Sugar Firms' Debt Burden To Reduce After Move To Boost Ethanol Production
The debt burden of companies is likely to reduce after the Union government removed the restrictions on diversion of sugar for ethanol production, according to Gaurang Shah, head investment strategist of Geojit Financial Services.
The comments come after the government, in a notification dated Aug. 29, removed the cap for diversion of sugar for ethanol production for supply year 2024–25. Sugar mills will also be allowed to use cane juice or syrup to produce ethanol, starting Nov. 1.
"The sector looks very interesting. Unfortunately, the only thing that has an overhang is the balance sheet of some of the sugar manufacturing companies, given the pricing gap between sugarcane and the sugar that is manufactured," Shah told NDTV Profit. "But, I think, with ethanol becoming a focus, this debt burden could get reduced to a great extent."
The possible upward price revision of ethanol can also become a good revenue opportunity for sugar companies associated with this business and now, the cap removal will put more focus on ethanol, according to the investment strategist.
Shah expects the government to take necessary steps to balance out the price disparity concerning sugarcane, sugar and ethanol. "I think the MSP module is in place for sugarcane. And, as and when the need arises, I think the government will take appropriate steps to stabilise the variations," he said.
However, the analyst also hoped that the government establishes a concrete base regarding the policies related to ethanol. Shah highlighted that the fluctuations in ethanol policy matters affected the sugar producers depending on the positive or negative developments.
Sugar stocks surged on Friday's trade following the government's policy announcement. Shares of Balrampur Chini Mills Ltd. hit an all-time high of Rs 625 apiece on the NSE.
"We had coverage on Balrampur Chini a while back, but the stock has overshot our target twice by almost about 50–100%," Shah said. "We have given a book-profit advisory on it and then not covered Balrampur Chini or any other stock-specific idea in the sugar-to-ethanol sector."
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