stock prices for all sugar companies are coming down… once results are announced sector will tank and that is the time to buy… when Q3 numbers a announced… they will give huge returns…
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I recently noted a few companies reporting getting ethanol allocation… Are these tenders filling at old rates? There was talk of ethanol prices increasing, but havent seen any announcement so far…Any inputs
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These are quantity tenders… prices will be announced by Govt.
There is so much of excess capacity that OMCs have got more offer than required.
Sugar companies will face margin pressure if ethanol prices is not increased - as cane FRP has already been increased. Govt. is encouraging the sugar cane companies to change from cane juice to grains (which is even more loss making !!!) Sugar companies were encouraged to set up ethanol plants so that they can make ethanol when sugar prices are low/ unviable. so now they are confused that when sugar prices are down and maize prices are high what should they do !!! Bottomline is those who listened to Govt. are going to go down. Balrampur Chini did not add much capacity in ethanol nor in sugar… and so gets a PE of 25. other companies who added large capacity in ethanol are going to face losses.
Maize price may come down marginally in Oct/ Nov due to harvest but will be up again by Dec /Jan). Grain distilleries will be in loss if ethanol price not increased - which is not likely as price has already been increased and is much above cane based ethanol. For many grain distilleries there will be no option than to shut down - they will not be able to compete with dual-feed distilleries of sugar companies.
Ethanol industry is headed for a shake up with many plants shutting down.
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Hi, can these stranded distilleries repurpose themselves to alcohol/spirits contract manufacturing or manufacture their own brands from these assets ?
they can but alcohol requires higher purity levels.
Triveni has already launched whiskey brands. But selling IMFL is a branding game not manufacturing… they will have to spend a lot to build these brands.
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most sugar companies will report losses in Q2 or marginal profits. Balrampur will be moderate profits. Triveni profit will also be marginal.
this year is also going to be challenging as exports will not be allowed. margins on ethanol (after price increase) will also not be much due to high cane price
In concall Dwarikesh mentioned that it will take 2 years for them to come out of red rot infestation… and they are not going to convert ethanol plant to dual feed as it is grain based ethanol is loss making due to high grain prices.
Does Godavari biorefineries falls in sugar sector ??
Can it be compared to likes of dhampur bio ??
yes. Godavari is in sugar but more of chemicals from sugarcane. but even then their margins are not great. seems to be overvalued.
IPO was to pay of debt and also OFS and not expansion… dont see why valuations should be so high.
Hmmm but then what would be the point of marquee investors like Madhusudan kela entering after ipo at this valuation ?
We don’t know their time horizon, what if they’re riding the IPO momentum and have no plans to stay invested? Borrowed conviction is useless anyways without understanding their actual thought process.
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these marquee investors will exit as fast as they came… there are lots of players in the market for various purpose.
sugar sector is old economy stock so one should not expect high valuation. even balrampur has gone above fair value. the strategy is to pick companies which are affected due to seasonal factors and then exit when the profits come back. balrampur is perfect example… it was a steal at 350 and now it is overvalued.
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Would you not want to give a higher PE to some big names in the industry because of Ethanol production?
Not disagreeing with you that sugar industry will still be very cyclical in nature. One bad year of sugarcane produce at the farm level would mean a significant revenue hit, at high valuations it would lead to trouble.
Was trying to convey same point … does producing only ethanol gives them some comparative advantage , as it will be expected having more favourable position compared to sugar ???
ethanol was supposed to be better than sugar. but at current prices sugar makes more margin than ethanol. thats why ISMA is pushing for higher prices. govt is in a fix as they have raised cane prices (cane prices in India are 15% more than Brazil) and so will have to raise ethanol prices. currently price of ethanol is 8 to 10% more than petrol… and inflation is increasing due to fuel !!
Balrampur has a lower % of revenue from ethanol compared to other sugar companies so ethanol leading to better valuation doesnt hold good. even then it is getting higher valuation… because their recovery has improved and sugar prices are high.
Ethanol Prices are much lower than Petrol. These are rates at which Energy companies buy ethanol from Mills
The way I view this is Ethanol provides a cushion for Sugar Mills as it helps reduce the volatility of sugar pricing. However, will provide no cushion against a weak crop. Revenue from ethanol is rising fast because of smaller base and we are still halfway to our E20 target.
Also Attaching link for Quarterly presentation.
71c464ec-8ffd-4665-a1fe-1b408b53a074.pdf (bseindia.com)
you have to compare these rates with landed price of imported petrol or production cost of petrol (pre tax). then it will be like to like comparison.
Very Interesting point, you have raised, So Crude is currently $76 Barrel (159 liter, USD/INR 85), so 1 liter crude is Rs. 42 (approx.). Now processing, OMC margin, freight, entry tax is around 10% (please confirm, because i suspect it to be higher) in industry, bringing it to~~ approx. again 50 pretax at refinery level, then the freight, dealer commission, and of course the taxes. So, I think it gets awfully close to Ethanol costs, plus we are forgetting that crude is cheap these days. As per my view, the larger point here is, we do not have to pay for it in Dollars and we are not dependent on anyone for our energy security, so the precious dollar reserves are not wasted and to top it all off( $ 8Billion savings) , our farmers who are our food producers can be turned into our energy producers 
So the money stays! Let me know if I am missing something. Will share my full note on Chini tomorrow.
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cost of petrol- Rs 42 +8% refining+ 4% import freight, etc = 47.
average Ethanol @60 is 30% higher. maize ethanol is 72 !!
all costs after this like dealer commission, last mile transport, etc are all common as it is blended.
We have got it all terribly wrong… and is reflected in losses of sugar companies… few of them will shut down.
I wonder why grain based ethanol companies are not shutting down.
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After Dwarikesh, Dhampur Bio has also come with losses. Only Balrampur and Triveni will be positive…
Dwarikesh has come down 50% from peak of about 120 to 60. Dhampur Bio at 50% down from 220 will be 110… others will follow suit.
But those who invest at lower levels in sugar companies can make good money if they hold for 6 months to a year. broader markets are anyway correcting.
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Uttam 55000Cane.pdf (310.7 KB)
Uttam Sugar Cane capacity update