Top 5 Stocks Set to Soar After India’s Ethanol Policy Revamp

The ethanol market has seen a resurgence, with stocks of key sugar companies surging by up to 13% on August 30, 2024. This surge follows a significant policy shift by the Indian government, which now permits sugar mills to use cane juice or syrup for ethanol production during the Ethanol Supply Year (ESY) 2024-25, starting on November 1, 2024.

The policy change, announced on August 29, 2024, removes the previous cap on sugar diversion for ethanol and allows the use of B-Heavy and C-Heavy molasses for ethanol production. This initiative aligns with the government’s broader renewable energy goals, particularly in reducing dependence on fossil fuels.

Here, we explore the top five stocks expected to benefit most from this ethanol-friendly policy shift.

1. EID Parry

EID Parry, a key player in the sugar and ethanol industry, saw its shares rise by up to 6% following the government’s approval. The company’s stronghold in sugar production and ethanol processing makes it well-positioned to take advantage of the new policy.

EID Parry has been at the forefront of ethanol innovation, being the first sugar manufacturer in India to produce ethanol from B-heavy molasses and sugar syrup at its Nellikuppam plant. This pioneering effort, recognized by the National Sugar Institute in Kanpur, demonstrates the company’s readiness to adapt to new opportunities.

With the government now allowing the use of cane juice, syrup, and molasses types for ethanol production, EID Parry is set to maximize its ethanol output. The company already operates multiple distilleries across India, producing ethanol from sugarcane molasses sourced from its own sugar mills and other suppliers.

As the demand for ethanol-blended fuels grows, EID Parry is expected to see an increase in production volumes and, consequently, revenues. The company’s established infrastructure, commitment to sustainability, and early adoption of alternative ethanol sources give it a competitive edge in the market. Additionally, its strategic location in regions with minimal competition and access to high-quality raw materials further solidify its leadership in the ethanol sector.

2. Praj Industries

Praj Industries, a leader in ethanol technology solutions, experienced a 10% intraday surge in its stock price following the government’s policy update. The company is well-positioned to benefit from the new changes, thanks to its dominance in the biofuel technology sector. Praj Industries holds over 70% of the market share in India for 2G ethanol technology and plays a crucial role globally, contributing to about 10% of ethanol production worldwide, excluding China.

The company’s reach extends beyond India, with successful projects in Africa and Southeast Asia. Recently, Praj entered into a licensing agreement with Brazil-based Be8 to establish its first ethanol plant in Passo Fundo, Brazil. In June 2024, Praj inaugurated its first grain-based ethanol project in Brazil, reinforcing its presence in the world’s ethanol capital.

Domestically, Praj has seen substantial growth in its energy business, largely driven by starch-based ethanol plants. The company is now focusing on transitioning customers from single-feedstock to multi-feedstock systems, further strengthening its market position.

With the government’s new policy allowing the use of cane juice, syrup, and molasses for ethanol production, Praj Industries is set to benefit from increased demand and production. The company’s advanced technology and extensive experience in the ethanol sector position it to capitalize on the anticipated growth in the market.

3. Shree Renuka Sugars

Shree Renuka Sugars, a leading sugar and ethanol producer, has also benefited from the government’s policy shift. The company operates one of India’s largest ethanol production capacities, with a significant expansion from 720 kiloliters per day (KLPD) to 1,250 KLPD as of March 2023. This capacity supports various applications, including ethanol blending with petrol, aligning with the government’s push for increased biofuel usage.

The recent policy change allows Shree Renuka Sugars to further enhance its ethanol production by utilizing cane juice, syrup, and various molasses. The company’s strong infrastructure and early adoption of sugarcane juice for ethanol production make it well-positioned to capitalize on the growth in the ethanol sector.

Shree Renuka Sugars produces three main grades of ethanol: Absolute Alcohol (AA), Extra Neutral Alcohol (ENA), and Rectified Spirit (RS). These products are supplied to a diverse range of industries, including oil marketing, potable alcohol, and chemicals. As the company continues to upgrade its distilleries with advanced technology, it is expected to improve efficiency and boost its market presence.

4. Balrampur Chini Mills

Balrampur Chini Mills, one of India’s largest integrated sugar companies, is set to benefit significantly from the recent policy changes. The company’s shares have already seen a positive response, reflecting investor confidence in its ability to capitalize on the new opportunities in the ethanol market.

Balrampur Chini Mills has invested heavily in expanding its ethanol production capacity, with a focus on utilizing sugarcane molasses as a feedstock. The company’s strategic location in key sugar-producing regions and its commitment to sustainable practices give it a competitive advantage in the market.

With the removal of the cap on sugar diversion for ethanol production, Balrampur Chini Mills can now optimize its production processes to increase ethanol output. This will enable the company to meet the growing demand for ethanol-blended fuels, driving revenue growth and enhancing its market position.

5. Triveni Engineering & Industries

Triveni Engineering & Industries, a key player in the sugar and ethanol sector, is well-positioned to reap substantial benefits from the government’s policy change. The company operates state-of-the-art distilleries across Uttar Pradesh, with a combined distillation capacity of 860 KLPD.

Triveni’s advanced distilleries produce a range of products, including ethanol, Extra Neutral Alcohol (ENA), Rectified Spirit (RS), and Denatured Spirit (SDS). The removal of the cap on sugar diversion for ethanol gives the company the flexibility to optimize its production processes, allowing for an increased focus on ethanol output.

This policy change aligns perfectly with Triveni’s long-term strategy of expanding its ethanol business and contributing to India’s self-reliance goals. By leveraging its existing infrastructure and operational expertise, Triveni can quickly adapt to the new policy, increasing its ethanol production capacity to meet the rising demand for ethanol-blended fuels. This will not only enhance its market presence but also drive revenue growth as the company supplies ethanol to major oil marketing companies and private players for blending with petrol.

In conclusion, India is on track to significantly boost its ethanol production to 9.90 billion liters by 2025, utilizing grain and sugarcane as key feedstocks. This ambitious goal is part of the government’s broader strategy to enhance energy security, reduce carbon emissions, and decrease dependence on fossil fuels.

With the target of achieving 20% ethanol blending with petrol by 2025, up from the current 10%, the ethanol sector is expected to witness substantial growth, presenting a lucrative opportunity for investors. Ethanol has emerged as a significant contributor to the renewable energy sector, driven by government initiatives to promote higher ethanol blending, which reduces fossil fuel use and lowers pollution.

The Ministry of Petroleum and Natural Gas has been instrumental in supporting this growth by encouraging investments in ethanol production infrastructure and offering financial incentives to producers. This has spurred public and private sector investments, particularly in regions with abundant grain and sugarcane production.

However, investors should be mindful of the cyclical nature of the sugar industry, which can impact ethanol production. Additionally, regulatory changes, climate conditions, and fluctuating raw material costs can affect the profitability of ethanol-producing companies.

Disclaimer: This article is for informational purposes only and is not a stock recommendation.