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Top Ethanol Stocks to Consider in 2023: Investment Opportunities

In India, Best Ethanol Stocks 2023

In India, Best Ethanol Stocks 2023

Government Encouraging Companies to Boost Ethanol Production to Reduce Fuel Bill

Indian Stock Market

India aims to achieve net-zero carbon emissions by 2070. To achieve this goal, the government has initiated a series of policies in various economic sectors to promote the efficient use of energy. 

One such program is the Ethanol Blending Program, under which the government aims to achieve a 20% blend of ethanol with petrol (E20) by 2025.

India imports a significant portion of its petroleum, much of which is used as fuel for transportation. E20 has several benefits, as it will reduce imports, resulting in savings. 

Additionally, ethanol is a more environmentally friendly fuel.

E20 has put the spotlight on companies involved in ethanol production, including sugar producers and alcohol manufacturers.

What is Ethanol Stocks?

Through programs like E20, the government has focused on green development, providing investors with opportunities in the ethanol stocks market. 

Chinese companies, which are considered proxies for ethanol stocks, have benefited from the program as it includes direct purchases from them.

The progress of this scheme, seen through the purchase of mixed ethanol by oil marketing companies, has made it favorable for companies to increase production, as it forecasts their income profile. 

Last month, E20 fuel was launched at 84 retail outlets of oil marketing companies in 11 states and union territories.

Companies' production capacity is a major factor that will help in selecting the best ethanol stocks in 2023.

Companies like HPCL are also setting up ethanol plants to support the progress of the E20 plan. 

Additionally, the auto industry has taken the lead with the introduction of ethanol-run flex engines alongside top cars and models of two-wheeler manufacturers.

Companies involved in ethanol production have been provided with various incentives, including interest subvention.

Best Ethanol Stocks in India 2023

Here are some of the best ethanol stocks:

1. Shree Renuka Sugar:

One of the largest sugar producers in India and among the top ethanol stocks globally. Shree Renuka Sugar has eleven mills, including four in South-Central Brazil and seven in India, integrated with ethanol and power co-generation capacity. 

It produces fuel-grade ethanol that can be blended with petrol and has a daily distillery capacity of 930 thousand liters (klpd).

2. E.I.D-Parry (India):

This Chennai-based company, part of the Murugappa Group, not only contributes to India's leading sugar production but also operates in the nutraceutical space. 

E.I.D-Parry has planned to spend INR 268 crore in the financial year FY24 to increase ethanol production capacity. Looking at its business history, investors tend to favor the company as one of the best ethanol stocks.

3. Triveni Engineering:

Often included in recommendations for the best ethanol stocks, this company is one of India's largest integrated sugar producers. It has four state-of-the-art ultra-modern distilleries and produces potable spirits and fuel-grade ethanol. The company is also expanding its distillation capacity by setting up two new dual feedstock distilleries. Commercial production from the new distillery is expected to start in the October-December quarter, making Triveni Engineering a potential candidate among the best ethanol stocks in 2023.

4. Dhampur Sugar Mills:

A manufacturer of refined and raw sugar, biofuels, biomass-based renewable power, and other related products, Dhampur Sugar Mills is also listed as one of the best ethanol stocks. 

This is because it is one of the largest suppliers of fuel ethanol to oil marketing companies across India. It adheres to the latest environmental standards for fuel ethanol production. 

With the increasing demand from oil marketing companies, investors looking for the best ethanol stocks in 2023 may consider Dhampur Sugar Mills."

5. Globus Spirit

Globus Spirit is a company that is also on the radar of investors looking to buy stocks of ethanol producers. 

It has about three decades of experience and operates integrated plants to produce rectified spirits, grain-neutral spirits, premium spirits, and ethanol with a focus on value. 

The company is planning to set up a 300 klpd ethanol plant in Odisha. This makes Globus Spirit one of the top ethanol stocks to watch in 2023.

Apart from the companies listed above that have the potential to capture opportunities in the growing ethanol market, there are other ethanol stocks worth considering in 2023:

- Bajaj Hindusthan Sugar

- Dwarikesh Sugar Industries

- Dalmia Bharat Sugar

- Balrampur Chini

- Praj Industries

However, before investing in these stocks, investors should consider some factors:

Dependency on the Sugar Industry

Many of India's top ethanol stocks are companies that operate in the sugar sector. Sugar is derived from sugarcane, which requires a significant amount of water for cultivation. 

