India’s Ethanol Love & Time for Long-Term Value Creation in Sugar Stocks

Some white sugar in a spoon on dark background, side view.

According to International Energy Agency (IEA), India is set to see the largest increase in energy demand of any country over next 20 years. Presently, India is one of the largest oil importers in the world and the oil import is expected to grow in years to come. In 2020-2, India’s net import of petroleum was 185 MMT, costing approx US $ 55 billion. Increasing carbon footprints, swelling import bills, international treaties on climate change, OPEC cartel, rising per baller of oil etc are few critical reasons due to which green fuel is becoming the need of the hour.   With the implementation of the use of ethanol, India’s dependency on fossil fuels is expected to be lower as compared to the present and previous conditions. Currently, we import fuel to fulfill 80% of our needs. With the usage of ethanol-blended petrol, the fuel import will be reduced automatically.

Transportation industry globally is facing three critical challenges i.e. depleting fossil fuels, pressure for adoption of sustainable technologies and higher fossil fuel prices. We are heading towards a time where these issues cannot be put in the back burner to be treated later. Globally investors are forcing the organisation to disclose sustainability parameters. Similarly, adverse balance of payment is a key element in determining the sovereign credit rating.

Due to an increase in the energy needs of India, Ethanol has turned out to be a significant source of energy for India. Its use is rising dramatically with other modes of energy. The pure version of this energy can be used in specially designed engines like flexifuel engines and Brazil is one of the largest producers of this energy. The US has been one of those countries that has the highest consumption of ethanol if we look at the statistics of previous years. It is one of those countries that is benefitting from ethanol.

Government has recognized the potential of Ethanol as a cleaner fuel. Ethanol has lesser carbon footprints and offers equivalent energy efficiency. Expert committee report on the Roadmap for Ethanol Blending in India 2020- 25, provides for 20% ethanol blending in petrol by 2025.This will meet the twin objective of economic growth as well as transition to a greener economy.

India has vast arable land, availability of sugarcane and technology for making vehicle compliant ethanol blend. Estimated demand may be around 1016 crores litres and Auto Industry would be working to produce ethanol compatible vehicles based on the supply availability of fuel. India is one of the largest producers of sugarcane and is next to Brazil. With the good productivity of sugarcane, a chunk of it can be delivered for the production of ethanol. This is something that is beneficial for farmers and can bring more strength to the farming sector.

Pollution is one of the major concerns in a country like India and ethanol-blended petrol can help in reducing pollution emitted by vehicles. Ethanol is one of those substances that is a non-toxic and biodegradable fuel solution. This solution is also safe to handle and is considered to be oxygenated gas. It produces a fewer amount of harmful pollutants as compared to petrol and diesel.In sum, it will be appropriate to say that the production of ethanol is expected to rise in the coming years to meet the demands of fuel in India. A few factors like change in lifestyle, increase in demands, and environmental changes are making it mandatory to use an alternative source of energy because even many countries like us are also using the same solution.

These steps will result in structural changes for few key sectors in Indian industry i.e. Sugar Industry, Oil marketing companies, Auto industry and domino effect on overall business and economy.  On the demand side, this will integrate rural economy and will produce more consumption power at the bottom of pyramid. Glycols, Bajaj Hindustan Sugar, Shree Renuka Sugars Ltd, Balrampur Chini Mills Ltd, Mawana Sugars Ltd, HPCL Biofuels Limited are some of the Leading Players in Indian Ethanol Market. In future the blending proposition can even go higher. We can see a lot of value creation in the sugar stocks due to structural shift in the Government policy on blending. These changes are long term and strategic in nature, and are difficult to be reversed at any time in future as these policy measures are directly linked to India’s economic and energy security.

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