Sugar company stocks rallied as the government removed the cap on sugar diversion for ethanol production. This will reduce the closing stock and help hold sweetener prices higher.
Moreover, the government has allowed grain-based distilleries to participate in the e-auctions by the Food Corporation of India for rice procurement of up to 23 lakh tonnes. This will help companies to improve their margins.
Triveni Engineering and Avadh Sugar and Energy increased 8 per cent and 7 per cent to ₹472 and ₹756, while Bannari Amman Sugar and Dalmia Bharat Sugar and Industries jumped six per cent each to ₹3,309 and ₹467.
Shree Renuka Sugar and Bajaj Hindustan gained five per cent each to ₹50 and ₹43, while Balrampur Chini and DCM Shriram Industries rallied three per cent each to ₹599 and ₹202. EID Parry was up two per cent at ₹827 on Friday.
Sugar inventory levels are expected to be much higher, at 8 million tonnes (mt) as of October 1, against the minimum requirement of 5 mt. Gross sugar production is expected to touch 32 mt, against consumption of 29 mt.
The excess 5 mt of sugar inventory can be diverted to ethanol from the B-heavy and sugarcane Juice route.
‘We estimate 4-5 mt of the equivalent of sugar diversion towards ethanol, which would be sufficient for 4.5 to 5 billion litres of ethanol production in the country,” said Sanjay Manyal, Research Analyst, DAM Capital.
Restriction on FCI rice for ethanol production last year squeezed the grain ethanol margin at mid-single digit. With the FCI rice available for ethanol production by sugar and standalone mills and sufficient molasses availability would result in a 10-12 per cent operating margin for grain ethanol, he said.
Girishkumar Kadam, Senior Vice President - Corporate Ratings, ICRA said the removal of cap on sugar diversion for ethanol production is expected to increase blending with petrol to the target of 20 per cent for the year, much higher than the estimated 14 per cent in ESY2024.
He added that the lower closing sugar stock will help maintain sugar prices at a reasonable level, thereby supporting the profitability of sugar mills and enabling timely payment to farmers.