Are you ready to invest in ethanol stocks? With the global shift towards energy sources, the demand for ethanol is soaring. In India, the government aims for 20% ethanol blending in petrol by 2025, sparking a surge of interest in ethanol stocks. But with over a hundred companies in the mix, finding the right investment opportunities can be challenging.
This article will help you navigate the ethanol stock universe, evaluate key players, and make informed investment decisions that match your risk appetite. Let’s uncover the potential of this high-growth industry together!
Ethanol, also known as an ethyl alcohol or grain alcohol, is a clear, colourless liquid produced through the fermentation of high-starch feedstocks like corn, sugarcane, and molasses. It is a versatile industrial chemical used in various applications, from alcoholic beverages, personal care products, paints, and pharmaceuticals to ethanol-blended automotive fuels.
Globally, the US and Brazil represent the leading producers and consumers of fuel ethanol. In India, with the government promoting ethanol blending in petrol, ethanol’s use as a biofuel has gained significant traction over the past decade. From 1.53 billion litres in 2013, India’s ethanol procurement quantity increased to 3.35 billion litres in 2022.
Experts project the Indian ethanol market to grow at a 9% CAGR to reach 11 billion litres by 2030. Government incentives for distilleries, rising crude oil prices favouring ethanol blending economics, and India’s ambitious target to achieve 20% blending make the industry’s future outlook robust.
Additionally, factors like sugarcane production, molasses prices, crude oil prices, forex rates, and monsoon rains can impact ethanol supply, blending targets and profitability of ethanol manufacturers. Hence, prudence demands that investors track these factors and industry developments to make informed investment choices.
Here are some ethanol stocks in India. Please note that this is not a recommendation and only a list for reference.
1. Balrampur Chini Mills Ltd
2. Triveni Engineering and Industries Ltd
3. Shree Renuka Sugars Ltd
4. EID Parry Ltd
5. Dalmia Bharat Sugar and Industries Ltd
6. Dhampur Sugar Mills Ltd
7. Bannari Amman Sugars Ltd
8. Dwarikesh Sugar Industries Ltd
9. Bajaj Hindusthan Sugar Ltd
10. Avadh Sugar and Energy Ltd
With ten manufacturing facilities across Uttar Pradesh and a dominant presence in the sugar and ethanol space for over four decades, Balrampur Chini Mills Ltd (BCML) ranks among the ethanol sector bellwethers.
BCML operates five distilleries with a total capacity of 1050 kilolitres per day. For FY 2022, ethanol contributed roughly 20% to the company’s total revenue. Experts anticipate BCML’s consolidated revenues growing at 12-15% CAGR over two years, driven by volume growth in the sugar and ethanol segments.
As of February 2024, BCML has a market capitalisation of ₹7,739 crore. At the current market price of ₹381, BCML trades at a P/E ratio of 4, indicating potential for solid upside as profitability improves on rising ethanol blending.
An established sugar manufacturer headquartered in Uttar Pradesh, Triveni Engineering and Industries Ltd (TEIL) has a dominant presence in sugar and ethanol. The company operates seven manufacturing facilities capable of crushing 66,000 TCD of sugarcane and five distilleries with 330 KLPD capacity.
For the financial year ending March 2024, TEIL reported a robust 25% growth in net revenues to ₹6,700 crore, led by substantial volume in the sugar and ethanol segment. With healthy cash flows, TEIL aims to further invest in enhancing its distillation capacities.
Currently, TEIL has a market valuation of ₹7,677 crore. With the prevailing market price of ₹348, the stock trades at a P/E ratio 7.5. The company’s strong cash flows and revenue visibility in the sugar and ethanol business make TEIL a promising pick in the ethanol space.
A leading manufacturer of sugar and ethanol, Shree Renuka Sugars Ltd (Renuka) operates seven manufacturing plants in Maharashtra and Karnataka, each with a sugar-crushing capacity of 31,500 TCD. Renuka’s integrated port-based refinery in Haldia, West Bengal, can process raw sugar into white/refined sugar annually.