Therefore, the availability of water, particularly during the monsoon season, directly impacts the sugarcane industry. 

Additionally, government policies and international prices of sugar can also have a direct effect on the income profile of sugar companies. 

So, even if a company is benefiting from its ethanol production division, fluctuations in ethanol stock prices can potentially be influenced by the primary business of sugar manufacturers.

Fine Print

Before investing in ethanol stocks, investors should also examine key factors like cash flow and revenue in the ethanol business to assess potential risks. 

Investors should also look at the plans charted by companies to increase ethanol production to meet growing demand.

Demand

Government initiatives such as E20, which promote environmentally friendly initiatives, have contributed to the growth of the ethanol economy. 

With various incentives, the government is encouraging companies to increase production. Furthermore, oil marketing companies are increasing their purchases of blended fuels. 

This has boosted the ethanol stocks' appeal.

Currency Fluctuations

Commodities perform well in inflationary environments. During periods of currency depreciation, prices of commodities like sugar and ethanol tend to rise. 

Therefore, in addition to providing hedging, ethanol stocks can also offer diversification benefits to investors' portfolios.

Benefits of Investing in Ethanol Stocks

Environmentally Friendly

Large institutional investors are increasingly considering the environmental impact of their portfolios. Climate change has drawn the attention of governments and policy-makers who are designing environmentally friendly policies. 

Ethanol fuel offers more benefits compared to other sources of fuel because it does not pollute the environment. When ethanol fuel is used in vehicles, it results in lower toxin release. 

This helps in reducing global warming caused by emissions from fossil fuels such as oil, natural gas, and coal. Investing in the top ethanol stocks can be a way to ensure that your portfolio is environmentally friendly.

Government Support

With a focus on achieving net-zero carbon emissions by 2070, the government's continuous efforts, along with initiatives like E20, can potentially benefit companies involved in ethanol production. 

In fact, the 20% ethanol blend with petrol was already upgraded from 10%. In December, the Minister of Petroleum, Hardeep Singh Puri, stated that restrictions on staying up to 20% would erode and discussions on going beyond 30% would begin. 

This statement indicates the potential benefits of ethanol stocks to companies engaged in ethanol production, given the likely increase in demand.

Diversification

Government policies are typically designed with a long-term vision. Short-term obstacles may arise, but in the long run, policies like E20 offer significant benefits from an economic development perspective. 

Investing in ethanol stocks can be a good way for investors to load their portfolios with stocks that align with government pressures. In addition to providing hedging, ethanol stocks can also provide diversification benefits to portfolios, which can lead to greater earnings over the long term.

Challenges and Risks

However, while there are several advantages to investing in the best ethanol stocks, investors should also consider the risks:

Government Policies

As discussed above, most of the top ethanol stocks in India are primarily businesses in the sugar and alcohol beverage industries. 

Both these industries are heavily regulated by the government. Any impact on the revenue of the primary business can also affect ethanol stock prices.

Electric Vehicles

Along with ethanol-blended fuels, the government is also supporting initiatives focused on electric vehicles. Currently, E20 ethanol fuel is not going beyond small to medium-term. 

However, investors should consider the risk factor of a potential decrease in demand for such fuels due to the increasing acceptance of electric vehicles over the long term.

Conclusion

Government efforts for sustainable development have benefited several sectors, including ethanol producers. Policies like E20 offer various economic development benefits. 

Investors should keep an eye on this ethanol economy, which is expected to have a bright future, with the hope of lower limits in the future.

Frequently Asked Questions

1. Which are the best ethanol stocks in India right now?

The top ethanol stocks in India include Shree Renuka Sugar, E.I.D. Parry (India), Triveni Engineering, Dhampur Sugar Mills, Globus Spirit, Bajaj Hindusthan Sugar, Dwarikesh Sugar Industries, Dalmia Bharat Sugar, Balrampur Chini, and Praj Industries.

2. When should you invest in ethanol stocks?

The Indian government's focus on sustainable development and reducing dependence on oil imports has given a significant boost to the ethanol industry. These efforts indicate substantial growth opportunities for ethanol stocks.

3. What benefits do ethanol stocks provide?

Currently, the companies listed above are providing returns in the range of 0.5% to 3.0%."


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