Best Ethanol Stocks in December 2024 Based on 5Y CAGR

Since 2014, India’s Ethanol Blending Program (EBP) has saved approximately US$ 11.80 billion (Rs. 99,000 crore) in foreign exchange. The government has successfully achieved a 15% ethanol blending target and aims to increase this to 20% by the Ethanol Supply Year (ESY) 2025-26.

Ethanol production is set to rise further, as the government has resumed rice supply from the Food Corporation of India to ethanol distilleries. These distilleries can now purchase up to 23 lakh tonnes of rice through e-auctions, taking place from August to October 2024. Additionally, the supply of sugarcane juice and syrup to distilleries commenced in ESY 2024-25 (November 2024). In this blog, let us look at the best ethanol stocks in December 2024:

Ethanol Industry in India: An Overview

As of April 2024, India’s industrial ethanol production capacity stands at 13.80 billion litres (BL), with 8.75 BL derived from molasses and 5.05 BL from grain feedstocks. In its effort to achieve a 20% blending target by 2025, the Indian government successfully reached a record 12% ethanol blending in FY 2024. Maharashtra leads in ethanol production, with an output of 2.68 BL per year, followed by Uttar Pradesh and Karnataka, producing 2.08 BL and 1.18 BL annually, respectively. These states dominate the sector due to their abundant feedstock supply.

To further enhance ethanol production, the government introduced additional incentives, offering US$ 0.12 (Rs. 9.72) per litre for ethanol sourced from maize, US$ 0.10 (Rs. 8.46) per litre for ethanol made from damaged rice (since August 2023), and US$ 0.082 (Rs. 6.87) per litre for ethanol derived from C-heavy molasses (since December 2023).

Best Ethanol Stocks in October 2024 Based on 5-Year CAGR

Note: The above Ethanol Sector stocks have been selected and sorted based on 5Y-CAGR and market capitalisation of a minimum ₹7,000 Crore as of December 02, 2024.

Overview of Best Ethanol Stocks

1. Piccadily Agro Industries Ltd: Incorporated in 1994, Piccadily Agro Industries Ltd (PAIL) started its commercial operations in 1997 as a sugar processing company. Later in 2007, PAIL set up a distillery unit. At present the company is engaged in manufacturing sugar and distillery products at a manufacturing plant in Haryana.

As of November 2024, the company had reported an ethanol capacity of 78 KLPD. The company operates India’s largest independent malt warehousing capacity: 45,000+ Barrels with a holding capacity of 10+ Mn litres of spirit, having malt of different ageing establishing a commanding presence in the malt category.

Key Metrics

• ROE: 30.6%
• ROCE: 29.6%

2. Triveni Engineering and Industries Limited: Triveni Engineering and Industries Ltd is one of the largest integrated sugar & ethanol manufacturers & engineered-to-order turbo gearbox manufacturers in the country and a leading player in the water and wastewater management business. Ethanol constituted 93% and 92% of alcohol sales during Q2 FY25 and H1 FY25, as compared to 94% and 93% in corresponding previous periods, respectively.

Key Metrics

• ROE: 14.2%
• ROCE: 14.8%

3. Shree Renuka Sugars: Founded in 1995, Shree Renuka Sugars Ltd (SRSL) produces refined sugar, ethyl alcohol, and ethanol and generates and distributes electricity. The company has delivered a steady financial performance with an H1FY25 consolidated EBITDA growth of 52%. The ban lifted on ethanol production from CJ and BH molasses are indicators which augur well for the upcoming season.

Key Metrics

• ROE: –
• ROCE: 10.2%

4. 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 Q2FY25, the company sold about 419 lakh litres against the previous year of 304 lakh litres, whereas ENA sold about 159 lakh litres and ethanol around 260 lakh litres.

Key Metrics

• ROE: 13.5%
• ROCE: 20.3%

5. Balrampur Chini Mills: Balrampur Chini Mills Limited manages its operations across three distinct segments: Sugar, Distillery, and Others. As of November 2024, the company operates 10 sugar factories located in Uttar Pradesh (India) having an aggregate sugarcane crushing capacity of 80,000 TCD, distillery and cogeneration operations of 1050 KLPD and 175.7 MW (Saleable) respectively.

Key Metrics

• ROE: 13.8%
• ROCE: 13.5%

Factors to Consider Before Investing in Ethanol Sector Stocks in India

While ethanol stocks may seem attractive for investment, it’s important to evaluate several factors that could influence your decision. Key considerations include:

Government Policies: The Indian government often provides subsidies and tax incentives to ethanol producers, which can positively impact stock prices. Policies such as the National Biofuel Policy and the Ethanol Blending Program encourage biofuel usage and foster growth in the ethanol sector. It is important to review past and future ethanol blending targets set by the government to assess progress and future potential.

Domestic Ethanol Demand: Before investing in ethanol stocks, it’s essential to analyze the demand for ethanol within the country and the potential for exports, as these factors play a critical role in the industry’s growth.

Weather Conditions: Ethanol production depends on crops like sugarcane and corn, which are vulnerable to weather conditions. Extreme weather events like droughts and floods can reduce crop yields, impacting ethanol production and potentially affecting stock prices.

Crude Oil Prices: Ethanol is commonly used as a fuel additive in petrol and diesel. When crude oil prices rise, ethanol becomes more appealing, which can drive up the stock prices of companies in the sector. Conversely, falling crude oil prices may reduce ethanol demand and lower stock values.

Ethanol Production Capacity: A company’s production capacity is crucial for meeting demand. Companies with higher production capabilities are better positioned to grow and may see an increase in stock prices. Additionally, factors like technological innovation and production efficiency are important to consider.

Exchange Rates: Ethanol producers may export their products, and fluctuations in exchange rates can impact revenue. A weaker local currency can make exports more competitive, boosting revenue and potentially elevating stock prices.

Financial Performance: Thoroughly analyze an ethanol company’s financial health, including revenue trends, profit margins, cash flow, growth ratios, and debt levels. Companies with solid financials and strong performance metrics are generally better investment opportunities.

Should You Invest in Ethanol Stocks?

Before investing in ethanol stocks, you should do thorough research as it is prone to risk factors such as commodity prices, government policies, and competition from alternative fuels. Although there is growth potential in this industry, changes in regulations, market conditions, and technological innovations can affect stock performance. Before investing, it’s essential to conduct thorough research and stay updated on industry trends and government policies. Regularly review your investment strategy to ensure it aligns with your financial objectives and risk appetite

Conclusion

Ethanol, as a versatile megafuel, holds immense potential. Its widespread use could lead to substantial savings on oil imports and contribute to environmental protection. The ethanol sector in India presents attractive investment opportunities, particularly as the country places greater emphasis on renewable energy and reducing dependence on fossil fuels. Before investing in leading ethanol stocks in India, it is essential to consider the various factors that impact the market.

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.