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Sugar stocks hit a sweet spot on the bourses with the Transport Minister Nitin Gadkari's recent announcement on the launch of flex-fuel engines and the government plan to operate public transport entirely on clean energy sources.
A flexible-fuel or flex-fuel vehicle – also known as dual-fuel vehicle – is an alternative with an internal combustion engine designed to run on more than one fuel, usually gasoline blended with either ethanol or methanol fuel.
Avadh Sugar & Energy and Triveni Engineering and Industries gained 12 per cent and 10 per cent to Rs 788 and Rs 334 respectively. Balrampur Chini and EID Parry rose three per cent and two per cent to Rs 502 and Rs 436 respectively.
At a recent industry event, Gadkari said automobile companies had assured that they would start manufacturing flex-fuel variants of vehicles in six months.
Companies such as TVS Motors and Bajaj Auto have started producing flex-fuel two- and three-wheelers, he said.
The government is also working on a plan to shift public transport to 100 per cent clean energy sources, he said.
The minister recently met the managing directors of all the big automobile companies and representatives of the Society of Indian Automobile Manufacturers and they have promised to start manufacturing flex-fuel engines that can run on more than one fuel, he said.
Head of Research at LKP Securities, S Ranganathan, said integrated sugar complexes have already commissioned expanded distillery operations to meet the demand for ethanol from the oil marketing companies.
Attractive ethanol prices are highly margin accretive for sugar mills, since it helps them de-risk their sugar business and improve cash flows, he added.
Mohit Nigam, Head - PMS, Hem Securities, said operating profits of sugar companies are expected to improve with a favourable balance of ethanol toward B-heavy/ juice (feedstock) and greater sugar realisation.
The Centre's ambitious ethanol blending programme has got a shot in the arm with the price of Brent crude rising due to concerns on supply disruptions on the back of Russia's invasion of Ukraine, and a substantial increase in domestic fuel prices on the horizon, he said.
Sugar companies’ profit will increase with stable sugar prices and higher ethanol prices, he added.
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