Informist, Monday, Sep 11, 2023
By Akshata Gorde
MUMBAI – The surge in share prices of ethanol-producing companies today, following the launch of the Global Biofuels Alliance at the Group of 20 Summit, is seen as a sentimental reaction by analysts as gains from the alliance are likely to be nominal for these companies and more for ancillary equipment makers.
The Global Biofuels Alliance, an initiative by India during its presidency of the G20, advocates an increase in global ethanol blending with petrol to 20%. The alliance intends to expedite global consumption of biofuels by facilitating advances in technology and intensifying use of sustainable biofuels.
Besides founding members India, Brazil, and the US, the alliance was joined by 19 countries and 12 international organisations. Saudi Arabia and Russia, which are part of the Organization of the Petroleum Exporting Countries-plus alliance promoting the use of fossil fuels, stayed away.
Shares of companies like Shree Renuka Sugars Ltd, Balrampur Chini Mills Ltd, and Triveni Engineering and Industries Ltd closed 2.8-4.7% higher today. Shares of E.I.D.-Parry (India) Ltd, Bajaj Hindustan Sugar Ltd, and Dhampur Sugar Mills Ltd also closed higher, in the range of 1.3-2.5%.
"Robust ethanol demand, along with the positive momentum in the overall market, seems to have driven sugar stocks today," said Pratik Tholiya, vice-president of institutional equity research at Systematix Shares and Stocks (India) Ltd.
"While there are chances of exporting surplus ethanol in 2-3 years after India meets the government's aim of 20% ethanol blending in petrol, it is still unlikely as our domestic demand will also likely double," Tholiya said.
Under the National Policy on Biofuels, the government has set a target of 20% ethanol blending in petrol by 2025. Oil refiners have achieved a blending level of around 11.5%, JM Financial Institutional Securities said.
The brokerage estimated that sugar-based ethanol production capacity of 8.5 bln ltr and grain-based production capacity of 3.5 bln ltr, for a total of 12 bln ltr, are already in place.
While it estimates that 10 bln ltr are required to achieve 20% ethanol blending, the existing capacity can only help to achieve 15% blending over the next couple of years. That's because about 3 bln ltr each also go towards industrial and potable uses.
The Indian Sugar Mills Association, on the other hand, has estimated that 12 bln ltr of ethanol are required to achieve the 20% ethanol-blended petrol target by 2025.
Given the government's intent to diversify the feedstock (broken rice, maize, non-edible grains) beyond sugarcane for ethanol production, JM Securities sees incremental capacity creation in the grain-based distillery segment to take the country's total production capacity to 16 bln ltr of ethanol, an increase of 25%.
While ethanol manufacturers may see some benefit from the alliance in the longer term, equipment manufacturers will be the immediate beneficiaries, said an analyst tracking sugar companies at a Mumbai-based brokerage firm.
Praj Industries Ltd, which is into biofuel technology solutions, expects the alliance to scale up its business globally. "We have a very, very significant position in several markets such as Latin America, Africa, Southeast Asia, Europe, Brazil, and the US," Shishir Joshipura, managing director and chief executive officer of Praj Industries, told the television channel ET Now today. "We expect that we will be able to strengthen our offerings and presence in those markets."
Shares of Praj Industries closed 14.1% higher today after hitting a lifetime high of 598 rupees as investors loaded up on stock of the ethanol plant supplier. The stock also witnessed a surge of over 1300% in volumes traded compared with Friday.
Ethanol is primarily a by-product of the sugar industry and is used in plastics, polishes, medication, cosmetics, alcoholic beverages, and for blending in petrol to make cleaner fuel. End
Edited by Rajeev Pai
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