Sugar stocks are in a sweet spot after a big relief from the government

In a swift policy reversal, the Indian government has rescinded its earlier decision to ban the use of sugarcane juice for ethanol production, offering a lifeline to the struggling sugar industry. The U-turn comes barely a week after the initial ban, signalling a responsive approach to the concerns raised by the sugar and sugar-based distillery industries.

A shift in policy

The fresh order from the food ministry, issued for the 2023-24 supply year, now permits the utilisation of both sugarcane juice and B-heavy molasses to produce ethanol. The directive, issued to all sugar mills and distilleries, emphasises that oil marketing companies (OMCs) will allocate a revised quantity of sugarcane juice and B-heavy molasses-based ethanol for each distillery. However, a crucial aspect of the decision is the imposition of a cap, limiting the diversion of sugar for ethanol production to 17 lakh tonnes.

This policy shift aims to strike a balance between supporting the ethanol industry and ensuring an adequate sugar supply in the domestic market. The government’s earlier ban was driven by the need to stabilise sugar prices and guarantee sufficient sugar availability. However, opposition from industry stakeholders prompted a reconsideration.

Know: Balancing sugar and ethanol production amid sugarcane shortages

The decision provides relief to sugar mills, allowing them to use up to 17 lakh tonnes of sugarcane juice for ethanol production in the current sugar season. This move is anticipated to alleviate the challenges faced by the sugar industry, which has been grappling with low sugar prices in recent years.

The impact of this reversal on ethanol production remains uncertain. Ethanol, a renewable fuel derived from sugarcane juice and other biomass sources, is crucial for blending with petrol and diesel to reduce greenhouse gas emissions.

Union Food Secretary Sanjeev Chopra confirmed the decision, highlighting that the flexibility to use both sugarcane juice and B-heavy molasses is subject to an overall cap on sugar diversion. This strategic move is poised to not only boost the sugar industry but also promote the use of renewable energy, aligning with broader sustainability goals.

Stocks in Focus 

In Monday’s trading, many sugar industry stocks soared more than 10% after the government repealed a prohibition on using sugarcane juice to make ethanol. The government also permitted the use of juice and B-heavy molasses to make green fuel in the 2023-24 supply year. The December 7 restriction for the 2023-24 supply year was expected to impact sugar producers’ profitability in FY25. The prior decision was taken to control sugar prices and assure enough supply in the local market.

Shree Renuka Sugars Ltd:

Renuka Sugars stock price increased by 6% in early trade, and it is now trading 27% below its 52-week high of Rs 65. The company’s market worth was Rs 10,576 crore on Monday, with the stock price gaining 132.37% in the last three years.

Triveni Engineering & Industries Ltd:

In early trading, the Triveni Engineering stock price increased 4%, and it is now trading 15% lower than its 52-week high of Rs 417. The company’s market worth was Rs 7,731 crore on Monday, with the stock price gaining 374.73% in the last three years.

Balrampur Chini Mills Ltd:

The Balrampur Chini stock price rose 5% in early trading, and it is now trading 16% lower than its 52-week high of Rs 486. On Monday, the company’s market value was at Rs 8,162 crore, with the stock price producing outstanding gains of 297.21% over the last three years.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. The information is based on various secondary sources on the internet and is subject to change. Please consult with a financial expert before making investment decisions.