Equipped with five distillation units, Renuka has an installed capacity to produce 860 KLPD of ethanol/alcohol. For the financial year ending March 2023, the company reported a total income of ₹5,700 crore. With profitability likely to improve due to rising ethanol production, the company aims to expand its ethanol and co-generation capacities further.
Currently, Renuka Sugars has a market capitalisation of ₹10,631 crore. At the prevailing price levels, Renuka Sugars’ valuation appears attractive from a long-term perspective.
Part of the reputed Murugappa Group, EID Parry (India) Ltd is an established sugar and ethanol manufacturer. The company operates ten sugar plants with a total crushing capacity of 43,400 TCD. Five distillation units across Tamil Nadu, Puducherry, and Karnataka increase EID Parry’s total ethanol production capacity to 300 KLPD.
For the financial year ending March 2022, EID Parry clocked annual revenues worth ₹5,700 crore, attributable to strong volume growth. Backed by a strong presence in the South Indian market, improved ethanol production is likely to strengthen financial performance further.
EID Parry has a market capitalisation of ₹11,324 crore, which makes its valuation reasonable from a long-term investment standpoint.
Incorporated in 1935, Dalmia Bharat Sugar and Industries Ltd (DBSIL) has emerged as a leading sugar and ethanol manufacturer in India. Equipped with two sugar units in Uttar Pradesh with a crushing capacity of 15,000 TCD, DBSIL’s total distillation capacity stands at 150 KLPD. For FY2022, the sugar and ethanol segment contributed 92% to the company’s consolidated revenues.
Backed by a strong presence in UP and ethanol expansion plans underway, DBSIL revenues are projected to clock a 12-15% CAGR over the next two years. The company currently commands a market capitalisation of ₹3,333 crore. At ₹405 per share, DBSIL stock appears attractively valued for investors with an appetite for high-growth stocks.
An integrated sugar manufacturer, Dhampur Sugar Mills Ltd (DSML) operates four sugar units in Uttar Pradesh, with a total crushing capacity of 36,500 TCD. The company’s three distilleries have a total distillation capacity of 298 KLPD.
For the financial year ended September 2022, DSML reported total revenues of ₹ 3,200 crore, a 45% increase year-on-year backed by higher sales volume. With further investments planned towards expanding its distillation capacity, DSML’s financial performance is forecasted to strengthen further through higher ethanol volumes.
DSML currently has a market capitalisation of ₹1,652 crore. Trading at 6 times FY2022 earnings per share, its stock valuation seems attractive for investors focused on high-growth opportunities.
Based in Tamil Nadu, Bannari Amman Sugars Limited (BASL) operates four sugar units with a total cane-crushing capacity of 19,000 TCD. BASL has a total distillation capacity of 100 KLPD across its two distillery units to complement its sugar business. For the year ending March 2022, BASL clocked annual revenues of ₹1,600 crore, backed by substantial volume in the sugar and distillery segments.
Given BASL’s dominant positioning in South India and planned investments in expanding ethanol capacity, the company promises robust long-term growth prospects, making it a hot pick in the ethanol space. BASL currently enjoys a healthy market capitalisation of ₹3,280 crore, trading at a P/E ratio of 10.
Dwarikesh Sugar Industries Ltd (DSIL) operates three fully integrated sugar manufacturing facilities in Uttar Pradesh, with a total crushing capacity of 21,500 TCD. The company operates a single distillery unit with a 100 KLPD ethanol capacity.
For the financial year ended September 2022, DSIL reported 34% annual growth in consolidated revenues to ₹2,300 crore, driven by higher sugar and ethanol sales volume. With a strong presence in critical cane-growing regions of UP, DSIL is suitably positioned to capitalise on the growth opportunities in sugar and ethanol.
DSIL presently commands a market valuation of ₹1,540 crore, indicating a modest valuation for a stock with immense growth potential.
Bajaj Hindusthan Sugar Ltd (BHSL), a leading sugar and ethanol manufacturer, operates ten integrated sugar plants exclusively in Uttar Pradesh, with a combined annual crushing capacity of 136,000 TCD. To complement its sugar business, BHSL currently operates five distillery units with a total capacity of 825 KLPD.
