Top 4 Ethanol Stocks To Watch Out In 2023

Generating biofuel was a need of the hour. Increasing pollution and rising gasoline prices warranted the need for alternative fuels.

That is why, the blending of ethanol with motor spirit has gained immense focus of late. The blending helps in reducing pollution, conserves foreign exchange and increases value addition in the sugar industry enabling them to clear cane price arrears of farmers.

The roadmap for ethanol blending in India 2020-25 lays out an annual plan to increase domestic ethanol production in line with the target of the amended national policy on biofuels (2018) as well as with its Ethanol Blending Petrol (EBP) Programme to reach a blending of 20% of ethanol in petrol (E20) by 2025-26.

No wonder investors and experts alike are all gung-ho on the top ethanol companies in India. 

Back in January 2022, we wrote about the top 4 ethanol companies in India, already taking a lead by investing heavily in the ethanol segment.

In today's article, we take a look at 4 more ethanol companies that have committed big amount towards increasing their capacity. These ethanol stocks should be on your watchlist for 2023.

#1 Triveni Engineering & Industries

Triveni Engineering & Industries is an Indian conglomerate with diversified businesses in sugar and engineering segments. The company is engaged in sugar and alcohol, including ethanol production, power co-generation, power transmission, industrial gears and gearboxes and defence, water treatment solutions and FMCG brands.

The company is one of the largest integrated sugar manufacturers in India. It produces fuel-grade ethanol. 

It has 3 state-of-the-art distilleries with 520 KLPD capacity as on 31 March 2022. By July 2022, the company expanded the capacity to 660-kilo litre per day (KLPD) through rationalization and debottlenecking.

The company is actively focusing on capacity expansion through greenfield and brownfield methods. 

For the financial year 2021-22, the company produced 95,768 KLPD ethanol. 80% of it was produced from B-heavy molasses.

The company's ethanol production plans are in tandem with the government's ethanol blending policy. The sugar industry is expected to divert 4.5 million (m) tonnes of sugar towards the ethanol programme this year. 

Considering the same, the company is planning to divert almost 12% of sugar towards ethanol production. 

Also, the company plans to increase their ethanol capacity from 660 KLPD to 1,100 KLPD. The expansion will allow the company to increase its ethanol output from 180 m litres to 31 litres by the financial year 2024-25.

To support this expansion, Triveni Engineering & Industries' board has approved a Rs 4.6 bn capex plan for two new plants.

In the December 2022 quarter, the company reported total sales of Rs 16,960 m, which were 37% higher compared to a year ago. 

The company reported a net profit of Rs 1,473 m for Q3 of the financial year 2022-23, up 20% on a YoY basis.

#2 Dhampur Sugar Mills

Dhampur Sugar Mills is an India-based integrated sugarcane processing company engaged in the manufacturing and selling of sugar, green energy, and chemicals. The company's segments include sugar, green energy, chemicals/ethane and others.

The company has been in business for nearly 90 years. Over time, it has emerged as one of the major players in India's sugar sector. The company's performance in the last few years depended on two words – sugarcane and ethanol.

It has a sizeable ethanol-producing capacity. It possesses a cane-crushing capacity of 23,500 tonnes per day. The distillery possesses a capacity of 250 KLPD.

An expansion of 130 KLPD (including 100 KLPD grain-based) through the ‘C' heavy molasses route is under implementation, equivalent to a consolidated 500 KLPD (including 100 KLPD grain-based) through the ‘B' heavy molasses route.

For the financial year 2021-22, the company utilised 92% of its ethanol production capacity as compared to 88% capacity utilisation recorded in the previous year.

In the same year, the company sacrificed 150,054 tonnes of sugar and preferred to manufacture ethanol instead. The result is that ethanol production was 73.4 m litres and sugar production was 3.7 Lac tonnes.

According to the management, the company's revenue mix will slant towards ethanol across the foreseeable future following the distillery expansion presently underway (to be commissioned in FY 2022-23) and the proposed conscious sacrifice of sugar in favour of ethanol.

Going forward, it intends to focus on ethanol and chemicals that generate returns higher than what is being generated from sugar.

As of 31 December 2022, the revenues from the ethanol business formed 19% of the total revenues.

The ethanol segment is the highest earning business segment of the company. As on December 2022, ethanol business generated 44% the total profit of the company.

This shows the huge profit-earning capacity of the ethanol business.

For December 2022, the company reported total sales of Rs 6,422. On a YoY basis, the company's sales are up 2%.

In the said quarter, the company earned a profit of Rs 464 m, down 20%, on a YoY basis.

#3 Dalmia Bharat Sugar and Industries

Dalmia Bharat Sugar and Industries operates in the FMCG industry. With a total cane crushing capacity of 35,500 tonnes of cane per day (TCD,) it Limited is one of India's fastest-growing sugar companies and one of the nation's top sugar producers.

