Alcohol Stocks Surge After Government Eases Rules For Ethanol Production
These stocks rose because these companies commonly use ethanol as the base spirit for various alcoholic beverages.
Shares of alcohol companies such as Globus Spirits Ltd., GM Breweries Ltd., and Radico Khaitan Ltd. surged between 8% and 20% on Friday after the government lifted a ban on the use of sugarcane juice and sugar syrup for ethanol production in the supply year 2024-25.
Additionally, the government permitted the sale of up to 23 lakh tonne of rice from Food Corporation of India's stocks to grain-based ethanol distilleries.
Himanshu Shah, director of research at Dolat Capital, said that with FCI now starting to release rice for ethanol manufacturing, "we believe the broken rice prices shall moderate in the open market, leading to an increase in spread for extra neutral alcohol and ethanol manufacturers, viz. Globus, Gulshan Polycol, Associated Alcohol, as well as Radico."
"Radico will benefit from being backwardly integrated," he said.
However, Shah stated that the benefit to United Spirits could be limited. Grain-based ENA prices have not increased in the same proportion as that of broken rice, he said. This is because part of the broken rice price increase was absorbed by the ENA manufacturer and part by Alcobev Cos, he said.
"Thus, if the broken rice prices fall, grain-based ENA prices may not necessarily decline," he said. "That said, peak inflation in ENA prices will be behind in our view. Thus, the development shall be neutral-to-marginally positive for United Spirits."
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Shares of Globus Spirits were locked in their 20% upper circuit limit of Rs 1080.10 apiece, the highest level since Aug. 11, 2023.
Similarly, GM Breweries stock rose over 10% to hit Rs 946.8 apiece, its highest level since July 3. This was followed by Radico Khaitan, which rose as much as 8.7% to its record high of Rs 1,975.75 .
Shares of Tilaknagar Industries Ltd. hit a two-month high, while those of United Breweries (Holdings) Ltd. and Sula Vineyards Ltd. also hit their highest levels in a month.
These stocks rose because these companies commonly use ethanol as the base spirit for various alcoholic beverages.
