Sugar shares rally up to 8% as ethanol blending programme advanced to 2023

ICICI Securities believes this would encourage sugar companies to further add sugarcane juice and grain-based ethanol capacities

Shares of sugar companies rallied up to 8 per cent on the BSE in intra-day trade on Thursday after the government brought forward the target date for achieving 20 per cent ethanol-blending with petrol by two years to 2023 to help reduce India's dependence on costly oil imports.

Balrampur Chini Mills rallied 8 per cent to Rs 325.85 on the BSE in intra-day trade today. At 09:27 am, the stock was up 5 per cent, as compared to 0.62 per cent rise in the S&P BSE Sensex. Triveni Engineering & Industries, EID Parry (India), Dhampur Sugar Mills, Dwarikesh Sugar Industries and Avadh Sugar & Energy were up in the range of 3 per cent to 4 per cent.

In the current year, ethanol blending level has reached 7.2 per cent with oil marketing companies (OMCs) contracted to procure 300 crore litre of ethanol. The target of 20 per cent ethanol blending would be difficult to achieve by 2023 given lack of capacities & requirement of changes in engines by auto OEMs. However, this depicts the seriousness of government to achieve blending levels of 10 per cent & 20 per cent quickly.

ICICI Securities believe this would encourage sugar companies to further add sugarcane juice and grain-based ethanol capacities. Moreover, it is also setting up stiff timelines for auto OEMs to comply with blending requirement. This would be positive for sugar companies, the brokerage firm said in a note.

Most of brokerage houses have positive stance on India’s sugar industry as it is well poised to benefit from global and domestic factors. Lower output from countries like Brazil, Thailand and the EU would keep supplies tight and global prices firm, enabling India to increase exports.

“On the domestic front, favorable policies, rising ethanol demand, aggressive ethanol capacity addition would drive an earnings CAGR of 15-20 per cent over FY21-24E for our coverage companies. Sugar oversupply is a thing of the past as higher diversion of sugar in favor of ethanol (around 2.0mn tonne sugar in SS21 and >5-6mn tonne by SS24) would keep net sugar production under around 30mn tonne,” analysts at Elara Capital said in recent sugar sector report.