Sugar companies have done very well in the past few quarters - Balrampur Chini Mills and Uttam Sugar Mills top the stock screener for companies whose net profits in the last 12 months are 5X net profits in FY16. BCM and USM are only two of 27 companies that figure in the screener, and has attractive valuations.
Investors however, would do well to proceed with some caution in investing in sugar mills, considering the monsoon outlook for India this year. India's annual monsoon rainfall this year is expected to be 98% of the long-term average, close to normal. This means lower droughts, and higher farm output overall.
Sugar mill stocks do better when prices are high, and prices are high when sugar output is low - sugarcane being a highly water intensive crop. India's National Federation of Co-operative Sugar Factories estimates that Indian sugar production will rise 25% year-on-year to 25m tons. This means that Balrampur Chini Mills, and Uttam Sugar, both of which posted extremely good results the past few quarters and will end with a strong FY17, may see FY18 as a muted year in terms of performance and profits.