The Food Ministry conveyed this decision through a letter addressed to the Managing Directors and Chief Executive Officers of all sugar mills and distilleries. The letter emphasised the continuation of ethanol supply to oil marketing companies from B-heavy molasses. It stated, "In exercise of powers conferred under clause 4 and 5 of the Sugar (Control) Order 1966, it is directed to all sugar mills and distilleries not to use sugarcane juice/sugar syrup for ethanol in ESY (ethanol supply year) 2023-24 with immediate effect."

 

Approximately 65% of ethanol is produced through B-heavy molasses, 25% through syrup, and the rest from C-heavy molasses. Kaustubh Pawaskar, DVP-Fundamental Research at Sharekhan, explained, "The notification suggests that the mills cannot manufacture it through syrup but can manufacture through B-heavy molasses." He highlighted that "at least 25% is impacted."

 

Biyani anticipates an overall impact on EBITDA for top companies ranging from 4% to 25% over the next 18 months. He noted, "For Balrampur Chini Mills, in our preliminary estimate, we expect around 15% increase in production, but depending on various percentages sugar production will increase for all companies in India, and ethanol volume should reduce because that is how the government wants it to be."

 

He further added, "EBITDA impact also should be on all. It could be negative. It may happen that for companies based out of Maharashtra and Karnataka, the impact could be limited because they were anyways getting impacted with lower production this year. So for them lower ethanol volume may be a bit better in terms of opportunity because sugar prices are higher."

 

Despite the changes, Biyani indicated, "For FY24 itself, we are not seeing any change in estimates for our coverage companies. So I don’t see a de-rating of multiples due to this event."