Dalmia Bharat Sugar, Dhampur Mills Rise After Easing Sugar Supply For Ethanol Production

Shares of sugar companies rallied on Friday, led by Dalmia Bharat Sugar and Industries Ltd. and Bajaj Hindustan Sugar Ltd., after the government lifted a ban on the use of sugarcane juice and sugar syrup for ethanol production in the 2024-25 supply year. The government also allowed sale of up to 23 lakh tonnes of rice from Food Corporation of India stocks to grain-based ethanol distilleries.

Shares of Dalmia Bharat Sugar advanced over 12% to a one-year high at Rs 495.95 per share, while Bajaj Hindustan Sugar Ltd., Shree Renuka Sugars Ltd. and Dhampur Sugar Mills Ltd. gained nearly 10%.

"The entire sector will benefit from the government move. The dual-feed manufacturers, like Balrampur and Triveni, will be top beneficiaries," said Prashant Biyani, vice president of Elara Capital.

Sugar sector is cyclical in nature, but the country's ethanol blending targets will make business growth more secular, he said.

Sugar companies will benefit from the government orders from the second half of the current fiscal, he said. "But the full scale volume growth benefit will come from fiscal 2026. There has to be medium-term view."

The government expects 20% blend by 2025-26, which will translate to about 10.16 billion litres of ethanol, according to Atul Chaturvedi, executive chairman of Shree Renuka Sugars Ltd. "Out of this, 55% is to be supplied by the sugar sector and 45% by grain sectors including a maze, damaged rice, etc. and by next year we will be in a position to achieve the 20% target," he told NDTV Profit.

Last December, the government prohibited the use of sugarcane juice or sugar syrup for ethanol production in the 2023-24 ESY (December-November) to ensure adequate sugar availability for domestic consumption and keep prices in check.

The food ministry, in a directive on Thursday, allowed ethanol producers to participate in e-auctions and purchase rice between August and October, under the Open Market Sale Scheme. Ethanol makers can purchase rice through weekly e-auctions.

Official data shows ethanol blending in India has reached 13.3% by July of the current season, up from 12.6% during the 2022-23 season. Currently, the country's total ethanol production capacity stands at 1,589 crore litres.