Triveni Engineering eyes margin expansion after govt revises ethanol production norms
Triveni Engineering’s Vice Chairman, Tarun Sawhney, anticipates that new ethanol pricing levels will boost margins in the next supply year, though the impact on profits will be gradual. The government’s recent decisions to allow more sugar diversion for ethanol and permit rice-based ethanol production are seen as positive steps for the industry. Sawhney expects significant margin expansion and hopes for a potential increase in ethanol prices to support investment and capacity growth.
The new pricing levels for ethanol expected to be announced before the start of the next supply year are likely to boost margins of producers, says Tarun Sawhney, Vice Chairman and Managing Director of Triveni Engineering and Industries.
However, the impact on the bottomline will be slow and gradual, he added.
“I see margin expansion very much on the cards as we move into the next ethanol supply year. A big and definitive change from the previous year, or the supply year that will end at the end of October,” he said.
On August 29, the government lifted the cap on sugar diversion for ethanol production for the ethanol supply year (ESY) 2024-25, starting November 1, 2024.
Mills can now use cane juice, syrup, and B-heavy and C-heavy molasses to produce ethanol. This move aligns with the central government’s strategy to increase renewable energy use and decrease dependence on fossil fuels.
The government allowed the sale of up to 2.3 million tonne of rice from the Food Corporation of India (FCI).
These are verbatim excerpts of the interview.
Q: How do you read these two notifications because you have both sugar and grain-based distilleries? So, what is the impact of the first notification on sugar and the second one from grain-based?
A: I speak on behalf of the entire industry in saying that this is a welcome move. It reaffirms the central government’s initiative to boost renewable energy and to focus on energy security as far as the transportation sector is concerned.
As far as the first item of allowing B-heavy molasses and juice in abundance. That will allow the entire sugar sector to divert all the excess quantum of sugar in the upcoming season towards the ethanol programme. And so, we are going to see a huge quantum, potentially 60% of the total requirement coming from the sugar sector, and that is a return to normal. That is the long-term expectation as well, in my mind, from the sugar sector for the ethanol vending programme.
The second, of course, recognises the fact that we do have a significant quantum of food grain, especially rice, that are available, and with the FCI. And a move to allow 2.3 million tonne to be diverted for the production of biofuel, again, a very welcome move, and it signals the fact that longer-term availability of rice could potentially happen in the future and that is a very welcome move.
A: It is extremely positive for both these moves. So, for next year we can certainly see a larger quantum of ethanol that is manufactured from B-heavy molasses and the sugar sector per se. Grain, of course, will play a significant role. It would be focused primarily on maize, but about 50% of our grain requirement will come from rice as it’s allocated. So, it means higher contribution levels from both these input streams from the juice side as well as from the grain side.
Q: A couple of analysts have pointed out that for grain ethanol manufacturers like you, initially, there may not be so much of a boost coming in, especially from the rice piece of the news. What is your sense? And the second question is, how are you now projecting revenues for FY25 after this move? What were you working with initially, and will you be revising any topline guidance for us?
A: The move towards impacting the bottomline, will be slow and gradual, but it’s certainly a positive move. As I had mentioned, maize forms the largest segment of the amount of grain that we procure, and maize prices while they have, or rather, the ethanol price from maize while it has increased – that entire increase has been captured by the trade. So, it’s not the industry that is able to expand its contribution levels; with the introduction of rice, I see that that contribution level will increase because it is at a fixed price. Even though the price of ethanol manufactured from FCI rice is lower, the margin levels are certainly higher.
I also see that this is signalling to me, a new change. When we see the new pricing levels for ethanol from all the various constituents that will be announced before the start of the next supply year, the government will look at the margin for producers. So, I see margin expansion very much on the cards as we move into the next ethanol supply year. A big and definitive change from the previous year, or the supply year that will end at the end of October.
Q: Have you heard anything about a possible hike in ethanol prices?
A: The hope, of course, is that there will be an increase in ethanol prices. The industry and all the various bodies that liaise with the central government have requested a steep revision in prices so that it boosts investment. The target for ethanol blending for this year was 15% and we are looking at the honourable Prime Minister’s target of 20% just a year from now, for FY25-FY26 the target is 20% and for us to bridge that gap, there needs to be further investment in capacity building across the nation.
And for that, the most important indicator will be an increase in the FY24-FY25 supply year’s ethanol price. And I do think that that is a possibility. The quantum, of course, is still being hotly debated, but I expect that over the next six to eight weeks, we will have some very positive news from the central government.
Q: We understand that the Indian-made foreign liquor (IMFL) business of yours commenced operations in July 2024 under the premium category. Most alcohol companies have said that this is the segment that is witnessing growth. So, what is the growth outlook here? What is it that you are targeting, and what are your plans to scale it up?
A: It is a new segment for us. We have launched two fantastic brands, Crafters Stamp and Matsya in the premium segment for sale in Uttar Pradesh, only. Uttar Pradesh, of course, is a huge state for the consumption of premium branded whiskey.
In terms of numbers, it’s too early to really report, but the growth in the premium segment within Uttar Pradesh has been outstanding as customers migrate to better quality products, and the infrastructure within the state has remarkably realigned itself for sales in the premium segment. Uttar Pradesh will be a real trendsetter when we look towards better-quality products as far as IMFL is concerned, and we are very happy to be part and parcel of this important segment.
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