Why Bajaj Hindusthan Sugar Share Price is Rising

The Indian stock market is in the middle of a correction these days. Benchmark indices Sensex and Nifty have been falling for more than six sessions in a row.

The Sensex is down over 2,400 points in the past five days.

This type of sell-off, especially one that has the Sensex falling from 66,000 to 63,000, would be seen as serious in almost any case. But the fall has only accelerated in recent sessions.

Let's keep benchmarks aside for a moment and focus on smallcaps and midcaps.

The fall witnessed in broader markets is so sharp that several small-caps stocks went into a free fall.

The smallcap index dropped from around 38,500 to approximately 35,300 in five days, a fall of almost 6%.

Small-cap stocks have greater growth opportunities compared to their larger counterparts. That's what makes them compelling.

And sure enough, if you dig a little deeper, you'll find out that when there's a rebound, smallcaps bounce back stronger than ever.

Sure enough, one such smallcap stock has stood the test of time in recent sessions - Bajaj Hindusthan Sugar.

Shares of the company rallied 9% yesterday at a time when Sensex was down over 900 points. In the past three months, share price of this sugar stock has gone up by 37%.

So, why did the stock price go up so aggressively?

Let's find out...

#1 NCLT Dismisses Petition

Yesterday's rally of over 9% is attributed to the National Company Law Tribunal (NCLT) dismissing a petition against Bajaj Hindusthan Sugar.

Reports state that after considering submissions made by the State Bank of India (SBI) for withdrawal of the petition, the NCLT made its decision and withdrew the petition against the sugar manufacturer.

SBI filed the petition for withdrawal of the original petition as the outstanding amount was paid by Bajaj Hindusthan Sugar.

Mind you, this is big news for the sugar company and the sugar industry overall. Bajaj Hindusthan Sugar is a dominant player in Uttar Pradesh. Almost 6 lakh farmers in the state depend directly on the health of sugar factories owned by the company.

Some of the creditors have been following up with the company about their dues and took it to NCLT for non-payment of dues.

Some even declared the company a non-performing asset (NPA) before taking it to the tribunal.

But if India's largest bank has said that outstanding dues are paid, you know that things are turning around in favour.

According to reports, Bajaj Hindusthan Sugar owed banks about Rs 47.7 billion (bn). The maximum amount due was for SBI at around Rs 11.9 bn.

#2 Increase in SAP for Sugarcane

As mentioned above, shares of the company have been on a roll for the past three months.

Some of the rally could be attributed to rumours circulating that the Uttar Pradesh government is considering to increase the State Advisory Price (SAP) for sugarcane.

Reports started going around early September this year that the expected price jump of SAP is likely to be a jump of Rs 25 per quintal for season 2023-24.

The final decision could be made in the coming days. UP's sugarcane crushing season is set to start soon with 122 mills prepared to process sugarcane cultivated on 29 hectares of land.

UP farmers have been constantly asking to up the SAP prices. They're also planning agitations ahead of the Lok Sabha polls so that their demands are accepted.

This bodes well for top sugar companies and more so for Bajaj Hindusthan Sugar as it's a dominant player in Uttar Pradesh.

#3 Rising Crude Oil Prices

As you may be aware, crude oil prices have shot up in the past one month.

Actually, scratch that. Prices have been on the rise since June this year.

Brent crude prices jumped to a 10-month high and breached US$ 93 per barrel in mid-September.

Now according to experts, rising crude oil prices is another positive for sugar companies. Government officials consider other energy sources that can partially replace crude whenever its price rises.

Many PSUs are oil marketing companies and they'll have to pay more to import oil as a result of the falling rupee and rising crude oil prices. So industry experts say that sugar is a good alternative.

#4 Ethanol Blending Target

And of course, there's the ethanol megatrend playing out, that's keeping select sugar stocks on many analysts' radars.

By 2025, the government hopes to meet its 20% ethanol blend target.

Ethanol blending in petrol has created a new investment theme in the stock markets and fuelled the rise of sugar stocks.

A part of the Shishir Bajaj Group, Bajaj Hindusthan is the largest industrial alcohol manufacturer in India. With the ethanol blending trend catching up, Bajaj Hindusthan Sugar could be the ethanol penny stock you need to keep an eye on.

What Next?

Although the company reported a loss in the first quarter of FY24, a slew of positive developments, have kept shares of Bajaj Hindusthan Sugar on a roll.

The company has now pared its debt too, which leaves behind a major hurdle which was impacting its business.

The company's chairman had expressed in an interview that the management is planning to infuse fresh equity into the business.

It has also started working on a Rs 240-bn capital expenditure plan which will be used to grow existing and new business.

Bajaj Hindusthan Sugar also has a huge power business in its kitty for which the company already has an IPO approval.

Although the chairman had said in an interview that despite the IPO approval, they don't see any need for raising funds at the moment.

Earlier this year, it acquired two companies - Phenil Sugars and Bajaj Power Ventures - for Rs 8 bn.

Sugar stocks are also in focus amid concerns about a global sugar shortage. Avlean, the world's largest sugar trader, recently said it expects a sixth straight year of sugar deficit, as supply will be affected by a poor harvest in India.

This situation has prompted investors to take a close look at sugar stocks amid hopes of higher prices, culminating in higher revenue and profit.

For now, the company remains in a good spot as so many tailwinds are working in its favour.

How Bajaj Hindusthan Sugar Share Price has Performed

In the past one year, shares of the company have rallied 150%.

In 2023 so far, the stock is up 49%.

Bajaj Hindusthan Sugar has a 52-week high of Rs 29.88 touched on 6 September 2023 and a 52-week low of Rs 10.1 touched on 28 October 2022.

At the current price, the company trades at a price to book value multiple of 0.7x.

About Bajaj Hindusthan Sugar

Bajaj Hindusthan Sugar is engaged in the manufacture of sugar, alcohol, ethanol, and the generation of power.

As of June 2023, LIC holds a 3.2% stake in the company. Promoters of the company hold a little under 25% while FIIs have shown some interest in the sugar company for the past few quarters.

Its promoter Kushagra Bajaj has pledged all his shares. If the optionally convertible debentures (OCDs) are converted into shares, the promoter will be left with just an 8.76% stake.

To know more, check out Bajaj Hindusthan's financial factsheet and its latest quarterly results.

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