Thread by @alphaspotcap

The Indian Sugar Industry : Strong Outlook

Here’s our analysis of the Indian Sugar Sector, it’s changing dynamics, ethanol blending program, statistics and more!

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#investing #ethanol #sugar

(1/23)

• India is the 2nd largest sugar producer in the world after Brazil. Brazil accounts for 42.05 MMT of global sugar production & India contributes 33.76 MMT.

• ₹1,250cr is invested in this industry & providing a livelihood to ~2.86 lakh workers & supports 5cr farmers

(2/23)
Year on Year Data:

• Production of sugar rose 5.6% till 31st January, 2022 YoY
• Sugar production in Maharashtra rose by 9.10 MT YoY
• There are 194 sugar mills compared to 182 mills functioning last season on Jan 31, 2022
• Uttar Pradesh produced ~50MT vs ~54MT YoY

(3/23)

• Budget 2022

1) Budgetary allocation for the industry rose by about $334.7 mn.

2) The govt has set aside ₹160 crore in FY22 & ₹300 crore in FY23 for providing financial assistance to sugar mills for the enhancement & augmentation of ethanol production capacity.

(4/23)

3) The govt will levy an additional Rs 2/litre excise charge on unblended petrol from 1st Oct,2022. The fuel also has to be categorised as blended fuel (with ethanol/ methanol) to meet BIC specifications as stated in the No. GSR 90(E) notification of Dept of Revenue.

(5/23)

• Now lets analyse India's sugar production from a global perspective -

• Global sugar production has barely grown in the last decade. Meanwhile, consumption has been growing at around 1% per year. The world therefore needs 14m tonnes more sugar than it did 10 yrs ago

(6/23)

• Can India Help?

India wont be able to help in the coming years. Its sugar production should fall as more sucrose is diverted to ethanol production. This should slowly end its consistent overproduction of sugar, which are designed to support rural incomes.

(7/23)

• The GOI gave the mills subsidies to export their excess sugar. However, the Govt can’t use these subsidies from 2023 under WTO rules.

• Without a subsidy, raw sugar exports can only work at current prices. If sugar prices fall, India cant export sugar profitably.

(8/23)

• To address this issue, the Govt is focusing on developing a local cane ethanol industry. In the coming years, more & more sucrose will be diverted to make ethanol rather than sugar as part of India’s E20 ethanol mandate.

(9/23)

• Once the 20% ethanol blend is achieved, this would mean diverting ~6MT of sugar each year to ethanol.

• As crude demand is growing in India (by 4% Yoy), demand for fuel-grade ethanol will also rise. The loss of sugar production could therefore keep creeping up

(10/23)

So what is Ethanol?

• Ethanol is a biofuel & is naturally made by the fermentation of sugars by yeasts

• India Ethanol market demand stood at 3.2Bn Ltr in FY2021 & is forecast to reach 5.4Bn Ltr by FY2030, growing at a healthy CAGR of 8.25%

(11/23)

• Other uses of Ethanol:

1) Ethanol is found in beer, cider, wine, and spirits. Hence factors such as changing lifestyle are likely to drive the demand

2) It is found in sanitizers & rising health consciousness among people will further escalate the Ethanol demand.

(12/23)

• What is Ethanol Blending?

An ethanol blend is defined as a blended motor fuel containing ethyl alcohol that is at least 99% pure, derived from agricultural products, and blended exclusively with petrol.

(13/23)

• Ethanol Blending Program:

The Programme was launched in 2003 with an aim to promote the use of renewable fuels & reduce India’s import dependence for energy security.

The programme is implemented in accordance with the National Policy on Biofuels.

(14/23)

• The govt has set a target of 10% blending by 2022 & 20% by 2030

• Oil marketing co's will procure ethanol from domestic sources at prices fixed by the govt

• The sugar mills and distilleries are free to set up ethanol plants after obtaining statutory clearances.

(15/23)

• Impact on Environment

1) The use of E20 as fuel reduces carbon monoxide emissions by 50% in two-wheelers and 30% in four-wheeler vehicles.

2) Hydrocarbon emissions also reduce compared to unblended petrol.

3) Ethanol blending can thus reduce emissions in vehicles.

(16/23)

• Impact on Vehicle Manufacturer

1) Engines and components will need to be tested and calibrated with E20 as fuel.

2) No major change in the assembly line is required.

3) Vendors need to be developed for the procurement of additional components compatible with E20.

(17/23)

• India is set to become the third-largest market for ethanol in the world after the US & Brazil by 2026, a recent report by the International Energy Agency (IEA) said, adding that the country has tripled ethanol demand to an estimated 3 bn ltr between 2017 and 2021.

(18/23)

• Challenges in Ethanol Blending Programme:

1) Availability of sufficient feedstock on a sustainable basis

2) The mills lack financial stability to invest in biofuel plants

3) The prices of ethanol are fixed by the govt leading to concerns among investors

(19/23)

4) Currently, ethanol production plants/distilleries fall under the “Red category” & require environmental clearance under the Air and Water Acts for new and expansion projects.

5) Lack of availability of ethanol all over India.

(20/23)

• Now lets look at some Macro data:

Indian cane acreage has barely grown in the last 10 years & usually covers 5 to 5.5m hectares of land.

To increase cane acreage, a much higher cane price is required. It needs to encourage less efficient farmers, to grow more cane.

(21/23)

• However, a higher cane price would lead to increased domestic sugar prices, which the Govt wants to avoid.

• India has made real progress in the cane yields in the last few years. The volume of cane harvested per hectare is now very comparable to that in Brazil

(22/23)

• Conclusion:

Thus the growing demand for ethanol & its uses, will have a rub off effect on the Sugar Industry. However, govt must make sure that the policies are stable & favourable to both environment & investors to find the perfect synergy for the underlying growth.

(23/23)

What do you think the future holds for the Sugar Industry?

@ashwinidamani @caniravkaria @saketreddy @datta_arvind @Vivek_Investor @Rishikesh_ADX @varinder_bansal @shivang_ran @Investor_Mohit @SwarnashishC @WealthEnrich

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