Top Ethanol Stocks to Invest in 2023
India predominantly generates ethanol as a by-product of its sugar industry, finding application in diverse sectors such as plastics, polishes, medications, cosmetics, plasticizers, and alcoholic beverages. Notably, major sugar producers in India have emerged as significant ethanol manufacturers.
The country's heavy reliance on crude oil imports, which account for 82% of its consumption, positions India as a major global importer of petroleum products. To address this concern, the Indian government is actively exploring various strategies, including boosting renewable energy capacity and integrating ethanol as a gasoline alternative.
This blog delves into the landscape of the Indian ethanol industry, shedding light on prominent ethanol companies that are experiencing rapid expansion. For an in-depth understanding, continue reading!
An Overview of the Ethanol Industry growth in India:
• In recent years, the call for Ethanol has surged owing to the growing emphasis on adopting eco-friendly products. Ethanol, sourced primarily from crops like sugar, wheat, and corn, holds the potential to mitigate the environmental impact of crude-based products, thus curbing pollution.
• Furthermore, the cost of Ethanol is on the rise as countries worldwide pivot towards energy transition in response to climate change policies.
• According to recent findings by the International Energy Agency, India is poised to outpace the United States and Brazil, emerging as the third-largest global economy for Ethanol by 2026. This projection hardly comes as a surprise, considering India's projected escalation in Ethanol consumption to 3 billion litters between 2017 and 2021.
• While factors like overall transportation fuel demand, pricing dynamics, and specific regulatory frameworks have contributed to market trends, governmental policies have played a pivotal role in steering this demand. Consequently, future predictions point toward a substantial upswing in Ethanol requisites.
• With a target of achieving net-zero emissions by 2070, the government's impetus toward this goal is fuelled by advancements in the realms of Ethanol, sugar, and electric vehicles.
• In a nutshell of ethanol market outlook, we can summarize it as the companies engaged in sugar and Ethanol production within the country are poised to reap the rewards of exponential growth opportunities. If you are keen to know about the best stocks for Ethanol industry investments, then first understand the key consideration prior to investing in Ethanol Stock.
Key Considerations for Investing in Leading Ethanol Stocks in India
How much is the reliance on the Sugar Industry?
Ethanol stocks are notably influenced by the performance of the sugar industry, which is intrinsically tied to factors like monsoon patterns, irrigation availability, and overall water resources. Insufficient water supply can impact sugarcane cultivation, a water-intensive crop.
• Surging Demand
In the realm of energy sources, Ethanol stands out as an environmentally friendlier option compared to conventional fuels like crude oil. This heightened eco-consciousness is fostering a growing demand for Ethanol, particularly in countries like China that are pivoting towards biofuels. Speculation about future demand remains a driving force behind ethanol stock analysis.
• Portfolio Diversification
Investors often adopt a strategy of diversification by allocating funds across various stocks and bonds. This approach mitigates risks associated with market fluctuations. Integrating Ethanol investments offers a streamlined avenue for portfolio diversification.
• Inflation Safeguard
To hedge against inflation, many investors allocate a substantial portion of their funds to commodities. Inflation erodes the value of money over time, prompting the rise in prices. Consequently, you must have observed in the news that during periods of inflation, commodities such as Ethanol tend to experience price appreciation.
• Vast Industry Landscape
Participating indirectly in Ethanol production can be achieved by investing in companies engaged in various aspects of its production chain and alongside of that we can also find out what is the ethanol stock market trend. Companies heavily reliant on Ethanol sales are likely to see their stock prices move in alignment with Ethanol price trends. Given the sheer magnitude of the Ethanol industry, numerous investment opportunities are available across its spectrum.
Overview of the Best Ethanol Stock in India to Invest
1. Shree Renuka Sugars
Key Operational Highlights:
Shree Renuka Sugars Ltd (SRSL), established in 1995, is engaged in the manufacturing and refining of sugar, ethyl alcohol, ethanol, and the generation and sale of power. The company is a subsidiary of Wilmar Sugar Holdings Pte Limited and operates across multiple segments and has been one of the emerging ethanol stocks.
SRSL, a subsidiary of Wilmar Sugar Holdings PTE Limited, operates integrated sugar mills and port-based refineries in India. The company's operations encompass Sugar, Ethanol, and Power generation.
1. Integrated Sugar Mills: SRSL operates six sugar mills in Karnataka and Maharashtra, producing sugar, ethanol, power, and organic manures. The combined crushing capacity stands at 7.1 MTPA (37,500 TCD).
2. Sugar Refineries: The company operates two port-based sugar refineries with a refining capacity of 1.7 MTPA.
Sugar: SRSL manufactures and sells White / Refined Sugar under the brand name "Madhur Sugars."
Ethanol: The company produces three grades of ethanol (Absolute Alcohol, Rectified Spirit, Extra Neutral Alcohol) as a by-product of sugar manufacturing. Ethanol serves as a bio-fuel, chemical ingredient, and is sold to the alcohol industry.
