Sugar stocks rally as CRISIL report suggests higher sugar utilisation to achieve ethanol blend target

Shares of other companies like Magadh Sugar, Uttam Sugar, and Avadh Sugar saw gains of over 2% as well.

Rating agency, CRISIL in a report stated that in order to achieve the target of 20% ethanol in petrol by 2025, or 990 crore litres annually, the country will require higher and more effective utilistation of grain and sugarcane feedstock.

The report stated that the annual ethanol production from grains is expected to rise significantly to approximately 600 crore litre by the next season. The balance amount of ethanol will be produced by processing ethanol from sugarcane.

As a result, sugar inventories will be better optimised helping reduce the high carry-over stock at the end of the current season due to government restrictions on exports and diversion for ethanol production.

Anil More, associate director at CRISIL Ratings, said “Higher sugarcane usage for ethanol production will also help optimise sugar inventory, which is estimated to rise to about 4 months of consumption (~8 million tonnes) by the end of this season. Besides, it can positively impact the cash flows of sugar mills and help them pay cane dues to farmers on time.”

By blending ethanol, India will be less dependent on crude oil imports. The government plays a significant role in determining the amount of sugarcane that is utilised in ethanol production depending on the demand and supply for the coming year.

In the previous year, irregular rainfall impacted sugarcane production for this year. As a result, ethanol production from sugarcane is expected to be limited to 250 crore litre for the season.