Sugar mills making more from molasses

With ethanol prices fixed, mills sell to liquor firms

Sugar mills expect higher realisation from non-ethanol byproducts, molasses and rectified spirit, than processing them for ethanol for fuel doping.

Liquor manufacturers pay Rs 46-47 a litre for rectified spirit and the realisation from ethanol has declined by Rs 7-8 a litre due to a cut in its price and withdrawal of excise duty concession. Oil refiners face a price ceiling on ethanol but liquor manufacturers pay the market price for rectified spirit.

The situation has prompted small sugar manufacturers to sell molasses, a raw material for rectified spirit. But distilleries producing ethanol are taking a hit on their profits. Thus a lower realisation from  electricity cogeneration and distillation is likely to nullify a part of the gains of the sugar price increase for mills this year.

“The government reduced the price of ethanol by Rs 2-3 per litre and also withdrew the excise duty sop, resulting in a Rs 7-8 per litre decline in realisation from ethanol this year. Also cane output is lower in drought-affected Maharashtra, Karnataka, Andhra Pradesh and Tamil Nadu. Production of molasses and baggase is lower this year. The overall realisation from byproducts is lower,” said Abinash Verma, director-general, Indian Sugar Mills Association (ISMA).

The price of sugar jumped by a staggering 26 per cent over the last year to trade currently at Rs 40 a kg in the wholesale market due to lower production estimates for the ongoing crushing season. During the same time, however, realisation from electricity supply to the state grids stood almost unchanged at around Rs 5 a unit. By contrast, however, realisation from ethanol declined by almost 15 per cent.

Companies like Bajaj Hindusthan and Balrampur Chini generate 10-12 per cent of their revenue from distilling and 6-10 per cent from electricity cogeneration. Bajaj Hindusthan earned Rs 559 crore from distilling and Rs 319 crore from power out of its annual turnover of Rs 4,735 crore in 2015-16. Balrampur Chini earned Rs 309 crore from distilling and Rs 281 crore from cogeneration out of its annual turnover of Rs 3,093 crore in 2015-16.

Of its Rs 9,823 crore turnover, Shree Renuka Sugars reported 62.3 per cent (Rs 6120 crore) coming in from sugar sales while ethanol and power contributed 5.1 per cent (Rs 503 crore) and 3.4 per cent (Rs 331 crore) in 2015-16. Trading generated Rs 2,830 crore, or 28.8 per cent, of Shree Renuka Sugars’ revenue during the year.

Independent sugar mills have sold molasses to large distilleries instead of distilling smaller amounts. As against Rs 45-46 a litre from rectified spirit, ethanol fetches Rs 36-37 a litre after incurring a 5 per cent additional cost of production.