look news india
The government's move reverses the policies implemented in December 2023. In the previous policy, ethanol production by these methods was restricted due to the increase in sugar prices in view of the 2024 general elections. According to DAM Capital, given these changes, the ethanol blending program is expected to be reactivated for the 2024-25 season.
India's current sugar stock as on October 1 is estimated to be over 8 million tonnes. This is much higher than the minimum requirement of 5 million tonnes. At the same time, total sugar production is expected to be 32 million tonnes, surpassing the consumption rate of 29 million tonnes. More than 5 million tonnes of surplus will be available for ethanol production. DAM Capital estimates that about 4-5 million tonnes of sugar can be diverted to ethanol production which is enough to produce 4.5 to 5 billion liters of ethanol. The government's move is expected to allow sugar companies to fully utilise their distillery capacity, which was at a low utilisation level of about 60-70 per cent last season due to feedstock restrictions.
The report also said that this will improve the economics of grain-based ethanol. The availability of FCI rice for ethanol production, along with adequate molasses supply, is expected to increase the operating margin for grain ethanol. It is estimated to reach 10-12 per cent. “We believe the economics of grain ethanol will improve significantly by the 2024-25 procurement year,” the report said.
DAM Capital is bullish on major sugar companies given the current inventory levels and expected increase in distillery utilisation rates. The brokerage firm is most bullish on Balrampur Chini Mill. The brokerage estimates that Balrampur China will produce 320 million litres of ethanol/ENA (extra neutral alcohol) through its distillery business by FY26.
Triveni Engineering is also expected to benefit from higher sugarcane yields following the acquisition of a new plant in western Uttar Pradesh last year. The report estimates that Triveni Engineering's distillery production volume will reach 220 million liters by FY26. Meanwhile, Dalmia Bharat Sugar expects to fully utilise its grain distillery capacity to produce an estimated 220 million liters of ethanol by FY26.
However, Dwarikesh Sugar may face challenges due to the lack of availability of sugarcane in its vicinity. The reason for the lower production is red rot disease. In view of this, DAM Capital has retained a “sell” call on Dwarikesh Sugar.
Shares of Dalmia India rose 2 per cent around 10 am. Meanwhile, shares of Balrampur Sugar Mills, Triveni Engineering and Dwarikesh Sugar closed down 0.7-1.0 per cent.