Even as the government has yet to grapple with the problem of runaway food prices, investors in food stocks are laughing their way to the bank.
The returns -- 150-340 per cent since April 2009 -- from most of these companies have outperformed the broader indices, indicating increased investor interest.
Domestic food prices hit a 10-year high of 20 per cent for the year till December 5, due to demand-supply mismatch and worst monsoon in 37 years, which affected the kharif crop output.
Rising food prices contributed to a faster-than-expected 4.78 per cent surge in the wholesale price index during November. Food inflation has been rising mainly due to surge in prices of sugar, pulses, rice, tea and vegetables.
Domestic sugar output for 2008-09 (October-September) declined 42 per cent to 15 million tonne and caused retail prices to double at Rs 40 per kg in the past one year. Output in the current season is estimated at 15.3 million tonne.
Outlook for sugar demand remains bullish since domestic consumption is pegged at 23 million tonne. Even import is not viable since landed price will be higher than domestic prices.
All sugar companies have made good profits compared to the losses they incurred last year. Bajaj Hindusthan made a net profit of Rs 69 crore (Rs 690 million) for the quarter ended September 30, vis a vis Rs 87 crore (Rs 870 million) loss last year.
"I am positive on sugar stocks. Their best days are yet to come. There is a similar story in tea as output in major producing countries like Sri Lanka and Kenya is affected. It should not be a surprise if tea prices double from current levels," said investment adviser S P Tulsian.
Tea prices have jumped 30-40 per cent in one year. According to Sharekhan Research, 2009 is expected to end with a production shortfall of 5-10 million kg in the domestic market and 75-80 million kg in the international market.
The global shortage has resulted in improved sales realisation for Indian plantation companies. With continued shortage and consequent increase in tea prices, companies like Mcleod Russel and Jay Shree Tea are likely to make sizable profits.
Mcleod Russel declared a net profit of Rs 192 crore (Rs 1.92 billion) for the quarter ended September 30, as against Rs 121 crore (Rs 1.21 billion) last year.
Tulsian sees a similar trend in rice.
"I am mildly positive on basmati stocks," he said. Stocks of companies in the rice business, especially basmati, have also been buzzing. Kharif output has been projected to be lower by over 15 per cent compared to last year's 84.58 million tonne.
"Globally, rice prices have firmed up on expectations of bulk import from India. "Export realisation of 1,121 varieties of basmati has jumped from $900 in October to $1,100 a tonne. If prices remain at these levels, the industry will make good profits," said Anil Mittal, chairman and managing director, KRBL, which sells rice under India Gate brand.
KRBL declared a net profit of Rs 30.58 crore (Rs 305.8 million) in the quarter ended September 30, as against Rs 26.82 crore (Rs 268.2 million) last year.
