Molasses price dip – A high for Distilleries

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Molasses, a sugar byproduct which is used for making alcohol, is in currently in excess and is being sold free in Uttar Pradesh. Due to this, some mills are even paying for the cost of transportation to distilleries. Every tonne of cane crushed produces ~107 kg of sugar and ~46 kg of molasses. In the last seven months, the sugar prices have reduced from Rs 36-37/kg to Rs 25-26/kg.

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Other primary reasons for this decline are:

  • At the moment, cane crushing are higher than what distilleries can support. Out of the 3.1 billion litres of molasses around 1.3 billion litres goes to the liquor industry and 0.6 billion litres to the alcohol-based chemical makers. This still leaves a surplus of 1.2 billion litres of molasses.
  • No new licences are being given to the distilleries by Central Pollution Control Board’s stringent norms on the discharge of distillery effluents, which has even failed the EBP programme.

Why is it important:

While sugar industry is in doldrums due to over production, the alcohol manufacturers who use molasses as their raw material are doing good and will expand margins going forward.

Stock to be impacted negatively:

DCM Shriram Ltd. (CMP: Rs 262, Market Cap: Rs 4346 crores, FY2020 PE: 6.24)

Stock to be impacted positively:

Som Distelleries & Breweries Ltd. (CMP: Rs 279, Market Cap: Rs 768 crores, FY2020 PE: 22.03)

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