Ethanol Begins To Cushion Sugar Makers Amid Supply Glut
As India’s sugar makers battle falling profits amid a global glut, high-margin ethanol business has started providing a support.
The distilleries business—that contributes 7-14 percent to the revenue of India’s three large sugar makers—accounted for 51-56 percent of their profit before interest and tax in the first nine months of the ongoing financial year, according to the exchange filings. That’s in contrast with mainstay sugar business’ 21-33 percent contribution to PBIT during the same period.
Producing more ethanol reduces the cyclicality of earnings for mills and increases profitability. The government last year hiked procurement price of ethanol by nearly 25 percent, providing relief to sugar mills who were grappling with record output and falling prices of the sweetener. It also provided soft loans amounting to Rs 4,400 crore for expansion and setting up of new ethanol plants, and permitted ethanol production from sugarcane juice, potentially leading to higher remuneration. The procurement price of ethanol is fixed by the government before every sugar season.
“Balrampur Chini delivered stable financial results during the quarter despite the challenging environment prevailing in the sugar sector. The performance of the sugar segment was muted on account of lower realisations,” Managing Director Vivek Saraogi said in a conference call post earnings. The distillery performance, he said, was encouraging on the back of higher volumes and realisations. “We are expanding our distillery capacity at Gularia, Uttar Pradesh, which will further enhance the contribution from this segment.”
Dhampur Sugar said the performance of its distillery segment improved significantly backed by higher volumes. “The company continues to focus on this division. In the December quarter, it sold 47.60 lakh litres of ethanol from B-Heavy molasses,” it said in its investor presentation.
- Net profit of Dhampur Sugar Mills Ltd. jumped the most in seven quarters at Rs 82 crore in the three months ended December. Revenue of its ethanol business jumped 42 percent year-on-year during the period.
- Balrampur Chini Mills Ltd.’s net profit nearly doubled to Rs 120 crore in the December quarter, mainly on account of 39 percent yearly growth in its distilleries business. Revenue of the sugar business fell 12 percent in the quarter.
Ethanol also commands higher margin than the sugar business, BloombergQuint’s calculations show. The central government in May had asked oil marketers to target 10 percent blending of ethanol with petrol as part of a national policy for biofuels. To meet this, orders for 260 crore litre of ethanol has been received from oil marketers so far.
But this comes at a time sugar makers will take at least three to four quarters to expand their distillery capacities.