Ethanol-petrol blending may push liquor prices up: Radico Khaitan

Prices of Extra Neutral Alcohol (ENA) may face some headwinds as the government pushes towards its target of blending of 10 per cent fuel-grade ethanol with petrol by 2022, said Radico Khaitan, the country's largest manufacturer of Indian-made foreign liquor.

It is expected that in FY 2020-21, about 325 crore litres of ethanol is likely to be supplied to the oil marketing companies (OMCs) to achieve 8.5 per cent blending levels.

"It is likely that the government will achieve 10 per cent blending target by 2022 with supply of 400 crore litres of ethanol. Given this focus on ethanol blending, there may be some headwinds in the Extra neutral alcohol prices," said the latest annual report of Radico Khaitan.

Like ethanol, ENA is also a byproduct of the sugar industry and is formed from molasses, resulting from refining sugarcane or sugar beets into sugar.

The government has fixed a target of 10 per cent blending of fuel-grade ethanol with petrol by 2022 and 20 per cent blending by 2025.

ENA is the primary raw material for making alcoholic beverages and it is derived from different sources sugarcane molasses and grains.

It is widely used in the production of alcoholic beverages such as whisky, vodka, gin, cane, liqueurs, and alcoholic fruit beverages.

It is also required as an essential ingredient in the manufacture of cosmetics and personal care products such as perfumes, toiletries, hair spray, etc.

However, Radico Khaitan - maker of 8PM Whisky, Magic Moments Vodka, Rampur Single Malt Whisky and Jaisalmer Gin - said it is largely self-dependent for its ENA requirements due to owning a significant distillation capacity of 160 million litres.

"This also provides a cushion against fluctuations in the ENA prices," it added.

Moreover, Radico Khaitan, formerly known as Rampur Distillery, also does not expect any significant impact on margins due to hike in commodity prices particularly dry goods such as packaging materials.

"Any short term raw material price increase is not expected to have a significant impact on profitability margins for the companies which are focussed on premiumisation," it said.