For the financial year ending March 2022, BHSL reported an annual turnover of ₹7,600 crore. With the highest crushing capacity among listed sugar companies and a strategic focus on maximising ethanol production, BHSL is suitably positioned to capitalise on favourable industry dynamics.
BHSL presently enjoys a healthy market capitalisation of ₹4,962 crore. Given the stock’s modest valuation at 0.5 times book value, BHSL appears attractive for investors focused on turnaround stories.
Incorporated in 2015, Avadh Sugar & Energy Ltd (ASEL) operates two sugar units and a 102 KLPD distillery in Uttar Pradesh. For the financial year ended March 2022, ASEL recorded an impressive 88% revenue growth to ₹1,600 crore, driven by a volume uptick in sugar and ethanol segments.
With the commissioning of another 64 KLPD distillation unit, Avadh Sugar is projected to deliver potent growth based on higher ethanol capacity utilisation and improved profitability. Presently valued at a market cap of ₹1,280 crore, Avadh Sugar offers an exciting pick for risk-friendly investors.
Considering the high growth potential of ethanol stocks, many investors seek guidance regarding prudent ways to identify fundamentally strong companies for long-term portfolio allocation.
The following framework presents a structured approach towards evaluating the investment merits of ethanol stocks:
As a starting point, evaluating critical financial parameters helps determine the company’s financial health and profitability trends:
– Revenue growth
– EBITDA and profitability margins
– Return on capital employed
– Free cash flows
Successful businesses are distinguished by their ability to consistently generate reliable income, maintain high-quality earnings, and efficiently use their resources.
Analysing volume and capacity growth across business verticals reveals future revenue potential:
– Sugarcane crushing capacity
– Sugar and ethanol production trends
– Ethanol as % of revenue mix
– Expansion plans and CAPEX
The higher share of ethanol revenues and growth indicates promising prospects.
Examining the competitive positioning provides perspective on the company’s strengths within the industry:
– Market share
– Presence across cane-rich states
– Integrated operations
– Access to raw material
Leadership across these parameters demonstrates the ability to thrive despite industry upcycles and downcycles.
The operating excellence and financial discipline demonstrated by the management determine the business’ sustainability:
– Pedigree and experience
– Revenue and profit growth under leadership
– Prudent capital allocation
– Corporate governance standards
Management’s prowess shapes business strategy and long-term value creation.
Favourable regulatory tailwinds can significantly uplift industry prospects:
– Ethanol subsidy trends
– Ethanol procurement prices
– Blending targets
– Export policy and incentives
Monitoring government priorities identifies companies that are best-leveraging policy support.
– P/E ratio
– P/B ratio
– EV/EBITDA
Attractive valuation alongside earnings growth at a healthy ROE makes a compelling case.
If you’re interested in investing in ethanol stocks, you must look for companies that are doing well financially and have a good outlook for the future. This includes companies that consistently make more money from ethanol, expand their production capacity, and show good profits. These kinds of companies could be suitable for long-term investments.
Some of the leading ethanol producers in India are Balrampur Chini Mills, Triveni Engineering, Shree Renuka Sugars, EID Parry, Dalmia Bharat Sugar, and Dhampur Sugar Mills. These companies have large-scale integrated operations and are expanding ethanol capacities.
Essential assessment parameters include revenue growth trends, profit margins, market share, expansion plans, raw material sourcing, management pedigree, government policy incentives, and valuation multiples relative to earnings growth.
Experts estimate a 9% CAGR growth for India’s ethanol industry, which will reach 11 billion litres of annual production by 2030. Government mandates on blending and favourable policies are fundamental driving forces.
Investors should track metrics like sugarcane output, oil prices, forex rates, and climatic factors, as these can impact production, blending targets and profitability. Regulatory changes also pose risks.
Use ratios like P/E, P/B, and EV/EBITDA relative to earnings growth rate to assess valuation. Attractive multiples alongside high and consistent earnings growth signal stocks trading at reasonable prices.
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