Its major product is sugar. The principal cane-crushing operation generates molasses as a by-product, which is utilized to manufacture ethanol. Almost 100% of molasses, generated through cane crushing operations are utilized to manufacture ethanol.

In line with the government of India's policy on the ethanol blending programme, in the financial year 2021-22, the company almost doubled its distillery capacity from 80 m litres. to 16 m litres per annum while diverting 25% of its sugar production capacity during the year.

The management expects the distillery segment to be the main pillar of the company's growth.

As of 2021-22, the company's distillery had an installed capacity of 600 KLPD. In the future, the company intends to build maximum capacity in ethanol production.

The company supplies ethanol to reputed oil companies like Indian Oil, Bharat Petroleum and Hindustan Petroleum.

Recently on 5 April 2023, the board of Dalmia Bharat and Sugar Industries approved the setting up of a grain-based distillery at Nigohi Unit with a capacity of 250 KLPD with a capital expenditure of Rs 4 bn. The distillery is expected to be commissioned by September 2024.

It would be financed by debt and internal accruals. Post-commissioning of the above project, the total distillery capacity of the company would be 1,100 KLPD (cane based 600 KLPD and grain-based 500 KLPD).

It is also undertaking capacity expansion at the Ramgarh Sugar Unit of the company from 6,600 TCD to 7,000 TCD at a capital expenditure of Rs 140 m. Its capital expenditure will be financed by internal accruals and the plant is expected to be commissioned by November 2023.

Post-commissioning of the below project the total cane crushing capacity of the company would be 38,250 TCD.

In Q3 of the financial year 2021-22, the company reported total revenue of Rs 6,228 m. It is 2% lower compared to Rs 6,378 m reported in the year-ago period.

During the same period, the company earned a net profit of Rs 652 m. Profit went up 15% from Rs 566 m reported in the year-ago period.

The company maintains high net profit margins. For the December 2022 quarter, its net profit margin stood at 10.9%, up by 1.7% from December 2021 quarter.

#4 EID Parry

E.I.D-Parry is part of the Tamil Nadu-based Murugappa Group and the largest sugar producer in South India. It is one of the top five sugar companies in India by growth.

The company has a rich history of more than 225 years, of manufacturing white sugar from sugarcane. It was the first company in the country to install a distillery.

It also became the first sugar manufacturer in India to produce ethanol from B-heavy molasses and sugar syrup at the Nellikuppam plant, with the process validated by the National Sugar Institute, Kanpur.

As part of its future-forward strategies, the company has augmented its ethanol & extra neutral alcohol production capabilities across its plants to mine the high potential in the emerging green energy space.

In the past few years, co-generation and ethanol have emerged as twin revenue-generating streams for the company, with Ethanol slated to be a major growth accelerator for its sugar business.

In the financial year 2021-22, the company commissioned a new state-of-the-art, greenfield distillery of 60 KLPD at the Bagalkot Plant, Karnataka. A new grain-based distillery for capacity addition of 120 KLPD of ethanol was also under progress at Sankili.

Expansion of the existing distillery capacities and setting up of new capacities are part of the company's strategy for enhancing the ethanol stream as a revenue earner, subject to sustained availability of molasses.

The Sankili unit project has been completed. The commercial production at the unit commenced on 17 January 2023 for the syrup-based distillery. The grain-based distillery project is in progress and is expected to be completed by April 2023.

On 14 February 2023, the board of the company approved an expansion of ethanol-producing capacity at its Nellikuppam facility. The plant has an existing capacity of 75 KLPD which will be expanded to 120 KLPD.

The extended capacity will be used to produce ethanol from syrup and B-heavy molasses. Commercial production from the expanded capacity is expected to commence in April 2024.

It is also undertaking capacity expansion at the Haliyal distillery in Karnataka. The unit's ethanol production capacity will be extended to 120 KLPD.

Both the expansion plans will entail a total outlay of funds of Rs 2,680 m which the management expects to spend in the current financial year (2023-24).

Once the Haliyal distillery expansion and the Nellikuppam expansion are in place, its overall distillery capacity will be at 582 KLPD per annum.

For the December 2022 quarter, the company reported total sales of Rs 98,554 m. The sales increased by a whopping 50% compared to Rs 65,708 m reported in the year-ago period.

During the said quarter, it reported a profit of Rs 4,922 m, up by 25% from the profit reported in the year-ago period.

Snapshot of Ethanol Stocks on Equitymaster's Indian Stock Screener

Here's a quick view of the above companies based on their financials.

Please note that these parameters can be changed according to your selection criteria.

This will help you identify and eliminate stocks not meeting your requirements and emphasise those stocks well inside the metrics.

Investment Takeaway

The stage is set. The government is actively focusing on using ethanol as an alternative fuel, presenting an interesting investment opportunity in ethanol-producing companies.

However, sometimes growth comes at a cost.  Many companies are eager to leverage the growth opportunities which may lead to strong competition.

An investor should carefully analyse the fundamentals, competition, and growth prospects before making any investment decision.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com