Are India’s Major Ethanol Stocks Poised for Skyrocketing Returns?
In the article, we discussed the use of ethanol as a fuel for internal combustion engines, alone or in combination with other fuels, due to its potential long-term environmental and economic benefits over fossil fuels.
In this article, we will cover the new initiatives taken by the government and major Indian companies to meet the growing demand for ethanol.
In a very recent development, Finance Minister Nirmala Sitharaman in her budget speech proposed to levy an additional excise duty of ₹2 per liter of unmixed fuel. The tax will be applicable from 1 October 2022.
This action aims to increase the blending of fuel ethanol or flexible fuel, which would directly benefit the sugar companies. Gasoline blended with ethanol is claimed to be less polluting than gasoline due to its biofuel nature.
With an ethanol policy in place, India’s reliance on fossil fuels will be significantly reduced.
Currently, India imports 80% of its fossil fuel needs. This results in a massive expense for the country. Fuel import expenses would be significantly reduced if gasoline was combined with ethanol.
In July last year, the Indian government set a target of 20% ethanol blended into gasoline by 2025. Since the unveiling of India’s ambitious plans to generate flex-fuel, stocks of ethanol are in the limelight.
Let’s take a look at what major Indian ethanol producers have been up to in the meantime.
1. Praj Industries
In a very recent development, agri-tech company Swaraj Green, in partnership with Praj industries, has announced that it will commission Asia’s largest ethanol plant in Phaltan, Maharashtra.
It will be commissioned in two stages, using technology patented by the Praj Industries-based energy company that extends the shelf life of sugar cane juice, a key input in ethanol.
The first phase of the plant, which will be commissioned by the end of the year, will have an ethanol production capacity of 500 kilo liters per day (KLPD). The second phase of the project is planned to increase the capacity to 1,100 KLPD.
The two parties previously collaborated to set up another ethanol plant in 2018, with a capacity of 60 KLPDs.
Praj’s technology, Biosyrup, was launched commercially by the company last month. It converts sucrose into glucose and fructose. It uses patented bio-enzymes to flush out excess water from the resulting water. This extends the shelf life of sugarcane juice up to 12 months.
It partnered with a sugar processing unit in Karad to roll out the pilot project, which also resulted in a final order.
When launching the technology, the company claimed that increased ethanol production would help the sugar industry increase revenue.
Two months ago, Praj Industries also signed a Memorandum of Understanding (MoU) with Indian Oil to explore opportunities for the production of Alcohol for Jet Fuels (ATJ), 1G and 2G Ethanol, Compressed Biogas ( CBG) and related opportunities in the biofuels industry. .
For the December 2022 quarter, Praj Industries’ net profit increased by 31.6% year-on-year (YoY) to reach ₹370.5m against ₹281.6m in the previous quarter a year ago.
Order intake during the quarter amounted to ₹9.6 billion for the third quarter, while the consolidated order book for the first nine months ended December 31, 2021 amounted to ₹26.1 billion. This included 80% domestic orders and 20% international orders.
Praj Industries Share Price – 1 Year Performance
2. Shree Renuka Sugars
Shree Renuka Sugars, which is a subsidiary of Singapore-based Wilmar Sugar Holdings, is one of the largest sugar and ethanol producers.
Last year, the country’s largest sugar producer became profitable thanks to several government incentives related to ethanol blending and exports.
During the month of June 2021, the company announced that it would invest ₹4.5 billion to expand its ethanol capacity from 970 KLPD to 1,400 KLPD to meet untapped demand.
Since then, the company has focused on increasing its production capacity and reducing its debt.
In recent quarters, Shree Renuka has reduced current liabilities to 71% of total assets, thereby reducing the amount of borrowings from suppliers or short-term creditors.
For the third quarter of fiscal 2022, the company experienced a significant recovery in its profit before tax (PBT) which stood at ₹436 m against a loss of ₹59 million on an annual basis (YoY).
It also saw a 132% increase in profit after tax (PAT) at ₹434 m compared to the loss of ₹1,355 m the previous year.
The company’s total revenue increased 43% year-over-year to ₹19,816m in the December 2022 quarter, driven by a massive 67% increase in ethanol sales and a catch-up in refinery shipments with better realizations.
