CHEENI KUM-SUGAR STOCKS

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                   CHEENI KUM- SUGAR STOCKS

SUGAR SECTOR IS ONE OF THE CYCLICAL SECTOR THAT EVERYBODY WANTS TO BET UPON AND  WHY NOT AS TIMELY ENTRY INTO THESE STOCKS CAN MAKE WHOPPING 5X TO 10X RETURNS.DURING THE BAD PHASE OF THE CYCLE EVERBODY WANTS TO IGNORE IT BUT AS SOON AS THE TREND CHANGES EVERYBODY WANT TO MAKE A HAY WHILE THE SUN SHINES.IF WE CHECK LAST 25 YEARS DATA THE SUGAR STOCKS(PRICES)WERE IN PEAK IN 1994 THEN IN 2006 KEEPING THIS CYCLICAL TREND IN MIND THE NEXT PEAK SEEMS TO BE AT 2017-2018.MEANS IN COMING 2 YEARS ONE CAN EARN 5X TO 10X RETURNS WITH  LITTLE WISDOM AND INTELLIGENCE.

THE BASIC HINDRANCE  --  

1)     THE FIRST PROBLEM WITH THE  SUGAR INDUSTRY IS THE DEMAND AND SUPPLY RATIO.NOW A DAYS THE PRODUCTION OF SUGAR ARE AT ITS TOP IN LAST 10 YEARS.IN THE YEAR 2014-2015 AS NEARLY 290 MILLION TONES OF SUGAR IS PRODUCED IN INDIA AND NEARLY 250 MILLION TONNES IS BEING CONSUMED MOREOVER IMPORTS ARE ALSO ALLOWED WHICH FETCHES  MORE SUGAR IN THE COUNTRY.ALSO THERE WERE EXPORT RESTRICTION EARLIER (BAN ON EXPORT IS LIFTED FROM 1 OCT 2015 AS PER WHICH ALL SUGAR COMPANIES COLLECTIVELY HAS TO EXPORT 10 MILLION TONNES OF SUGAR).

2) INPUT COST-NOW THE QUESTION ARISES THAT IF THE PRODUCTION IS HIGH THEN THE  INPUT MATERIAL  "SUGAR CANE" MUST BE IN ABUNDANCE. WHICH IS CORRECT AND IF IT IS IN ABUDANCE THE PRICE OF SUGARCANE MUST BE AT LOWEST LEVELS.WHICH IS INCORRECT. AS FOR THE PRICE OF SUGARCANE THERE IS A MSP(MINIMUM SUPPORT PRICE) SET BY GOVERNMENT BELOW WHICH COMPANIES CANNOT PURCHASE SUGARCANE .SO THE INPUT COST IS NOT IN HANDS OF COMPANIES

3) REVENUE- IF COMPANIES CANNOT CONTROL INPUT OR THEIR INPUT COST IS HIGH THEY CAN RAISE THEIR SUGAR PRICES IN ORDER TO EARN PROFIT. ANSWER IS AGAIN BIG  NO AS THE COMPANIES CANNOT RAISE SUGAR PRICE AS ITS PRICE IS AGAIN CONTROL BY GOVERMENT.

                                SO IT MEANS SUGAR COMPANIES INPUT  COST IS HIGH AND  REVENUE IS LOW. EVEN LOWER THAN THE INPUT COST TO THE COMPANY. AT PRESENT THE COST OF PER KG SUGAR TO THE COMPANIES IS AT 36 TRS KG AND THE SUGAR PRICE IN MARKET IS AROUND 31 RS. SO THE COMPANIES ARE AT HUGE LOSSES AND CANNOT PAY TO  FARMERS . THE CURRENT DEBT WITH ALL COMPANIES STANDS AT  RS 24000 CR . TO CLEAR THIS DEBT AND  TO GIVE RELIEF TO FARMERS AND SUGAR MILLS GOVERMENT IS GIVING INTREST FREE LOANS TO MILLS .BUT THAT GIVE BENEFIT TO LARGE PLAYERS ONLY. SMALL MILLS ARE SHUTTING DOWN OR ON  THE VERGE. BUT STILL PRODUCTION IS NOT HAMPERRING NOW AGAIN QUESTION ARISES THAT IF FARMERS ARE NOT PAID THEN WHY THEY ARE PRODUCING SUGARCANE .THEY CAN PRODUCE SOME THING ELSE AND WHY COMPANIES ARE PROCESSING SUGARCANE IN LOSS. THEY CAN PROCESS LESS SUGARCANE AS THEY HAVE LOSS PER QUINTAL. SO LESS PROCESSING LEADS TO LESS LOSS.THE ANSWERS ARE THAT  TO GROW SUGARCANE THE ONLY THING REQUIRED IS LAND.FARMERS  DO NOT REQUIRE MUCH INVESTMENT TO GROW IT ,ITS LIKE A FREE BUISNESS. SECONDLY COMPANIES CANNOT REFUSE TO PROCESS SUGARCANE AS THEY HAVE BEEN ALLOTTED PARTICULAR AREA  AND THEY MANDATORY HAVE TO PROCESS IT EVEN AT LOSS.

4)EXPORT THE EXCESSIVE SUGAR- TILL 30-9-2015 COMPANIES  CANNOT EXPORT SUGAR ALSO . BUT NOW COLLECTIVELY THEY CAN EXPORT 40 LAKH TONNES OF SUGAR IN AYEAR.AND IMPORT  OF SUGAR IS ALSO ADDING TROUBLE TO THEIR BUISNESS.

  SO IN VIEW OF THE RECOVERY OF THIS CYCLE FEW THINGS  SHOULD BE WATCHED-

1) LOW MSP OF SUGAR CANE- NOT LIKELY TO BE IN NEAR FUTURE

2) INCREASE  OF SUGAR PRICES FROM CURRENTLY APPROX 31 RS TO 45 RS( PEAK IN 2006). SO ANYTHING ABOVE 45 WILL BE WELCOMED BY THE MARKET.

3) EXPORTING OF SUGAR(WHICH IS PARTIALLY ALLOWED WITH CONDITION) AND RESTRICTION OF IMPORT.

4) KEEP A WATCH THAT WHEN  PROMOTERS INCREASE THEIR STAKE IN COMPANY AS THEY ARE BEST JUDGE FOR THEIR COMPANIES .

                                FEW COMPANIES THAT CAN BE TURNAROUND ARE RENUKA,BAJAJ HINDUSTAN,DCM INDUSTRIES LTD,TRIVENI INDUSTRIES,DHAMPUR ETC.

DISCLAIMER- NOT INVESTED IN ANY OF STOCKS .PLZ TAKE ADVICE FROM RESEARCH ANALYST BEFORE INVESTING.