Market analysts support sugar stocks while the government supports ethanol production

The government’s vision for ethanol (image source: iStockphoto)

Sugar stocks recorded a significant increase following the announcement of the Minister of Petroleum Hardeep Singh Puri, which reaffirmed the government’s commitment to increasing ethanol production. Analysts and money managers expect sugar stocks to continue to rise as government policy on ethanol production becomes more precise.

Bajaj Hindusthan the stock has returned 24.36% in the last week, Avadh Sugar has given a return of 18.56% and Uttam Sugar stock has given a return of 13.94% in the last week respectively.

Davangere Sugar, a player in the sugar, ethanol and cogeneration sectors. The company boasts a sugarcane crushing capacity of 4,750 TCD, an ethanol production capacity of 17.3 million liters per year and a cogeneration capacity of 24.45 MW. Its market capitalization is Rs. 916.38 crore at the current market price of Rs. 9.7 per share.

It has access to major sugarcane producing states including Uttar Pradesh (35%), Maharashtra (33%) and Karnataka (15%). However, threats include unfavorable climatic conditions that may limit the availability of sugar cane and indirect government control over sugar prices.

The company’s performance metrics paint a mixed picture. It has a high P/E ratio of 75.1 and ROE of 4.72, while the book value is 3.61 with a debt to equity ratio of 0.78. Despite these numbers, Davangere Sugar produced an impressive 3,06,192 quintals of sugar and 199.4 lakh liters of ethanol in FY23.

Davangere Sugar stands to benefit significantly from the Indian government’s vision of blending 20% ​​ethanol into petrol by 2025, up from the current level of around 14%. This policy is expected to significantly increase ethanol volumes, providing a strong tailwind to the company’s integrated sugar and ethanol operations. The company also launched a carbon dioxide installation and established a joint venture for potash production.

Arihant Capital’s latest analysis shows that Davangere Sugar shares are a promising buy at the current price of Rs. 9.7, especially after the shares were divided in a ratio of 1:5.

The shares show strong demand at the level of 50,000. 9 to Rs. 8, with dynamics indicators indicating a continuation of the upward trend. Investors are advised to buy with a stop loss of Rs. 7 which targets Rs. 13.20 to 13 Rs. 15 in the next few weeks.

At the time of filing, Davangere Sugar shares were trading at Rs 9.68, up 0.62% from the previous day’s close. The stock’s 52-week high and low are Rs 12 and Rs 6.76 respectively.

(Disclaimer: The above article is for informational purposes only and should not be considered as investment advice. Times Now Digital suggests its readers/audiences to consult their financial advisors before making any money related decisions.)