Sugar stocks sweeten market mood; Balrampur, Dhampur, Triveni gain up to 8%

Ethanol demand should grow at a 15 per cent CAGR over FY22-30E driven by the government's mandate of 20 per cent ethanol-blending in petrol, analysts say

Shares of sugar companies were buzzing on the bourses on Thursday, with most of the frontline stocks trading higher by up to 8 per cent on the BSE on higher ethanol demand due to rising oil prices.

Individually, Balrampur Chini Mills, Dhampur Sugar Mills, Triveni Engineering, Shree Renuka Sugars, Dwarikesh Sugar Industries and Dalmia Bharat Sugar and Industries rallied between 5 per cent and 8 per cent in the intra-day trade. In comparison, the S&P BSE Sensex was up 0.25 per cent at 55,605 points at 10:05 AM.

"With the expected production of 31.5 million tonnes, consumption of 27 million tonnes & expected exports of 6.0 - 6.5 million tonnes, sugar inventories at the end of September 2022 would be closer to 6.7 million tonnes, which would perk up sugar prices to Rs 37 /kg," according to ICICI Securities. Industry wide sugar exports to the tune of 4.5 million tonnes have already been contracted. 

The sugar industry is on the cusp of a mega transformation and has emerged as a potent driver of clean energy, driving India's shift to renewable energy faster than ever. Ethanol demand should grow at a 15 per cent CAGR over FY22-30E driven by the government's mandate of 20 per cent ethanol-blending in petrol, the brokerage added.

Further, higher diversion of cane towards ethanol will solve the problem of surplus sugar inventory and reduce business volatility. Improved profitability and reduced working capital will ensure superior cash flows, which along with the improvement in RoE/RoCE, would lead to sector re-rating, analyst at Systematix Shares and Stocks (India) Limited said in a sector report.

The Indian ethanol market was valued at $2.5 billion in 2019 and is expected to grow to $16.5 billion by 2030, exhibiting a CAGR of 19 per cent. By 2030, ethanol demand is expected to rise to 15.7 billion litres, of which 11.7 billion litres will be required for blending at 20 per cent and the remaining 4 billion litres for non-fuel purposes.

"OMCs have started 11 per cent blending wherever ethanol is available. Further, the government has directed the automobile industry to launch flex-fuel cars, consuming up to 85 per cent ethanol. In such a scenario, ethanol consumption will triple, and the ethanol industry will grow to USD 40-45bn. The capacity needs to increase 3x over FY22-30E to meet the rising demand, necessitating a capital investment of around $10 billion," the brokerage firm said.