Ethanol Industry: A Paradigm Shift Underway

Published by Sharekhan Education | August 12, 2022

Amit Pathak | Sharekhan Education

Ethanol Industry: A Paradigm Shift Underway

Ethanol is an industrial chemical produced by fermenting food crops, such as sugarcane, maize, and others. It is one of the most promising alternative bio-fuels to be used entirely or in a blended form with petrol or diesel. The National Bio-fuel Policy 2018, Govt. aims to increase bio-fuels availability. It wishes to increase blending rates in petrol from 2% to 20% by CY25 and in diesel from 0.1% to 5.0% by CY30. India has made significant progress in the last 2-3 years to get to 9.8% blending rates in petrol as of April 2022.

Usage:

Imports cater to around 80 percent of Indian energy requirements. The Ethanol Blending Programme (EBP) is a long-term solution to reducing dependency on expensive imported crude. According to the government, EBP has helped the country avoid fuel imports worth 50,000 crores in the last eight years. The government  has also announced a concession in excise duty of 12%-15% on ethanol-blended petrol and 20% on blending it with diesel. The move aimed at bringing down the price of blended fuel. The government is providing interest subsidies to sugar mills to promote ethanol production in the country.

Benefits of using Ethanol:

Ethanol is a cheaper, more indigenous, and greener source of energy. Usage of bio-fuels like ethanol in combustion engines reduces the emissions of gases that aggravate the greenhouse effect. India commits to declarations on emission reduction at the Glasgow COP26 UN climate conference, particularly for meeting 50 percent of the energy demand through renewable sources. This commitment has further necessitated the speeding up of the EBP. The government . has directed the automobile industry to launch flex-fuel cars, consuming up to 85% ethanol.

Growth Prospects:

Ethanol also has applications in other industries like chemicals, cosmetics, and alcohol. Non-fuel demand for ethanol is estimated to grow at 18% CAGR by CY26. The Indian ethanol market was valued at USD 2.5bn in 2019 and is estimated to grow to USD 16.5bn by 2030, exhibiting a CAGR of 19%. By 2030, Ethanol demand is estimated to rise to 15.7bn liters, of which 11.7bn liters relate to blending with petrol & diesel and the remaining 4bn liters for non-fuel purposes.

Praj Industries Overview:

We are optimistic about the growth prospects of Praj Industries. The company designs, manufactures, and commissions fermentation and distillation equipment for the production of ethanol. It is the second-order beneficiary of the bio-fuel revolution. The company maintains a 60% market share in the domestic Ethanol plant equipment market. The company continues to improve efficiency by reorganizing the supply chain, advanced procurement for critical raw materials, and reducing the execution cycle. We believe the company will continue to command premium valuations due to a strong order book and a lean balance sheet.

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