Will Shree Renuka Sugars’ Rally Continue On The Back Of Increased Ethanol Blending?

The year 2022 seems to be rather promising for leading sugar manufacturer Shree Renuka Sugars. Riding on the government's ambitious plan to enhance ethanol blending of petrol and diesel to 20 per cent by the end of 2025, the stock price of one of the world’s largest sugar producers has nearly doubled to Rs 59 so far this year. 

The stock has surged 146 per cent from 52-week low of Rs 24.40 it had hit in November last year.

In June 2021, the Narendra Modi government had set a target of 10 per cent ethanol blending in petrol by November 2022, which was achieved five months in advance. Now, the government expects to touch 20 per cent by 2025, which will give a thrust to ethanol production. Shree Renuka Sugars stands to further benefit from this. 

The company recently expanded capacity for ethanol production—from 720 kilo litre per day to 1,250 kilo litre per day—is expected to go on stream by December 2022.

The sugar refiner, which operates seven mills across India and has its head office in Belagavi, has also been witnessing a sharp surge in numbers due to a change in the ownership of the company. As per the latest shareholding pattern data available on the stock exchanges, Wilmar Sugar Holdings currently holds 62.48 per cent stake in the company.   

Wilmar Sugar Holdings, part of leading Singapore-based agribusiness giant Wilmar International, has been increasing its stake in the company since 2018. In March 2018, it had acquired an additional 19.77 per cent stake in Shree Renuka Sugars through an open offer which took its total stake to 38.57 per cent, a number that kept going up.   

“Shree Renuka Sugar has almost doubled its ethanol production capacity and debt overhang is behind after Wilmar’s entry as promoter,” says Vijay Chopra of Enoch Ventures.

He says that the company has moved to strong hands after Wilmar became the major stakeholder. Since the takeover, Shree Renuka Sugars has been doing well financially. The company reported a profit of Rs 113 crore for the year ended March 2022, up 102 per cent on a year-on-year basis. In contrast, in the financial years ended March 2020 and March 2019, the company had reported a loss of Rs 551 crore and Rs 382 crore, respectively. 

High demand for sugar during the ongoing festive season also augurs well for the company as 40 per cent of the sugar demand is generated in the last four-five months of the year due to festive season, says Chopra.

“Other sugar companies like Dhampur, EID Parry and Bajaj Hindustan are doing well and this company also has potential to reach there,” he says, adding that the company can do well going ahead.

Chopra expects the stock to touch Rs 100 by next year.