Edelweiss Research, in a report released this week, said nothing has changed for the sugar sector, but a lot has… for the worse!
The report said: “Our expectations of demand-supply dynamics have not changed over the past six months, but falling sugar realizations have started pushing profitability to near ‘zero-EBITDA’ levels. Lack of encouraging signs on the horizon (till the onset of monsoons in June 2007), however, keeps us watchful of the situation. However, if current sugar realizations continue for a prolonged period, unabated rise in supply is unlikely in SS08E, which could be a silver lining.
“We expect sugar companies to continue to underperform the broader market over the mid-term (6-12 months) due to lack of any immediate positive triggers. With high sensitivity of sugar realizations in sugar companies’ operations and no drivers to push them over medium term, we do not see any enthusiasm returning to sugar stocks.”