Ethanol Saves Sugar Makers Amid Supply Glut
Ethanol accounts for nearly half the profit before interest and tax of India’s largest sugar makers.
High-margin ethanol business aided India’s sugar makers’ earnings even as a record output in the domestic market pushed prices lower in the first half of the year.
The distilleries business—that contributes 7-17 percent to the overall revenue of India’s three large sugar makers—accounted for around 50 percent of their profit before interest and tax in financial year 2018-19, according to the exchange filings. That’s nearly a twofold jump from the previous fiscal. The contribution from the sugar business fell for the second straight year.
To be sure, the government’s decision to create of a sugar buffer to balance demand and supply and a 7 percent increase in the minimum support price for the sweetener also aided earnings amid a global glut. But ethanol provided the biggest cushion after an increase in the procurement price for the alternative fuel.
The country’s sugar production for the ongoing season is estimated at 33.0 million tonnes, 0.5 million tonnes higher than the previous season, according to Indian Sugar Mills Association. This, the industry body said, will be the country’s highest sugar production so far, outperforming the previous highs seen in 2017-18. A higher output will keep pressure on prices, according to ISMA.
That reflected in the financials of the three large producers of the sweetener in India. Balrampur Chini Mills Ltd., Dhampur Sugar Mills Ltd. and Triveni Engineering & Industries Ltd. reported a decline in their revenues for the year ended March 2019.
As a result, the average realisation per kilogram from sugar fell nearly 15 percent for these companies to Rs 31 in financial year 2018-19 from Rs 35-35.5 in FY18. But realisation from ethanol improved.
“While the operational performance in the sugar segment was healthy owing to record recoveries witnessed across our mills, the profitability was impacted on account of subdued realisations,” Vivek Saraogi, managing director at Balrampur Chini Mills, said. “The performance from the allied segment (ethanol and power) continues to be healthy with increasing volumes and stable realisations.”
By raising the procurement price of ethanol last year, the government made it easier for sugar millers to deal with record production for the second consecutive year. The higher-margin ethanol business helped the sugar makers report higher profit even as revenue declined in FY19.
Atul Chaturvedi, executive chairman at Shree Renuka Sugars Ltd., is confident that growth will continue in the ongoing financial year. “The downside from selling sugar has been protected following the government’s decision to hike the minimum support price for sugar to Rs 31 per kg,” Chaturvedi said, ensuring reasonable, if not good, realisations. “At the same time, profitability aspect is taken care of by higher realisation from ethanol and power.”
Oil marketing companies have floated a fresh tender for supply of 329 crore litres of ethanol for the ongoing sugar season, which includes 66 crore litres for ethanol manufactured from B-heavy molasses, sugarcane juice, damaged food grains and 263 crore litres from C-heavy molasses, the sugar producers’ association said.
Purchase orders have been issued for 237 crore litres, which will increase the proportion of ethanol in blended fuel to 7.2 percent, Triveni Engineering & Industries said in a statement. That will be the highest level.
With the government providing cheaper funds for setting up new distillation capacities, Triveni Engineering expects ethanol production to double to 600-700 crore litres a years in two to three years. That, it said, will be sufficient for over 15 percent of ethanol blending with petrol.