We discussed the 4 major ethanol stocks and how they can help India, which is heavily dependent on crude oil imports, fuel its transportation industry.

This time we are back with another set of sugar stocks that will help India meet its ethanol target.

In July last year, the Indian government set a target of 20% ethanol blended into gasoline by 2025. The government has also set a target to gradually have 100% running vehicles of ethanol.

Ethanol is an alcohol more than 99% pure. It is a by-product of sugar mills although it can also be produced from grain or cane juice.

When mixed with gasoline, ethanol helps the engine burn fuel more efficiently. This results in reduced emissions and pollution.

Since announcing India’s ambitious policy to produce ethanol-blended gasoline, sugar stocks have been in the spotlight.

In a very recent development, Finance Minister Nirmala Sitharaman in her budget speech proposed to levy an additional excise duty of ₹2 per liter of unmixed fuel. The tax will be applicable from 1 October 2022.

This step is expected to boost the blending of ethanol into fuels or flex fuels, which will directly benefit sugar companies.

Let’s look at these 4 major sugar stocks that can benefit from the ethanol program.

1. EID Parry (India)

EID Parry (India), part of the Murugappa Group, is currently engaged in the manufacturing and marketing of sugar and bio-products.

The Chennai-based company is a pioneer in making plantation white sugar from sugar cane and has been in business for over 225 years.

The company has 8 sugar factories with a capacity of crushing 43,800 tons of cane per day, generating 160 megawatts (MW) of electricity and four distilleries with a capacity of 234 kiloliters per day (KLPD).

In the field of biopesticides, the group offers a unique neem extract, azadirachtin, which is in high demand on the biopesticide market in developed countries.

EID Parry (India) also has a significant presence in the agricultural input sector through its subsidiary Coromandel International.

Over the years, the company has made its presence felt around the world by developing ties with various organizations such as Sugarcane Research Institute in Australia, Sugar Processing Research Institute in Louisiana, Tate and Lyle International in the UK and Mitr Phol Sugar Corporation in Thailand. .

In the September 2022 quarter, the company said it would have capital expenditures (capex) in excess of ₹3.5 billion for the current financial year as well as next year.

For the December 2022 quarter, EID Parry’s standalone net income decreased 95% to ₹180 meters, from ₹3.4 billion a year earlier, after a one-time loss on the sale of a unit.

Operating revenue increased by 56% to reach ₹6.9 billion. The results included an exceptional element of ₹137.3 m loss on sale of facilities and equipment at the holding company’s Pondicherry plant.

In a statement, EID Parry’s Managing Director, S Suresh, said:

The company performed better than the corresponding quarter due to better realization and a higher volume of alcohol exports and sales.

Stronger world sugar prices contributed to the increase in exports. Debt reduction measures have helped reduce the financial cost. The crushing of cane for the company should be better than that of the previous sugar year.

The company has achieved good earnings growth of 71.2% CAGR over the past 5 years.

2. Sugar and Dalmia Bharat Industries

Dalmia Bharat Sugar and Industries is one of the fastest growing sugar companies in India.

The company’s total cane crushing capacity is 35,500 tons of cane per day (TCD), making it one of the leading sugar producers in the country.

It is engaged in sugar manufacturing and other related downstream activities, such as ethanol, cogeneration and distillery.

The company is a fully integrated player with 120 MW of cogeneration capacity and a 255 KLPD distillery and incineration boilers. It also has facilities for processing raw sugar.

It has five sugar units, three of which are located in the largest sugar-producing state of Uttar Pradesh and two in Maharashtra. It is the only company in India to have manufacturing facilities in two non-contiguous states of India.

Its customers include Coca-Cola, PepsiCo, Mondelez, Perfetti, Britannia, Wal-Mart India, Dabur, D-Mart, India Glycols Allied Blenders & Distillers, United Breweries, Carlsberg, SABMiller and others.

It also exports to various places like Indonesia, Malaysia, Bangladesh, Sri Lanka, Nepal, Bhutan, Middle East, Mediterranean countries, East Africa, etc.

