Sugar stocks rallied up to 7 per cent on September 16 after the Department of Food and Public Distribution (DFPD) authorised sugar mills and distilleries to manufacture Rectified Spirit (RS) and Extra Neutral Alcohol (ENA) using sugarcane juice and B-heavy molasses.
The move came alongside the government’s recent approval for sugar mills and distilleries to produce ethanol from sugarcane juice, B-Heavy molasses, and C-Heavy molasses for the Ethanol Supply Year (ESY) 2024-25.
The new regulations also allow the use of B-heavy molasses, a byproduct with higher sucrose content, for ethanol production. Approximately 750,000 metric tonnes of B-heavy molasses have accumulated in stock, previously restricted for ethanol use.
Key players in the sector, including Shree Renuka Sugars, Dhampur Sugars, and Balrampur Chini Mills, were among the top gainers.
Among individual stocks, Bajaj Hindusthan Sugar, which saw its stock rise 3.59 per cent, and Dwarikesh Sugar Industries, which increased 3.83 per cent. Shree Renuka Sugars climbed 3.38 per cent, while Balrampur Chini Mills gained 2.87 per cent. Other major gainers include Triveni Engineering and Industries (up 2.97 per cent) and EID Parry (up 1.99 per cent).
Apart from that, last month, the government granted the use of cane juice or syrup for ethanol production starting from November 1, 2024. The policy shift comes after the imposition of restrictions in December 2023 aimed at boosting sugar output following a poor monsoon season that affected cane crops.
Analysts’ Take
With adequate sugar stocks in India, analysts expect a resumption of the ethanol-blending program as was the case until Sugar Season (SS) 23.
Official data shows ethanol blending in India has reached 13.3% by July of the current season, up from 12.6% during the 2022-2023 season. Currently, the country’s total ethanol production capacity stands at 1,589 crore litres. Of this, OMCs purchased 505 crore litres of ethanol for blending purposes during the 2023-2024 season.
DAM Capital analysts, in their August 29 report, highlighted that the normalisation of ethanol volumes for sugar companies had already been priced into their forecasts. However, they anticipate that improved ethanol blending clarity and full utilisation of distillery capacities will drive strong earnings growth from Q3FY25 onward, leading to a sector re-rating. As a result, they have revised earnings multiples for companies in their coverage.
“We maintain our ‘Buy’ recommendation on Balrampur Chini, assigning 20x FY27 PE (factoring in commissioning of PLA plant). We assign 18x PE to the sugar business of TEL and 25x EV/EBITDA to the engineering business (FY27 numbers) and maintain our ‘Buy’ recommendation. Maintain our Buy rating on Dalmia Bharat valuing at 16x FY27 PE. Maintain our sell recommendation on Dwarikesh sugar,” DAM Capital analyst said in a note on August 29.
It is worth noting that India is the world’s second-largest sugar-producing country after Brazil. The government aims to achieve the 20 percent ethanol blending target by 2025-2026.
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