04 June 2021, New Delhi: Sugar stocks rallied hard after the government brought down the target for ethanol blending with petrol to 20 per cent to 2023 from 2025. The move has come as a major relief for the sugar companies struggling with excess production and stagnant demand.
Dhampur Sugar Mills was up three per cent at ₹327 and EID Parry increased two per cent to ₹424. Bajaj Hindusthan Sugar and Shree Renuka Sugar gained five per cent each to ₹12 and ₹16 while Dalmia Sugar rose four per cent to ₹331.
Yash Gupta, Equity Research Associate, Angel Broking, said currently ethanol blending in India is at 8.5 per cent up from just two per cent in 2017, an increase of over four times.
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Sugar companies now have an option to shift some of the sugar production capacity to produce ethanol as the country is currently facing an over-supply and the government had to provide export subsidiaries to sell sugar in the international market so as to help farmers indirectly, he said.
Moreover, realisation from ethanol is much higher than that of sugar and help companies to boost their profit. Currently India has ethanol producing capacity of 425 crore litre and another capacity of 50 crore litre under construction will be available in next season. With supply of 325 crore litre, India can achieve blending of 8.5 per cent.
To achieve 20 per cent blending, the country needs 850 crore litre of supply and higher installed capacity of 1,000 crore litre as sugar companies use part of ethanol for producing alcohol by fermenting it with grains, fruits or vegetables.
India’s ethanol capacity increased to 425 crore litre from 150 crore litre in 2017. To overcome the difficulty of doubling production capacity, the government had amended the Sugarcane (Control) Order, 1966 by allowing investors to set up stand alone units to produce ethanol.
Till now, ethanol can only be produced from sugar juice or molasses, a by-product in the sugar manufacturing process.
Typically, one tonne of cane yields 115 kg of sugar, if the recovery is 11.5 per cent and 45 kg of molasses that can help produce 10.8 litres of ethanol. But mills can ferment the cane juice to produce 840 kg of ethanol but no sugar will be derived.