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With the Food Corporation of India (FCI) halting rice supplies for the production of ethanol to distilleries, stocks in the distillery segment suffered a setback on Tuesday.
Nearly 100 distilleries across the country that depend on FCI’s rice supply to make ethanol are bracing for tough times ahead. This will also cause a temporary blip in the implementation of the Union government’s ambitious target to achieve 14 per cent ethanol blending in petrol by November.
Shares of players such as Globus Spirits, Som Distilleries & Breweries, Jagatjit Industries, Gujchem distillers India Ltd, Tilaknagar Industries all traded in the red. Globus Spirits was the top loser ceding 6.55 per cent to ₹1,088.20, Gujchem lost 5 per cent to end at ₹77.39, while Som Distilleries lost nearly three per cent to end at ₹325.45. Jagatjit shed 2.5 per cent (₹150.50), BCL Industries declined 1.75 per cent at ₹474.30 and Tilaknagar lost 1.06 per cent (₹167.60). However, United Spirits gained.
For molasses
Distilleries usually produce ethanol from molasses, a by-product of sugar. However, only the sugarcane route for manufacturing ethanol is not sufficient to meet the target. As such, both the industry and the government zeroed in on foodgrains such as maize, damaged food grains and rice available with FCI.
Globus Spirits expects this supply disruption to be temporary. During the period, the company is shifting its feedstock from rice to alternative raw materials such as broken rice and maize. “During this changeover process, we expect 7-10 days of disruptions at part of West Bengal capacity and our Jharkhand facility,” said a note from the company.
Bhavik Patel of Tradebulls Securities felt the sentiment is negative and “we may see immediate selling pressure amid the news but important thing is that the government is reviewing its policy of supplying surplus rice from the FCI and has not banned it outright. We might see some compromise between government and All India Distillers’ Association which might cover some of the losses that listed players endured.”
However, Patel doubts the government will be unwilling to supply all the excess rice needed and would certainly curb the volume. “Investors should refrain from buying distilleries’ stock for the time being despite the price sounding attractive and should only venture for buying when the supply of excess rice resumes,” he cautioned.
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