Q2 Results 2024 Preview: Sugar cos likely to post subdued earnings amid fall in sugar, ethanol volumes; Check top picks
Elara Capital predicts a disappointing Q2FY25 for India’s sugar industry due to lower sugar and ethanol volumes from reduced quota allocation and stagnant ethanol prices. Despite a 2-3% year-on-year rise in sugar prices, optimism remains for future policy triggers. The government plans to resume ethanol blending at full scale next season, with potential price increases and export resumption.
Q2 Results 2024 Preview: Brokerage firm Elara Capital predicts that the sugar industry might have a disappointing quarter in Q2FY25. This is because of the decline in sugar and ethanol volume, mainly due to reduced quota allocation compared to the previous year, and stagnant ethanol prices. The only positive note is the around 2-3% year-on-year increase in sugar prices for the companies analysed by the brokerage. The companies analysed in the brokerage’s report are Balrampur Chini Mills and Dwarikesh Sugar Industries.
The brokerage, however, is optimistic about policy triggers and has explained that the government plans to resume full-scale ethanol blending from the next season, in line with its expectations. There is a likelihood of a decision to increase the price of ethanol and resume exports in the near future. Additionally, the government will seek the Niti Aayog‘s assistance in developing a roadmap to raise ethanol blending from 20% to 25%.
“Increased blending would scale up demand for ethanol by ~25% for the industry. The government policies continue to drive the fortunes of the sugar industry, and we expect the upcoming policy triggers to be favourable. Hence, we retain our positive outlook. Balrampur Chini is our top pick in the sector,” the brokerage said.
Industry sales quota down 7% YoY; ethanol volume up 43% YoY
The reportstates that the domestic sugar sales limit decreased by 7% year over year to 6.9 million tons. At ₹38.3 per kg (ex-mill), domestic sugar realisation increased 2.3% year over year. Prices for sugar have remained stable. Oil marketing businesses mixed a total of about 1,310 million litres of ethanol during July and August, a 43% YoY increase.
Ethanol price revision due for the next season
Although cane and sugar prices have increased recently, the price of ethanol for B-heavy and cane juice-based feedstock is expected to climb at the next adjustment of the ethanol price; hence, ethanol prices will stay the same.
“A decision to continue and/or discontinue addition incentive of ₹6.87 per litre on C-heavy molasses and ₹15.5 per litre (in two tranches) on maize-based ethanol will decide the trajectory for blending from C- heavy and maize ethanol,” the brokerage said.
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