.5 20.6
Debt to Equity (x) 0.8 0.5 0.2 0.3 0.2
Data Source: Ace Equity

Due to its established presence in the industry for more than 70 years, the company has a diversified customer base and healthy relationships with sugarcane farmers.

To know more, check out its financial factsheet and its latest quarterly results.

#5 Rana Sugars

Last on this list is Rana Sugars.

The company is engaged in the business of manufacturing sugar and allied businesses of cogeneration and distillery.

Rana Sugars pioneered manufacturing of sugar from sugar beet in India. It set up India's first sugar beet processing facility at its Amritsar facility.

Rana Sugars share price currently trades at Rs 25 with a marketcap of Rs 3.8 bn.

The stock has gained around 15% in the past one year. In the past one month, the share price is down over 10%.

The company's distillery units provide alternate revenue stream against the cyclicality of its sugar business.

It also has long-term power purchase agreements (PPA) with the state grids of Punjab and UP. The 102-MW installed co-generation power unit is used captively as well as for exports under the long-term PPAs.

Currently, the company is focussing partly on ethanol and shifting the sugar manufacturing activities towards ethanol manufacturing to earn better margins.

Conclusion

The world is on the cusp of a massive energy revolution. People are going green like never before, shifting from fossil fuels to cleaner, more sustainable sources such as ethanol. Sugar companies are benefiting from this megatrend in a big way.

After the government established the Ethanol Blended Petrol (EBP) programme, the sugar industry became more valuable to investors.

India is set to become the third largest market for ethanol by 2026 after US and Brazil. This increase in demand is expected to continue for some time now. But not for too long.

As the electric vehicle (EV) industry establishes itself, the need for fuel will reduce.

However, it will take some time for the EV industry to operate in a full-fledged manner in India. Until then, ethanol is India's only way to reduce carbon emissions.

Despite having so many compelling reasons, you should be cautious about investing in top sugar stocks.

The sugar industry is cyclical in nature and is heavily dependent on climatic conditions. It is also a highly regulated industry, as sugar is an essential commodity.

Happy Investing!

Investment in securities market are subject to market risks. Read all the related documents carefully before investing

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Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...

Yash Vora

Yash Vora is a financial writer with the Microcap Millionaires team at Equitymaster. He has followed the stock markets right from his early college days. So, Yash has a keen eye for the big market movers. His clear and crisp writeups offer sharp insights on market moving stocks, fund flows, economic data and IPOs. When not looking at stocks, Yash loves a game of table tennis or chess.

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