Sugar companies cater to India's sweet tooth

The Indian economy continues to hog the global limelight even when a lot of emerging economies have faced a slowdown.

The reason for this is that the Indian economy is domestically driven unlike many other growing economies which are export driven.

Among the potential growth industries in India is the sugar industry, which is back in the limelight this time for sweet reasons. Sugar prices are once again going up and look to remain at these levels going ahead.

India, which is considered to be the home of sugar, is the second largest producer in the world.

Indians are among the biggest consumers of sugar as they are believed to have a sweet tooth and this can be seen in the fact that in India all major occasions are celebrated by distributing sweets.

India has abundant raw material required to make sugar which is sugarcane as vast tracks of land are used to grow it.

This is primarily the reason why we see a large number of industries which have come up here and they are about 450 in number.

The industry is now expected to see some consolidation as the government is giving benefits to companies which go in for large scale production.

The sugar companies had seen some terrible times in earlier years due to low domestic prices but now with the demand-supply mismatch being done away with the prices are robust and will be so as the present situation is expected to continue going ahead.

In India, sugarcane is used to make three products namely traditional cane sugar sweeteners, khandsari and gur.

In India, the primary demand is for traditional sweeteners because of the huge rural population. This though is changing because of the rapid growth in urbanisation which has resulted in rising sugar demand.

The sugar companies have seen a change in their fortunes not just because of the growing demand of sugar in the country but also because of the varied usage of its by-products.

Sugarcane produces two by-products namely bagasse and molasses. Bagasse is used as fodder for cattle as well as a raw material in the making of paper. It is also used as combustible feed to generate steam which in turn is used to generate electricity.

The other by-product which sugarcane produces is molasses. Now these molasses are used to make ethyl alcohol which is also known as ethanol.

This ethanol is used to make portable liquor and also downstream value added chemicals such as acetic acid, acetone etc.

The other use of ethanol is that it is mixed with petrol as a fuel.

Now this usage of ethanol is going to grow over a period of time as the oil prices are going over the roof and so in order to cut down their import bills the countries will go in for more mixing of ethanol with oil.

In India, presently the government has asked to mix at least five per cent of ethanol with oil and it is expected to go up to 10 per cent soon as the government is finding it tough to increase domestic prices of oil.

Even though India is a high consumer of sugar its per capita consumption is still low and this leaves enough scope for this industry.

The Indian sugar per capita industry is expected to grow at about 6 per cent CAGR with the economy growing at the rate of 7 per cent.

There are many companies which operate in this industry however the prominent ones are Balrampur Chini, EID parry and Dhampur sugar.

With high prices and high demand this industry looks all set for one more round of hefty gains in the days ahead.

The Indian stock markets ended at 7,212 gaining 0.8 per cent or 60 points last week.

Auto stocks were back in limelight and they saw heavy renewed buying interest. This sector stocks gained in the region of 4-5 per cent.

Technology stocks saw some hammering as the Big Daddy Infosys came out with numbers which the markets did not like. This sector stocks saw losses to the tune of 2-3 per cent.

Oil and gas sector stock saw a comeback as the government decided to share the subsidy burden among the oil marketing companies.

The stocks in this sector saw gains in the region of 3-4 per cent.

FMCG stocks saw some gains as the monsoons were better than what it appeared to be. This sector stock saw gains in the region of 1-2 per cent.

The writer heads the Dubai office of Karvy Stock Broking Ltd.