Best Ethanol Stocks in India Based on 5Y CAGR – June 2024

Ethanol, a clean-burning fuel, is derived from sugarcane as a by-product of the sugar industry. It is commonly blended with gasoline to reduce harmful vehicle emissions. Ethanol is recognised as a biofuel and is widely used as an alternative to traditional fuels worldwide.

The Government of India attained an ethanol blending record of ~12% in FY 2024 in its endeavour to achieve 20% blending by 2025. The government is actively pushing for biofuels like ethanol to reduce reliance on imported oil and combat climate change. This policy shift has fueled interest in ethanol stocks, making them a potential avenue for investors. But are they right for you? Let’s look at some ethanol stocks and provide an industry overview.

Top Ethanol Stocks Based on 5-Year CAGR

Note: The above stocks have been selected from Nifty 500 Universe and sorted based on 5Y-CAGR as of June 10, 2024.

1. Triveni Engineering and Industries Limited

Triveni Engineering and Industries Ltd is an Integrated and diversified conglomerate in the areas of sugar, ethanol and engineering. The company’s net profit margin jumped 2.97% from last year’s period to 12.22% in the Q4 2023-2024. Sugarcane Crush during Sugar Season (SS) 2023-24 was 11% lower at 8.26 million tonnes over SS 2022-23, but the gross recovery was marginally higher at 11.49%. The decline in the crush is due to heavy rains and waterlogging in certain regions and the associated proliferation of red rot disease in plant cane of the Co238 variety.

2. Shree Renuka Sugars

Shree Renuka Sugars Ltd (SRSL), founded in 1995, produces refined sugar, ethyl alcohol, and ethanol and generates and distributes electricity. The company produces three grades of ethanol (Absolute Alcohol, Rectified Spirit, Extra Neutral Alcohol) as a by-product of sugar manufacturing. Ethanol is used as a biofuel and chemical ingredient and is supplied to the alcohol industry. During FY2023, Sugarcane crushing was impacted by adverse weather conditions, resulting in a 7% reduction in cane crushing in comparison to the previous year.

3. EID Parry (India) Ltd

EID Parry is engaged in Sugar, Nutraceuticals and ethanol production. It also has a significant presence in the Farm Inputs business, including Bio pesticides through its subsidiary, Coromandel International Limited. During FY24, the company witnessed a drop in volume due to the prohibition on exports and the withdrawal of incentives for diversion to Syrup / B Hy.

4. Balrampur Chini Mills

Balrampur Chini Mills Limited, a prominent Indian enterprise established in 1975, has its corporate headquarters in Kolkata, West Bengal, India. The company manages its operations across three distinct segments: Sugar, Distillery, and Others. During the year ended March 2024, sugarcane crushing increased by ~16% and sugar production increased by ~27%. This increase is attributed to various cane development activities and varietal rebalancing undertaken by the company and lower sugar diversion due to changes in the Ethanol policy

Why Ethanol?

• Government Support: The strong backing from the Indian government is a key driver for ethanol stocks. Their blending mandates for ethanol in petrol are steadily increasing, creating a reliable demand source for ethanol producers.
• Hedge Against Oil Prices: As ethanol is a substitute for petrol, its demand rises with increasing oil prices. This can offer a hedge against oil price volatility, potentially benefiting your portfolio.
• Environmental Benefits: Ethanol is a cleaner-burning fuel compared to traditional petrol. Investing in ethanol stocks can align your portfolio with sustainable practices.

Overview of the Ethanol Market

In recent years, there has been a notable surge in the demand for Ethanol due to a heightened focus on eco-friendly products. Ethanol, primarily sourced from sugarcane, has emerged as a solution to reduce the environmental impact caused by crude products.

Furthermore, the cost of Ethanol has been on the rise as countries shift their focus toward energy transition in response to climate change policies.

Currently, India’s industrial ethanol production capacity stands at 13.80 billion litres (BL), with 8.75 BL from molasses and 5.05 BL from grain feedstocks. In its endeavour to achieve 20% blending by 2025, India attained a blending record of 11.6% in Q1 of ESY 2023 – a 13% increase compared to 2022.

Maharashtra is the leading state in ethanol production, with 2.68BL per annum. The other major producing states are Uttar Pradesh and Karnataka, with ethanol levels reaching 2.08 and 1.18 BL per annum, respectively.

Recent research from the International Energy Agency suggests that India is on track to surpass the United States and Brazil to become the third-largest consumer of Ethanol globally by 2026. This is unsurprising given India’s ambitious goal to increase its Ethanol consumption to 3 billion litres between 2017 and 2021.

Conclusion

Ethanol has significant potential as a versatile mega-fuel. Its adoption has the potential to yield substantial savings in oil import expenditures while also contributing to environmental conservation. This concludes our examination of the top ethanol stocks based on 5 year CAGR for the year 2024.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.