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Last Updated : Oct 15, 2018 10:36 AM IST | Source: Moneycontrol.com

Stewart & Mackertich sees a sweet 53-92% upside on 3 sugar stocks

Brokerage house believes Balrampur Chini, Dhampur Sugar and Praj Industries are likely to benefit the most from the Centre’s ethanol policy.

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Balrampur Chini, Dhampur Sugar and Praj Industries are likely to benefit most from the government’s recently-announced ethanol policy, analysts at Stewart & Mackertich have written in a research note. They see an upside potential of 53-92 percent for these names.

In case of Balrampur Chini, analysts highlighted that the company has third-largest distillery capacity in the country with 360 KLPD (kilolitres per day), producing aggregate 13 crore litre of ethanol every year.

On August 8, 2018, the company also approved setting up of another distillery of 160 KLPD in Gularia unit which is likely to be in operation within 2 years. This, they said, will help in producing extra 6 crore litres every year.




“Out of 159 sugar mills, around 25 percent of them have distillery capacities and few of them have environmental and pollution control norms. All its plant emissions are well below the pollution control limits, which will help in gaining an upper hand as it creates an entry barrier for others,” the report further stated.

It has set a target price of Rs 152, implying an upside of 79 percent.

Meanwhile, in the case of Dhampur Sugar, the brokerage house pointed to the firm getting clearance to produce ethanol from B-Grade molasses. “The company invested in environment-respecting equipment and practices, empowering it to run distillery operations longer. At present, everybody uses C-Grade molasses and most of them don’t have the capacity to produce from B-Grade molasses,” they further wrote in the research note.

With all the norms in place, Stewart & MackerTich expects the firm to capitalise by expanding its distillery to 100 KLPD with a capital expenditure of Rs 40 crore. This is scheduled to be completed by the end of October 2018.

The firm has a target price of Rs 274 on the stock and sees an upside potential of a whopping 92 percent.

Its third big bet is on Praj Industries. Stewart has set a target price of Rs 156 on the stock expecting an upside of 53 percent.

Analysts believe that a company like Praj Industries could expand its order book based on oil marketing companies’ need to set up second generation bioethanol plants. Praj is also in the process of setting up two 2G demo plants in Europe and has been chosen as a technology partner by Indian oil marketing companies (OMCs).

“In addition, it has set aside Rs 4,500-5,000 crore for sugar mills to buildup 2G ethanol plant,” the report further added.

Presently, India makes ethanol only through sugarcane, which has a limited crushing season of around 4-5 months. Hence, the operating capacity in the country stands at around 60 percent. Transforming to 2G, the operating capacity for ethanol manufacturers can also be improved and thereby the blending limit for the country can also be enhanced.

Also Read: Opinion | Why Modi govt's push for ethanol as cheaper fuel is not good for India

Case file

The government on September 12, approved an over 25 percent hike in the price of ethanol produced directly from sugarcane juice for blending in petrol in a bid to cut surplus sugar production and reduce oil imports.

The Cabinet Committee on Economic Affairs raised the procurement price of ethanol derived from 100 percent sugarcane juice to Rs 59.1 per litre from the current rate of Rs 47.1, Oil Minister Dharmendra Pradhan told a news conference.

The price for ethanol produced from B-heavy molasses (also called as intermediary molasses) was hiked to Rs 52.4 a litre from the current Rs 47.1 but that for ethanol produced from C-heavy molasses was reduced marginally to Rs 43.4 from Rs 43.7.

Diverting sugarcane juice for directly making ethanol, which can be doped in petrol, is common across the major sugar producing nations. Brazil tops the list where all the ethanol produced is directly made from sugarcane juice.

The move would help sugar mills quickly release arrears of cane farmers, which stands at over Rs 13,000 crore. As much as 40 percent of these dues are in Uttar Pradesh alone.
First Published on Oct 15, 2018 10:05 am