On Monday, the sugar producer reported a 52.5% increase in its consolidated net profit at ₹565.8 m in the October-December quarter. Its net profit for the same period a year ago was ₹371 m.

The Board approved an interim dividend of ₹3 per share of the par value of ₹2 each for 2021-22.

3. Triveni Engineering and Industries

Triveni Engineering & Industries is a focused and growing company with core competencies in the fields of sugar and engineering. The company is one of the second largest sugar manufacturers in India and the market leader in its engineering activity.

It has four subsidiaries – Triveni Retail Ventures, Upper Bari Generation, Triveni Engineering and Triveni Energy.

It is engaged in diversified businesses, but mainly in two segments – sugar and related businesses and engineering.

Sugar and related activities mainly include the manufacture of sugar, the cogeneration of electricity and the distillation of alcohol.

The engineering business mainly includes the manufacture of steam turbines, high-speed gears, gearboxes and water treatment solutions.

Recently, the company announced strong results. Consolidated profit after tax (PAT) jumped 37% YoY (YoY) to reach ₹1.3 billion for the December 2022 quarter.

Gross revenue from operations increased by 10% year-on-year to ₹12.4 billion. EBITDA grew by 26.4% year-on-year. Growth was driven by firm sugar prices, higher ethanol volumes and a higher proportion of B-Heavy ethanol.

Management said a broad economic recovery already underway should keep demand for engineering companies strong.

Triveni has aggressively diverted sugar cane to ethanol production this season. With the commissioning of a new distillery in March 2022 and brownfield investments in its existing distillery by June 2022, the company will increase its annual distillery capacity to 22 crore liters.

Over the past year, the stock has soared almost 300% (a quadruple jump). The stock has rallied sharply from its 52-week low in ₹69 to ₹300 per share.

4. Dhampur Sugar Mills

Dhampur Sugar Mills (Dhampur) is one of the leading integrated sugar cane processing companies in India.

Continuous and often pioneering efforts to harness the full potential of sugar cane has allowed them to expand their portfolio beyond sugar into renewable energy, fuel ethanol, alcohol, alcohol extra neutral, alcohol-based chemicals and organic fertilizers.

The sugar mill’s integrated facilities are equipped with a cane crushing capacity of 45,500 tonnes per day. Dhampur has a production capacity of 1,700 MT per day of refined sugar.

All of its manufacturing facilities are located in Uttar Pradesh, which accounts for more than 50% of India’s production of sugar cane, the company’s main raw material.

For the September 2022 quarter, the company’s net income decreased 6.8% to ₹262.5m in the quarter ended September 2021 vs. ₹281.6m in the same quarter a year ago.

Over the past year, the company has reduced its debt.

Additionally, the company has a good dividend history and has consistently declared dividends over the past 5 years.

The counter has also managed to deliver multibagger returns to its shareholders over the past 12 months. The sugar producer’s share price has jumped 137% in the past year.

Should we bet on ethanol stocks?

Ethanol has been a game changer for the sugar industry.

As diversification into distillery, ethanol and electricity has become possible, most sugar companies in India are transforming into integrated players. This increased the demand for molasses.

The Indian government has mandated ethanol blends in automotive fuels. This directive gave sugar mills the opportunity to implement forward integration.

Besides, flex-fuel is also a good solution to solve the problem of excessive sugar production.

To reach the target of 20% ethanol blended in gasoline by 2025, the government has already asked oil CPSEs (Central Public Sector Enterprises) to set up second-generation ethanol bio-refineries. .

It also lowered the Goods and Services Tax (GST) on ethanol for blending with gasoline from 18% to 5% to reduce import dependency.

While these reasons are compelling, ethanol stocks should be viewed with the same caution that one would view other stocks. Ethanol stocks are vulnerable to the cyclical nature of the sugar industry and the agro-climatic risks associated with cane production.

Moreover, their profitability remains vulnerable to government policies, domestic and international trade, and pricing.

If you’re considering investing, assess the company’s fundamentals and prospects. Supported research should not be compromised despite the positive odds.

Good investment!

Warning: This article is for information only. This is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com