The stock was one of the most popular multibagger penny stocks in 2021. It could also be a multibagger penny stock in 2022 if the strong momentum continues in the sugar space.
Over the past year, it has gone from ₹9 to ₹35 levels each, enjoying 289% in that time.
3. Sugar Dwarikesh
Dwarikesh Sugar is the second largest and one of the most efficient sugar companies in India.
In addition to sugarcane juice, B-heavy, it also uses grain-based ethanol to capitalize on the ethanol opportunity in India.
The UP-based sugar company has a sugar crushing capacity of 21,500 tons of cane per day (TCD), a distillery capacity of 163 KLD and a cogeneration capacity of 91 MW.
It is undertaking a distillery capacity addition of 170 KLD with an investment of ₹2.3 billion. The distillery will be commissioned by June 2022. The company would be able to increase distillery volumes to 110 million liters in fiscal year 2024 from the current 32 million liters.
The company recorded an increase of more than 286% in its autonomous profit to ₹288 million for the quarter ended December 2021.
Earnings for the previous year amounted to ₹74m. The operational turnover amounts to ₹6 billion in the same quarter of ₹3.8 billion a year ago.
Over the past year, the share price has gone from ₹27 to ₹85, registering a gain of 215%. ₹1 lakh invested in this multibagger stock a year ago would have turned into ₹3.1 million today.
4. Balrampur Chini
The last stock on the list is Balrampur Chini.
Balrampur Chini Mills is an integrated sugar manufacturing company. The company is engaged in the manufacture of sugar, ethanol and electricity.
Recently, the sugar producer’s board of directors approved the sale of the entire 45% stake in its associated company – Visual Percept Solar Projects Private Limited.
Torrent Power has announced a ₹Acquisition of 1.6 billion 25 MW solar power plants operated by a special purpose vehicle (SPV) from Blue Diamond Properties and Balrampur Chini Mills.
The company plans to grind 5-7% more cane during the current sugar season. Sugar recovery is lower for climatic reasons.
The company has completed the expansion of its Gularia distillery from 160 KLPD to 200 KLPD. In addition, the greenfield/brownfield expansion programs for the Maizapur and Balrampur distilleries are well underway. They are expected to start production at increased capacity from November 2022.
In December 2021, the company announced that it would invest ₹4 billion in the current fiscal year to increase its distillery capacity from 520 KLPD to 840 KLPD. This will be done by adding an additional 320 KLPDs to its Maizapur plant in Uttar Pradesh.
The company posted robust results in the December quarter, helped by increased realizations in the sugar and distillery segments.
Meanwhile, Balrampur Chini has announced major investments of around ₹$9.9 billion in FY 2022-23 for distillery capacity expansion, plant upgrades/debottlenecking and refinery development.
For the financing of said capex, ₹5 billion of debt (partially under interest subsidy) should be used.
Shares of Balrampur Chini have been trending up for a year. It has made a return of 119% in the last 12 months, while in the last 3 months it has returned only 21% to its shareholders.
Should we bet on ethanol stocks?
Ethanol has been a game changer for the sugar industry.
As diversification into distillery, ethanol and electricity has become possible, most sugar companies in India are transforming into integrated players. This increased the demand for molasses.
The Indian government has mandated ethanol blends in automotive fuels. This directive gave sugar mills the opportunity to implement forward integration.
Besides, flex-fuel is also a good solution to solve the problem of excessive sugar production.
To reach the target of 20% ethanol blended in gasoline by 2025, the government has already asked oil CPSEs (Central Public Sector Enterprises) to set up second-generation ethanol bio-refineries. .
It also lowered the Goods and Services Tax (GST) on ethanol for blending with gasoline from 18% to 5% to reduce import dependency.
While these reasons are compelling, ethanol stocks should be viewed with the same caution that one would view other stocks. Ethanol stocks are vulnerable to the cyclical nature of the sugar industry and the agro-climatic risks associated with cane production.
Moreover, their profitability remains vulnerable to government policies, domestic and international trade, and pricing.
If you’re considering investing, assess the company’s fundamentals and prospects. Supported research should not be compromised despite the positive odds.
Disclaimer: This article is provided for informational purposes only. This is not a stock recommendation and should not be treated as such. Learn more about our referral services here…
This article is syndicated from Equitymaster.com
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