Power: Renewable power is generated from bagasse (sugarcane byproduct) for captive use and state grid sales.
Bhumadur Organic Manure: SRSL manufactures organic manure, Bhumadur, from sugarcane press mud and distillery spent wash.
1. Sugar Production: SRSL operates mills with varying capacities:
Athani: ~10,000 TCD
Munoli: ~10,000 TCD
Havalga: ~7,500 TCD
Panchaganga: ~6,000 TCD
Raibag: ~2,500 TCD
Pathri: ~1,500 TCD
2. Distilleries: Distillery capacities at key locations:
Athani: ~300 KLPD
Munoli: ~120 KLPD
Havalga: ~300 KLPD
Power Plant: Cumulative co-generation capacity: 262 MW.
Revenue Breakup - FY22:
3. Sale of manufactured sugar: ~75%
4. Sale of ethanol and allied products: ~15%
5. Sale of traded sugar, coal: ~7%
6. Sale of power: ~2%
7. Sale of engineering & by-products: ~1%
Geographical Revenue Split - FY22:
1. Exports: ~69%
2. Domestic Sales: ~31%
Expansion and Debt Levels:
1. The company is doubling its distillery capacity to 1,400 KLPD by FY2024, with a planned capital cost of Rs. 700 crore.
2. SRSL's debt levels reached Rs. 5,569 crore in FY23 due to distillery capex and increased working capital requirements.
1. Global Legal Issues: SRSL is involved in legal proceedings related to former Brazilian subsidiaries, potentially leading to financial implications.
2. Debt and Negative Net Worth: Elevated debt levels and negative net worth pose financial risks.
Shree Renuka Sugars Ltd is best ethanol stocks to buy & holds a prominent position in the sugar, ethanol, and power generation sectors. The company's diverse product portfolio, overseas presence, and ongoing expansion initiatives indicate a commitment to growth. However, the company's financial performance is influenced by global legal issues, its debt profile, and the volatile sugar market. Careful consideration of these factors is recommended for potential investors.
|Key Financial Ratios||As of FY23|
|Compounded Sales Growth (TTM)||24|
|Compounded Profit Growth (5Yr)||14|
|OP Margin (%)||3.09|
2. Bajaj Hindusthan Sugar
Key Operational Highlights
Bajaj Hindusthan Sugar Limited (BHSL), originally incorporated as ''The Hindustan Sugar Mills Limited'' in 1931, operates within the sugar, alcohol, ethanol, and power generation sectors. The company holds a prominent position in the Indian sugar and ethanol manufacturing landscape with multiple operational facets:
1. Revenue Split: In FY22, BHSL's revenue distribution witnessed a transformation:
Sugar: 76% (down from 84% in FY21)
Power: 13% (up from 11% in FY21)
Distillery: 11% (up from 5% in FY21)
2. Manufacturing Capabilities: BHSL boasts a robust manufacturing setup:
Fourteen sugar plants with a total sugarcane crushing capacity of 1,36,000 TCD.
Six distilleries equipped to produce Industrial Alcohol at a capacity of 800 kilolitres per day.
Fourteen co-generation plants generating a cumulative power capacity of 449 MW.
3. Debt Restructuring: The company's debt underwent restructuring in 2017, resulting in bifurcation into Sustainable Debt (Part A) and Unsustainable Debt (Part B). Promoters transferred 10.59% equity share to lenders as part of the restructuring, reducing their holding from 26.02% to 15.43%.
4. Default and Investments: BHSL faced a default in Working Capital loan payment in May 2021. The company holds investments and exposures totaling 503 crores in group companies. Recovery of these advances has encountered delays.
5. Contingent Liabilities: As of March 2022, BHSL's contingent liabilities stand at approximately 2200 crores, including 1784 crores recognized as a contingent liability due to YTM/redemption premium on OCDs from debt restructuring.
Current Debt Status: As of September 30, 2022:
• Outstanding term loan: Rs1,113.33Cr.
• Total financial indebtedness (short-term and long-term debt): Rs4683.53Cr.
• Debt Servicing: As of December 4, 2022, BHSL reported the payment of overdue for term loan instalments (up to September 2022), term loan interests (up to November 2022), and Optionally Convertible Debentures (OCD) coupon (payable for FY 2022) to all lenders.
1. Dependency on Sugar Industry: BHSL's operations are closely tied to the performance of the sugar industry, which is susceptible to factors such as monsoons, irrigation, and water availability.
2. Debt Exposure and Restructuring: The company's history of debt restructuring and exposure to group companies pose financial risks.
3. Regulatory and Environmental Challenges: Pending cases and notices related to environmental compliance and pollution control could result in legal and financial implications.
