Uttar Pradesh based Dwarikesh Sugar Industries Limited is betting big on the Centre’s plan to blend ethanol with petrol. The company is investing Rs 232 crore to expand distillery capacity and anticipates a major change in the revenue mix in the coming years.
The investors of this stock market listed company seem to be upbeat on the expansion plans with the stock price seeing a bumper jump from Rs 32.65 on March 17, 2021 to Rs 125.55 on March 17, 2022 on the Bombay Stock Exchange.
The company currently operates two plants in Bijnor district and one plant in Bareilly district of UP with a combined capacity of 21,500 TCD of sugar cane crushing and 162.5 KLPD distillery.
“We are in the process of executing another distillery project at our sugar mill in Bareilly district. The capacity of that would be 175 KLPD. The project execution is on schedule and we expect to commission this project by June 2022,” said Vijay S Banka, managing director, Dwarikesh Sugar Industries Limited.
“In FY2021-22 we should be supplying between 5.4-5.5 crore litres of ethanol to the OMCs. In the next fiscal we will not have the full benefit of the new plant because it will become operational only in June. We should be able to supply 8 crore litres of ethanol in the coming financial year and from 2023-24 onward we should be able to manufacture and supply 11 crore litres of ethanol,” said Banka.
Tradeoff
Banka said the expansion in the distillery business will come at a trade off of lower sugar production but it will not have any major impact on the revenue of the company with the centre fixing remunerative prices of ethanol in every sugar season.
“When we are expanding our footprint in the ethanol business, we are obviously taking a hit on our production. Our crushing of canes will remain the same but sugar production will come down. We should be taking a hit of 30 per cent on our regular sugar production,” he said.
In sugar season 2021-22, the government has fixed ethanol prices at Rs 63.45 per litre from sugarcane juice, Rs 59.05 from B heavy molasses and Rs 46.66 from C heavy molasses.
Banka anticipates more sugar mills will look to ramp up their capacity as the demand for blended ethanol goes up. Between 2020 and 2025, the government estimates to achieve a 20 per cent ethanol blending in petrol. The average ethanol blending has increased from 1.53 per cent to 8.1 per cent between 2013-14 and 2020-21 as per government disclosure in the parliament.
“In 2021-22, there was a sacrifice of 3.4 mt of sugar in favour of ethanol. As we go ahead, we expect more capacities will be ramped up. It is expected about 6 mt of sugar will be sacrificed in favour of ethanol by 2023-24. The target is 2025, but from the response that we are seeing, industry will be able to achieve the target ahead of date,” he said.
Non-inflationary
A diversion of sugar towards making ethanol however would not have any inflationary impact according to Banka.
He said that on an assumed gross annual production level of around 35 mt of sugar, a 6 mt sacrifice for ethanol would still leave around 29 mt of sugar which would be able to meet the estimated consumption of 27 mt and the country would have a surplus of 2 mt which could be utilised for exports.
