@sammy11 do you have any clarity about this issue? Thanks in advance.

Sugar sector has been affected by Govt. policies – like banning exports, banning ethanol, tight control on sales quota. But still sugar companies in UP will make more profits than last year due to following:

a) cost of production is low – India is second lowest cost producer of sugar after Brazil as mills are efficient. Inspite of cost of sugarcane being higher by 20% than Brazil as Govt. controls the price of cane. Sugarcane is the most profitable crop in India and still Govt. keeps increasing the price. In 2022 even when SAP was not hiked acreage increased by 7%. Due to delay in cane payment in last few months (due to ethanol ban), farmers who were planning to plant more sugarcane have not done it. While returns from sugarcane is high delays in payments can be a big discouragement. For all crops the aggregators/ middlemen buy at 25% lower from farmers as they offer cash payment. Farmers prefer to take lesser price but most important is assured payment. Govt is yet to understand this for sugarcane.

b) Use of all by products like bagasse for power, CO2, spent wash (new usage) , etc.

c) Low debt inspite of soft loans available from Govt. Sugar companies have become smart over the years not to trust the Govt. Most of the companies have debt: equity <1 – that too as the loans are at low rates from govt. they have used surplus cash for share buyback !!

With new product like bio-chemicals/ bio-plastics, this sector is going to outperform in the coming years.

Considering the tax obligations, I feel it would be better to put some part in dynamic bond funds, as unlike long-term bond fund one would not need to churn them based on interest rate cycle, hence reduced taxes. Is it a correct way to think?

This is a double edged sword. Edible oil business is highly competitive in nature and margins are generally in single digit. Look at Adani Wilmar or Patanjali’s edible oil business. I consider this as a case of “di-worsification”. Only time will tell how company uses this.