Wont fluctuations in oil prices affect ethanol pricing? If oil prices come down to a range of USD 40-USD 60 per barrel, what will be the impact on ethanol pricing?
Apologies, but I see different picture for Bajaj Hindustan (BH) and would like to have your views.
Based on the credit rating report (attached), BH has outstanding Optionally Convertible Debenture (OCD) of Rs 2885 Cr as of Mar 24. Lenders have denied converting OCD into equity, probably for right reasons as equity hardly has any value compared to outstanding debt.
Now BH has to pay YTM (Yield till maturity) on OCD (which is above Principal and accumulated interest) starting Mar-25 in 13 equally installments amounting Rs 268 Cr each. On top of it, these YTM’s are off balance sheet liabilities / contingent liabilities not appearing in financial statements, which means that actual debt obligation is much more than what is appearing in balance sheet.
Above data looks grim to me and ability of company to pay obligations looks difficult. However, on argument that company can sell part of its plants to pay obligations, I am not sure, as entire company is valued today at 2500 Cr, much lower than the debt it carries on its book, without adding YTM on OCD , a contingent liability of more than 3000 Cr.
Agree, that BH has investments in its power subsidiary of roughly 5000 Cr, but its attempts to liquidate it in the past have not materialized. They tried to come up with Bajaj Energy IPO pre Covid but that was shelved off because market was not ready to give the valuation they wanted.
All in all, I don’t see debt situation comfortable and would like to listen to your counter arguments.
Source
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Hi @Amit2saxena - No need for apologies 
. I’ve read many of your posts, and I find them very detailed and thought-provoking. You have immense knowledge in specific sectors. Also this made me to respond to you a bit late.
I primarily focus on technical analysis and look for companies going through difficult times. Once their situation starts to improve, I become interested in entering.
With that in mind, let me share my thoughts.
First of all thanks for sharing your perspective. I agree that the situation for Bajaj Hindustan Sugar is challenging, and the credit rating report highlights critical issues. A few key takeaways:
1. Debt and OCD Repayment Issues
• The biggest concern is the ₹3,483 Cr OCDs, with the first repayment of ₹268 Cr due in March 2025.
• The contingent liability of ₹3,412 Cr (YTM premium) is off the balance sheet, making the actual debt burden significantly higher.
• Lenders rejecting the conversion of OCDs into equity adds further pressure, making future repayments uncertain.
2. Liquidity Challenges
• The company’s liquidity is stretched, with only ₹56 Cr cash available (as of Sep 2024).
• Even though BH has improved its financials slightly (interest coverage ratio from 1.21x to 1.68x), the overall debt repayment capability remains weak.
• Historically, attempts to liquidate investments (₹5,383 Cr in group companies like Bajaj Energy) have not been successful.
3. Counterpoints: Is There a Recovery Path?
• BH has been reducing debt. Term loans of ₹275 Cr were fully repaid in FY25.
• The company’s diversified revenue (sugar, ethanol, and power) provides some stability.
• If they can successfully monetize assets (either a sugar mill or power investments), they might manage upcoming obligations.
Final Thoughts
• Your concerns are valid. Without a clear debt resolution strategy (conversion of OCDs or a successful asset sale), BH faces serious repayment risks.
• However, their large asset base and the ethanol push could provide some leeway if executed well.
• The stock remains a high-risk, high-reward play, largely dependent on debt restructuring.
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Thanks for your views, you have articulated current state of Bajaj Hindustan (BH) very well. In fact your views have given me fresh perspective to look at the company differently.
As most leveraged player is the biggest winner in commodity upcycle, BH may turn out to be the most rewarding company if cycle turns, but I don’t have any insights if and when it will happen.
Survival risk for highly leverage player in commodity market is big concern for me. However, the company is able to survive during last 15 years in extremely difficult times, and current challenges are much smaller compared to the past. Monetization of non core assets (power plant), though not materialized in the past, still remains a lever to deleverage the company. Overall I see low solvency risk.
Secondly, with hindsight bias, I can say that capital allocation has been extremely poor in the past (augmenting huge capacity with large debt which did not worked out). But people learn from mistakes and BH may get extremely cautious in the future.
Your last statement “stock remains a high-risk, high-reward play” is where difference in our approach lies. I like venturing in “Low Risk, High Reward play” and believe market provides such opportunities once in a while. BH will not fit that criteria, though it may prove to be a exceptional investment in the future based on the above points I highlighted.
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Sugar sector is going to see a huge decline going forward due to:
- High cane prices (FRP/ SAP)
- Variability of cane yield/ recovery - this is the biggest risk factor
- Low sugar prices
- low ethanol prices (now even grain ethanol has higher margins than sugar ethanol)
this is the only sector which has only downside - upside like increase in price of sugar is capped. so this sector is lose-lose for investors.
i will not be surprised if all sugar stocks go down by 50% from current levels due to:
- cane output lower in 2025-26 due to bad weather
- sugar prices going down as sugar production will increase as ethanol production will be come down due to lower margin
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WoW!! That’s putting your neck on the line Aarti!! Only an expert can visualize scenarios like the one you have painted!!! my take is that even at the current sugar prices profitability of the companies will be better than last year.
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I would just like to point out that Dhampur bioorganics is trading at 0.4 price to book. It has had small and could survive the near term.
Maybe some stocks in this sector have taken a beating disproportionate to their financial position.
Disclosure : Not invested in Dhampur Bio organics.
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Sugar recovery in UP has come down a lot - this is when industry was expecting improvement in yield and recovery !!
Increase in sugar price is not enough for increase in cost to be covered. it will reflect in the march financial numbers.
this is because of continuous underperformance of company - in absolute terms as well as in comparison with peers. it has led to downward rating.. which could remain for long. further entire sugar industry is going to be under pressure to issue pointed out earlier.
