Sugar Decontrol: Top 8 stocks poised for 20 per cent upside - Economic Times

NEW DELHI: In a much awaited move, the Cabinet Committee on Economic Affairs (CCEA) cleared partial decontrol of sugar sector by abolishing the requirement for private mills to sell a specified amount of sugar to the government at concessional rates. The government has thrown open the sugar market and continuing the burst of reforms that began last September with a more liberal regime for foreign investment in retail. The government has abolished the decades-old practice of regulating how much sugar a mill can sell in the market and the "levy" system in which a company is forced to sell 10% of the output at a loss to sweeten supplies to the public distribution system, reports ET. This comes into effect for output since September 2012, the start of the sugar year, and will be reviewed after watching its impact on the market and farmers for two years, said the ET report. "With the CCEA nod for sugar decontrol we expect sugar mills to breathe a bit easy as sugar companies no longer have to bear the levy sugar obligation for two years," LKP said in a report. "Now that the release mechanism has been abolished and with the front end cleared, the back end needs to be looked into as per the recommendations of the Rangarajan committee report," added the LKP report. To continue subsidised supply to the poor, states will now have to buy sugar at market rates and maintain the existing PDS sale price of Rs 13.50/kg, which has not been revised for a decade. States would now be free to decide on the cane price as well as to buy sugar from the open market for PDS sale, say industry experts. However, the Centre will pay the states for this, and its sugar subsidy burden will rise to Rs 5,300 crore from Rs 2,600 crore a year, while industry will save about Rs 3,000 crore per year. Sugar mills will continue to be subjected to controls by the state governments, which decide cane prices and regulate various aspects of cane cultivation and sale. We have collated recommendations from various analysts and brokerages on the stocks which are poised for a minimum 20% upside after decontrol of sugar sector: 1. Balrampur Chini Mills The major beneficiary would be those companies which have a pretty strong balance sheet, cash flows is strong and debt levels are low. "We can sense that some companies like Balrampur Chini can be one of the key beneficiaries in the sector. A company like Balrampur Chini will benefit almost Rs 80-90 crore at a PBT level," Sanjay Manyal, Research Analyst, ICICI Securities said in an interview with ET Now. LKP Advisory recommends a 'BUY' on the stock for a target price of Rs 65 Jefferies maintain 'buy' rating on Balrampur Chini Mills with a price target set at Rs 65. The brokerage expects sugar decontrol to impact earnings by Rs 3.5/share annually and the fair value impact at Rs 25/share for the company. 2. Bajaj Hindustan Ltd When the government bears Rs 3000 crore subsidy burden, the money will immediately come to the companies' books. "Bajaj Hindustan is one likely candidate to benefit from such a move by the government," says Sanjay Manyal, Research Analyst, ICICI Securities in an interview with ET Now. "Bajaj Hindustan would be one of the biggest beneficiaries as it has the largest sugar capacities and the benefit would be to the tune of Rs 150 crore plus," he added. Copyright © 2013 Times Internet Limited. All rights reserved. via Business - Google News http://news.google.com/news/url?sa=t&fd=R&usg=AFQjCNHfVaZbeyNANYpxO3NlBVQ_I00HZg&url=http://economictimes.indiatimes.com/markets/stocks/stocks-in-news/sugar-decontrol-top-8-stocks-poised-for-20-per-cent-upside/articleshow/19399171.cms

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