In a move aimed at ensuring ample supply of sweeteners for domestic consumption and stabilising prices, the Centre issued a directive on Thursday instructing all sugar mills and distilleries to cease using sugarcane juice for ethanol production.
Prashant Biyani, VP-Institutional Equity Research and Sector Lead for Agri-Inputs, Sugar, and Hotels at Elara Securities, expressed concerns about the impact on sugar production and ethanol volumes. He stated, "Sugar production for the companies will increase. It can increase to the extent of 10-15% and ethanol volumes are going to be lower by around 20-25% over the next 18 months period. For H2FY25, the numbers may not be that impacted, but the main impact could be in H1FY25."
The Food Ministry conveyed this decision through a letter addressed to the Managing Directors and Chief Executive Officers of all sugar mills and distilleries. The letter emphasised the continuation of ethanol supply to oil marketing companies from B-heavy molasses. It stated, "In exercise of powers conferred under clause 4 and 5 of the Sugar (Control) Order 1966, it is directed to all sugar mills and distilleries not to use sugarcane juice/sugar syrup for ethanol in ESY (ethanol supply year) 2023-24 with immediate effect."
Approximately 65% of ethanol is produced through B-heavy molasses, 25% through syrup, and the rest from C-heavy molasses. Kaustubh Pawaskar, DVP-Fundamental Research at Sharekhan, explained, "The notification suggests that the mills cannot manufacture it through syrup but can manufacture through B-heavy molasses." He highlighted that "at least 25% is impacted."
Biyani anticipates an overall impact on EBITDA for top companies ranging from 4% to 25% over the next 18 months. He noted, "For Balrampur Chini Mills, in our preliminary estimate, we expect around 15% increase in production, but depending on various percentages sugar production will increase for all companies in India, and ethanol volume should reduce because that is how the government wants it to be."
He further added, "EBITDA impact also should be on all. It could be negative. It may happen that for companies based out of Maharashtra and Karnataka, the impact could be limited because they were anyways getting impacted with lower production this year. So for them lower ethanol volume may be a bit better in terms of opportunity because sugar prices are higher."
Despite the changes, Biyani indicated, "For FY24 itself, we are not seeing any change in estimates for our coverage companies. So I don’t see a de-rating of multiples due to this event."
For more, watch the accompanying video
(Edited by : C H Unnikrishnan)
Check out our in-depth Market Coverage, Business News & get real-time Stock Market Updates on CNBC-TV18. Also, Watch our channels CNBC-TV18, CNBC Awaaz and CNBC Bajar Live on-the-go!
BJP is planning to ban RSS, says Shiv Sena (UBT) chief Uddhav Thackeray
May 18, 2024 8:01 PM
Punjab Lok Sabha elections: Complete list of Congress candidates
May 18, 2024 4:08 PM
Punjab Lok Sabha elections: Check full list of AAP candidates and constituencies
May 18, 2024 12:59 PM
PM Modi, Rahul Gandhi election rallies in Delhi today: Here are the routes to avoid
May 18, 2024 11:28 AM