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All Eyes on Ethanol

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Hey there, welcome to the next blog in this new series of newsletters by Green Portfolio. This is Exploring Stocks and Sectors – A Safari

We have been talking about reducing the consumption of fossil fuels and thus carbon emissions for a long time now. Take any discussions happening among global leaders and you’ll see that renewable energy, carbon emissions, net-zero, and fossil fuels are some of the most frequently mentioned keywords. However, we hear a lot of big words but little to no impact is actually seen. 

This happened once again at the G20 Summit as global leaders sat together to discuss Ethanol, the biofuel that is currently the stepping stone to cutting the use of fossils to fuel our engines. Now, this might be surprising but nations across the world are quite eager to use ethanol as a compound in petrol. Everyone wants to get on the green train. This week, in Stock Safari, we are discussing the ethanol industry – the future of fueling our engines. Ethanol gained the limelight as the Biofuel Alliance was formed, but at Green Portfolio, we have been invested in ethanol for quite a long time now.

Let’s start from the top – the basics of ethanol. Ethanol, a chemical compound, is an alcohol traditionally used in alcoholic beverages, pharmaceutical compounds, cosmetics, and perfumes. But now, almost half of the ethanol produced globally is used as a component in gasoline. Ethanol, globally, is a 114 billion dollar industry as of this year. With a CAGR of 4.8%, the industry is expected to double in size within a decade and a half. The growth is very likely to be faster as countries are eager to mix more ethanol in gasoline. 

Dive into Data: Have a look at this chart to understand how ethanol currently is used.

Here’s an interesting thing, ethanol is a byproduct. Most of the ethanol manufactured is a secondary product for the sugar industry. It’s also a byproduct obtained by processing grains like corn and maize. 

If you want to know more about how ethanol is produced from sugar, check out our reel on Instagram. By the way, we post interesting reels daily, you can follow our page 🙂

Thus, tailwinds for ethanol directly signal growth for sugar too, and right now, ethanol has strong tailwinds, particularly in India. Here are some key pointers.

  • The taxes on ethanol were reduced last year from 18% to 5% in 2021. 
  • Ethanol Blended with Petrol Programme was started in 2001 to promote ethanol mixing in petrol.
  • Atmanirbhar Bharat, under which the government is encouraging domestic ethanol production.

Dive into Data: Here’s a visual of how ethanol blending in petrol has been increasing 

This has just been accelerated with the Global Biofuel Alliance wherein the participating nations have agreed to mix 20% ethanol in gasoline by 2030. This Alliance, led by India, the US, and Brazil has nineteen countries and twelve international organizations. Since last year, India has had a 10% proportion of ethanol in petrol which is aimed to be doubled to 20% by 2025. The industry in India is expected to grow five times by 2025 to become the third largest in the world following the US and Brazil. The world is inspired by India’s plan of using biofuel. In fact, many countries in Africa are now trying to replicate it. 

Stock Specifics: KPR Mills 

Today we are talking about how companies too are trying to get the first-mover advantage to emerge as the leading producers of ethanol. Just a couple of weeks ago, we talked about one of our sugar stocks – Dalmia Bharat Sugar which is trying to make more ethanol. However, this week I will talk about a company whose primary business is not sugar or ethanol but given the tailwinds for the industry, it is now doubling down on sugar. 

This week, I am talking about KPR Mills, a company that we’ve long been invested in. Now, KPR Mills is a textile company but today I will focus more on its sugar segment. Let’s first understand the company.

  • KPR Mills has three key products – yarn, fabric, garment, and sugar. It’s an integrated textile company producing everything from yarns to garments.
  • The company currently generates over 70% of its revenue from the textile vertical itself, however, it has been expanding its sugar business. 
  • Revenue from textiles didn’t grow much due to fluctuating demand and competition but the margins have improved.
  • The slight downturn in textiles in the previous quarters was balanced by the company’s diversified business. 

Dive into Data: Have a look at these segment-wise numbers.

Let’s get to the sweet topic now, sugar. 

  • As you see from the numbers above, the revenue from sugar has grown on a YoY basis. QoQ results however are indicative of the sugar cycle which derives higher revenue during the later quarters.
  • KPR is increasing its ethanol production capacity with a capex of 150 crore.
  • This is expected to generate a topline of 200 crores and produce 12 crore litres of ethanol which has a ready demand.
  • Looking at all the data below, we see multifold growth happening in ethanol and allied segments.

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Green Portfolio is a SEBI Registered (SEBI Registration No. INH100008513) Research Analyst Firm. The research and reports express our opinions which we have based upon generally available public information, field research, inferences and deductions through are due diligence and analytical process. To the best our ability and belief, all information contained here is accurate and reliable, and has been obtained from public sources we believe to be accurate and reliable. We make no representation, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results obtained from its use.

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All Eyes on Ethanol
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