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Rating downgrade for Dhampur Bio.
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The recent uptick in Indian sugar stocks can be traced to a confluence of favorable developments across production, policy, and demand. Here’s a breakdown of the key drivers behind the rally:
Why Sugar Stocks Rose Last Week
- Strong Production Outlook
• India is projected to produce 34.9 million tonnes of sugar in the 2025–26 season, marking an 18% increase year-over-year.
• This surge is attributed to excellent weather conditions and expanded acreage, boosting investor confidence in sector fundamentals.
- Ethanol Blending Push
• The government’s ethanol-blending program is gaining momentum, with India targeting a 20% blending rate by 2025–26.
• Sugar companies with flexible distillery setups and ethanol capacity—like Balrampur Chini and EID Parry—are seen as key beneficiaries.
- Festive Season Demand
• With the festive season approaching, domestic sugar consumption is expected to rise, improving sales volumes and margins.
• This seasonal demand spike often leads to price firming, which supports stock valuations.
- Global Market Dynamics
• Despite a global surplus, exports from the EU and Thailand are declining, giving Indian producers a competitive edge.
• Rising global inventories have eased supply concerns, but India’s dual role as a sugar and ethanol powerhouse is attracting bullish sentiment.
- Company-Specific Strengths
• Stocks like EID Parry, Balrampur Chini, and Bannari Amman Sugars outperformed due to:
• Diversified revenue streams
• Low debt levels
• Strong financials and operational efficiency
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The only positive about this news is that glut in sugar will be avoided as sugar mills will divert more to ethanol. Given that grain is more profitable than sugar ethanol, UP mills may still prefer grain as sugarcane production will not increase much in UP. they are already operating ethanol plants to max capacity using both molasses and grains so there in no incremental impact until Govt increase prices of ethanol - of which there is negligible chance.
By this announcement Govt has prevented sugar mills from going into losses - Q2 numbers will be same as Q1. FY 26 performance will at best be same as FY 25.
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@Aarti & Respected sugar mandali babas !! 
With the government now flirting with isobutanol blending in diesel , I’m curious about the possible production trajectory of isobutanol in India.
Broadly, there are two main routes:
- Sugar/ethanol pathway : fermentation from molasses/juice/syrup > catalytic upgrading
- Petrochemical route: propylene-based
I’ve read that some proprietary technologies already exist for making isobutanol from sugary feedstocks.
But given how ethanol is tightly regulated (pricing, allocation, govt approvals, etc.), do you think isobutanol scaling (if diesel blending is pushed seriously) will actually come from the sugar-molasses side, or will the propylene/petrochemical guys end up winning?
In short: Under current regulatory + economic reality, which feedstock do you see as the more practical production base for large-scale isobutanol in India — sugar or propylene?
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Hi everyone,
The sugar industry is moving towards reduced cyclicality, thanks to structural changes like ethanol blending, revenue diversification, and government policies. However, it may not be entirely non-cyclical yet, as it remains vulnerable to weather patterns, global price movements, and regulatory risks.
If you’re considering investing in sugar companies, it’s essential to evaluate their diversification efforts, exposure to ethanol, and ability to manage cyclical risks. This will help you identify players that are better positioned to thrive in a less cyclical (but not entirely stable) environment.
What’s everyone perspective? Do you think ethanol and diversification are enough to make the sugar industry fully non-cyclical?
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i read a post somewhere saying that mixing isobutonol in diesel will lead to mass protest unlike mixing ethanol in petrol ,most petrol cars are used my middleclass and people having 9 to 5 having no time to quarell or protest with the goverment.whereas diesels are used in transportation which have strong lobbies, unions and they would not take it lightly if they suffer mileage loss or component loss due to this mixing.
it is just a thought we cannot say what will happen but mixing isobutnol in diesel would not be as easy as mixing ethanol.Also another thing to note is no country till now has been able to achieve it yet and india is on the frontlines of devloping this technology and as patriotic as i can be but the true reality is i don’t see my nation as a true innovator or even if it is able to do so these things will take time with testings and approvals.
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Dear Raku ji
Thanks for the response..I dont understand sugar industry well, my understanding is that sugar is food hence goverment gets involved and tries to balance the supply through certain controls.
I would like to understand possibilie isobutanol production trajectory…let us assume that the the technology gets proven and there is no mileage loss or compoenent loss due to mixing ..what could happen then ?..would be attractive to sugar industry to make isobutanol instead of ethanol or will it be same for them ?
@Aarti Under current regulatory + economic reality, which feedstock do you see as the more practical production base for large-scale isobutanol in India — sugar or propylene ?
If at all Sugar Mandali gets interested in producing isobutanol ?
Coule we say, goverment would always want sugar to be avaiable in domestic market without caring much for ethanol or sugar derivatives ?
It would be great for sugar industry,as the supply is limited and depends on weather,pest and other environmental factors and isobuntol would increase demand for sugar.I don’t know the exact process but a simple google search shows that in india it would be made with sugarcane juice.
If you look at sugar companies in UP
- Margins in sugar are low as cane prices are high and sugar prices are low. cane prices in india are the highest in the world. cane prices is higher in UP compared to Maharashtra. This situation is going to continue.
- cane output and recovery is highly dependent on weather
- sugar based ethanol prices are set lower Govt. (compared to grain). rice from FCI is subsidized. so sugar companies are at disadvantage.
I dont think sugar companies are going to make investments in new technology for isobutanol as they have not had good experience in ethanol. and first they need to have profits to invest - most of them are in losses.
Sugar is a low margin, high risk and highly regulated business. Doesn’t make sense to invest. at best share prices are going to stay at current levels.. most likely going to decline.
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