Sugar Cycles: 7-8 years of losses followed by 2-3 years of super gains!

Ethanol production will surely come down as Govt. will not increase ethanol rates this year – to prevent sugar prices from going up too much. Mills will first maximise sugar production and then remaining cane/ molasses will be used for ethanol – so ethanol capacity of all mills will be underutilized. Sugar will more than compensate by better margins.
Overall profits of UP based sugar companies will jump for next 2 years. After that ethanol will be used to balance excess cane production if any.
As the cyclicity of the sector is no longer going to be there it could lead to rerating of the sector. However mills focusing on cane yield & recovery and efficiency of mills will benefit rather than cos setting up ethanol plants (as margins are higher in sugar !!).

Dhampur Bio is going to be the dark horse in the sector:

1. valuation is low – as company had lower recovery due to pest attack in previous years. Recovery will be better going forward as pest problems have been solved to a large extent.
2. Has increased crushing capacity by 30% in this year(highest in industry)
3. Have set up higher margin pharma-grade sugar capacity
4. they have delayed the new ethanol plant at the right time – so no burden of debt/ interest
5. they intend to add more crushing capacity in the future as and when cane availability increases.

Mcap of company is about 1,100crs and it is going to make profits of 350crs in the next 2 years!