Only a few players will benefit from this ethanol blending because only 25% of the sugar mills in India have the distillery capacities and fewer have environmental clearance as well, Abhishek Roy, Equity Research Analyst, Stewart and Mackertich, tells ET Now.
Edited excerpts:
Do you think that the situation for sugar sector would improve domestically now with higher ethanol blending?
With Brazil cutting down on production and the Indian government focussing much on ethanol blending, we can see that the glut in sugar is likely to reduce.
Sugar prices may go higher but MSP prices also going higher will have an impact on the way sugar retail prices are calculated. What is your view?
In 2017-18, sugar production was at a record high and the sale price actually fell to Rs 25 per kg. The central government has given MSP of Rs 29 per kg and based on that, sugar mills are currently selling at around Rs 31 and Rs 31.50 per kg. Also, the cane arrear is higher.
If sugar is sold at a low price, then it will be difficult for the sugar mills to pay the farmers and that has given rise to huge cane arrears. Right now, the government is trying to lift the sugar price so that the arrears could be cleared off just before the elections.
Who are the winners in this sort of an environment?
Only a few players will benefit from this ethanol blending because around 25% of the sugar mills in India have the distillery capacities. And only a few of them they have environmental clearance as well. Balrampur Chini and Dhampur Sugar are among the clear beneficiaries because they have good distillery capacities and are giving much emphasis on increasing capacity as well. They also have strong balance sheet to support the capex going.
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