One must consider to invest in this stocks if you are Investing in ethanol sector, Bajaj Hindusthan Sugar Ltd operates as a significant player in India's sugar, ethanol, and power generation sectors. The company's revenue mix has evolved, with increased emphasis on power and distillery segments. The debt restructuring exercise and its debt servicing efforts signal the company's commitment to financial stability. However, challenges tied to the sugar industry's dependence, regulatory issues, and debt exposure warrant careful consideration for potential investors.
|Key Financial Ratios||As of FY23|
|Compounded Sales Growth (TTM)||7|
|Compounded Profit Growth (5Yr)||12|
|OP Margin (%)||1.63|
3. EID-Parry (India)
Key Operational Highlights:
EID Parry (India) Ltd, a prominent player in the sugar, nutraceuticals, and ethanol production sectors, operates under various business segments:
EID Parry is engaged in Sugar, Nutraceuticals, and Ethanol production. It also has a significant presence in the Farm Inputs business through its subsidiary, Coromandel International Limited.
Business Segments & Revenue Split FY22:
1. Sugar (74%): The company boasts over two centuries of sugar manufacturing expertise and delivers tailored sugar products to meet specific customer requirements.
2. Nutraceuticals (2%): EID Parry formulates science-based nutraceuticals supplements, functional foods, cosmetic ingredients, and pharmaceutical formulations.
3. Sanitizers: The company introduced hand sanitization products – Handkleen & Sterisafe.
4. Cogeneration - Power (7%): With an aggregate cogeneration capacity of 140 megawatts, EID Parry exports around 52% of the generated power.
5. Distillery (19%): The company produces industrial alcohol and ethanol, operating multiple distilleries. A new 60 KLPD distillery was erected at Bagalkot in FY22.
EID Parry exports its products to 40 countries, contributing to 19% of its total revenues in FY22.
1. EID Parry operates six sugar factories with a combined daily crushing capacity of 40,300 Tonnes of Cane.
2. It runs five distilleries with a total capacity of 297 KLPD.
3. The cogeneration plant generates 140 MW of power.
Expansion and Capex:
1. The company is expanding its distillery capacity and aims to set up a 120 KLPD green field grain-based distillery at Sankilli with a capital outlay of about ₹92 Crore.
2. EID Parry plans capex of approximately ₹285 crore and ₹230 crore in FY23 and FY24 respectively. These investments are expected to be funded mainly through internal accruals and term debt.
Part of Murugappa Group:
1. EID Parry is a significant entity within the Murugappa group of companies, providing it with strong financial flexibility and support.
2. Its 56% stake in Coromandel International Limited (CIL) is valued at around ₹15,420 crore, enhancing its financial standing.
Value-Added Products and Retail Strategy:
1. EID Parry is exploring opportunities to convert by-products (waste) from Sugar, Distillery & Nutra into value-added products suitable for Aquaculture, Poultry & Animal Husbandry.
2. The company's retail strategy includes brand building and market initiatives, with flagship brand 'White label' gaining traction.
R&D and ESG Profile:
1. The company has four R&D facilities in India focusing on nutrient management, eco-friendly bioproducts, and plant tissue culture.
2. EID Parry demonstrates a strong commitment to Environment, Social, and Governance (ESG) principles. It emphasizes energy conservation, gender diversity, and strong governance practices.
1. Diversified revenue profile due to integrated operations, including co-generation and distillery.
2. Adequate financial risk profile with steady cash generation and prudent funding of capex.
3. Strong financial flexibility as part of the Murugappa group, with access to domestic and foreign capital markets.
1. Vulnerability to volatility in sugar prices and regulatory changes.
2. Performance of the refinery segment under PSRIPL remains modest.
1. Volatility in sugar prices and regulatory uncertainties in the sugar industry.
2. Impact of regulatory changes on distillery and ethanol pricing.
3. Performance challenges in the refinery segment (PSRIPL).
EID Parry (India) Ltd demonstrates a diversified business portfolio, with strengths lying in integrated operations, financial flexibility, and ESG commitment. While vulnerability to sugar price fluctuations and regulatory changes pose risks, the company's focus on expanding distillery operations, increasing value-added products, and efficient financial management indicates a positive outlook. The anticipated improvement in distillery, co-generation, and stable sugar demand is expected to contribute to better cash generation in the near to medium term. Overall, EID Parry's integrated operations and affiliation with the Murugappa group provide a stable foundation for its financial performance.
|Key Financial Ratios||As of FY23|
|Compounded Sales Growth (TTM)||33|
|Compounded Profit Growth (5Yr)||27|
|OP Margin (%)||9.44|
To wrap up, Ethanol stands as a significant powerhouse fuel with far-reaching implications. There are many ethanol sector opportunities, but the above three mentioned companies are one of the best ethanol companies to watch. Its potential to curtail the expenditure on oil imports by billions of dollars while also safeguarding the environment is noteworthy. This concludes our exploration of the top Ethanol stocks for the year 2023.
Indian Ethanol enterprises have the potential to rise as unexpected frontrunners in the years ahead, benefiting from both governmental financial incentives and the overarching surge in Ethanol demand.
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