Sugar companies witness a sweet rally on ethanol excitement that may continue in 2022 as well

• Sugar producing company stocks have rallied up to 25% in the last one month on excitement of double incentive by the government for producing ethanol.
• The government is taking several steps to boost ethanol production, which can be used as an alternative to fuel in car engines and thereby reduce air pollution.
• The government has already addressed auto makers to start manufacturing flex fuel vehicles, automobiles which can run on ethanol.

Most sugar manufacturing companies have witnessed the best year as their share price doubled or even tripled in 2021 led by improving outlook and government measures to support such companies.

In the last one year, the government has come out with a slew of measures to encourage sugar mills to produce ethanol. Ethanol is an alcohol-based fuel produced by fermenting the sugarcane juice.

Ethanol has been a game changer for the sugar industry

In October, 2021, the government announced an incentive to encourage sugar companies to divert excess sugar cane stock in producing ethanol, which can be blended with petrol and used as fuel in vehicles.

Besides, this is also a good solution to address the problem of excess sugar production in the country.

Stock prices of many sugar companies doubled in 2021.
Government’s measures to boost ethanol production

In an effort to reduce import of petroleum products, the government has been encouraging farmers to produce ethanol that can be blended with petrol and used as a fuel in vehicles.

Also, the centre has advised auto makers to manufacture flex fuel vehicles that are capable of running on both ethanol-based fuel and petrol.

Maruti Suzuki, Toyota, Honda, BMW and Mercedes have been told to make vehicles that can run on ethanol based fuel, said Union Minister for Road Transport and Highways Nitin Gadkari in an Agro-Vision event in Nagpur this week while encouraging farmers to grow more sugarcane plants.
The move is in line with the government’s target to reduce the carbon emissions by one billion tonnes by 2030.

Analysts say sugar industry has a long way to go

Sugar industry in India is expected to grow by 6-7% in the years 2021-2022 due to growth in exports of sugar and ethanol, said Manoj Dalmia, founder and director, Proficient equities.

“Exports taking place from India will rise as Brazil is facing weather changes impacting crops. India is to register exports of around 4-6 million tonnes for (sugar 2022). Government plans 20% ethanol blending by 2025 in petrol, currently it is 10%. This measure will reduce the debt burden on farmers as a result sugar stocks are to grow,” said Dalmia.

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