The last 34 sessions turned to be a disaster for the domestic equity market, as market capitalisation of the BSE-listed firms declined by nearly Rs 21 lakh crore till October 18.
Smallcaps took a heavy beating, with the BSE Smallcap index falling 17 per cent between August 29 and October 17. The Sensex and BSE Midcap index retreated 10 per cent and 15 per cent, respectively, during the same period.
Despite a heavy selloff in the smallcap space, as many as 10 stocks from the sugar sector have managed to sweeten investors’ portfolios with returns ranging up to 70 per cent in this period.
Among the top gainers, Dhampur Sugar Mills, Uttam Sugar Mills and Dwarikesh Sugar Industries have risen 69.77 per cent, 62.35 per cent and 52.99 per cent, respectively, since the end of August.
Bajaj Hindusthan, Dalmia Bharat Sugar, Avadh Sugar & Energy, Balrampur Chini Mills, Triveni Engineering, DCM Shriram Industries and Shree Renuka Sugars have gained between 12 per cent and 45 per cent.
Indian sugar stocks have delivered solid return to investors past two months after the government announced a Rs 5,500 crore package for the sugar industry, including an over two-fold jump in production aid to cane growers and transport subsidy to mills for exports.
The government has also announced measures ranging from higher price for ethanol extracted from sugarcane to financial assistance to sugar mills to create ethanol capacity to help the cash-starved mills clear some Rs 13,000 crore dues that they owe to farmers before the 2019 general elections.
The government has also hiked prices of ethanol, triggering a surge in these shares.
JM Financial said the government continues to provide support to the industry through various measures including regulation of MSP for sugar, soft loans, export subsidies, cane price assistance, higher ethanol pricing and blending mandates.
“But ethanol is unlikely to break the cyclicality of the sugar sector, given its limited impact on sugar production. We maintain our cautious stance on the sector given the supply overhang and maintain ‘hold’ rating on Balrampur Chini and ‘buy’ on EID Parry (on account of the value of its stake in Coromandel),” the brokerage said.
Rating agency Crisil says sugar exports may pick up in the 2018-19 season, despite weak international prices. “With the export quota announced well in advance and a slew of measures, including raw material subsidy and transport subsidy, exports are expected to get a boost in sugar season 2018-19,” Crisil said.
Unfavourable macroeconomic factors, including soaring crude oil prices, a falling rupee and a spike in US bond yields have mainly dented market sentiments on Dalal Street in the recent past.
Stewart & Mackertich has a ‘strong buy’ rating on Balrampur Chini with a price target of Rs 152.
“On the back of reduced cyclicality in earnings, sustainable cash flows and increasing return ratios, we feel P/E of 3 times for FY21E is reasonable. We have used the DCF method of valuation to find the intrinsic value of the stock,” Stewart & Mackertich said in a report.
The brokerage also has a ‘strong buy’ rating on Dhampur Sugar Mills (DSML) with a price target of Rs 274. “In a cyclical business, DSML recognised that the only way to grow faster in a good market and rebound faster from a weak market is in the ability to strengthen its integrated business model. This made the company to maximise the potential of sugarcane and it resulted in becoming one of India’s leading integrated sugarcane processing companies,” Stewart & Mackertich said.
Other smallcap stocks that delivered double-digit return to investors included Hathway Cable (up 56 per cent), Praj Industries (up 27 per cent), Den Network (up 49 per cent), GTPL Hathway (up 29 per cent), Bombay Rayon (up 28 per cent) and Gujarat Ambuja Exports (up 10 per cent).
With up to 78 per cent drop, Infibeam Avenues, Ashapura Intimates Fashion, Adlabs Entertainment, 8K Miles, Kwality and Bombay Dyeing have been top wealth destroyers in the smallcap space.
Source: Economic Times