Domestic prices have dropped ~22% from their January 2010 peak on account of 1) higher than estimated production of ~16.8mn tonnes, up from ~15mn tonnes seen in early February 2) Government imposed stock limits and zero import duty on white sugar. International raw sugar prices too fell to their lowest level since Aug’ 09 on reports of higher Brazilian cane output in the crushing season beginning from April.
With expectations of a ~37% jump in SS2011 output and supportive raw sugar prices, domestic realizations could remain under pressure in the near term. We lower our SS2011 realizations by 15-26% for all the coverage companies. Downgrade BJH and SHRS to MP but retain BUY on BRCM with reduced TP of Rs131. Any further fall in raw prices is a key risk to our call as it could further boost the relative attractiveness of imports, thereby capping the upside on domestic realizations.