US-Iran Crisis Ripples: Timing Right for Sugar Stock Investment?

US-Iran War Impact on Sugar Stocks

Sugar stocks have declined by 5%, with Avadh Sugar & Energy and Balrampur Chini Mills emerging as the top laggards, followed by Dalmia Bharat Sugar and Industries and Dhampur Sugar Mills with losses of nearly 4%.

The ongoing US-Iran war has pushed Brent crude prices above $100 per barrel, increasing the government's import bill and highlighting the need for alternative energy sources. In response, the government aims to achieve 20% ethanol blending in petrol by 2025, driving demand for sugarcane and benefiting sugar stocks.

The Ethanol Blending Program is expected to reduce crude oil imports, support farmers, and strengthen energy security. India's ethanol blending has already reached 10% in 2022, with the government targeting 20% blending by 2025. This shift towards ethanol production is expected to tighten sugar supplies in the market, potentially pushing prices higher.

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Market experts believe that the ethanol blending programme offers several key benefits for the economy and the environment, including reducing India's dependence on imported crude oil, providing a stable revenue stream for sugar mills, and supporting sugarcane farmers.

However, MSP-controlled pricing continues to cap revenue realisations for mills, while rising cane procurement costs are squeezing operating margins. The recent policy target revisions have reduced earnings visibility, making it challenging for investors to make informed decisions.

Recommendations

• Balrampur Chini Mills, Shree Renuka Sugars, and Triveni Engineering & Industries are likely to benefit from the government's proactive policies and the sugar industry's efforts to increase ethanol production capacity.
• India's sugar output is projected to rise nearly 18% in 2025-26, pointing to a supply surplus that limits any structural pricing upside. Investors are advised to treat sugar stocks as a trading sell on rallies rather than a positional buy until there is clear policy support on ethanol pricing or a credible reduction in global supply.

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