Jay Shree Tea & Industries to set up distillery to tap the under penetrated ethanol potential in India
After several failed attempts to sell its sugar business, the BK Birla Group is setting up a distillery at an estimated cost of Rs80 crore to make the unit viable, unfazed by lacklustre performance in the current year.
The group is looking to process molasses, a by-product from sugar-refining, to produce ethanol. The government is looking to scale up blending of ethanol with automotive fuel. As a result, ethanol prices are firming up. Construction will commence by the end of 2018, and the unit is expected to be ready by the next sugar season. Most of the investment will come from the group’s own reserves.
However, the group isn’t giving up its search for a buyer for the sugar business. The idea is to make it “more viable”. The group has so far invested Rs200 crore in the business, inclusive of the Rs113 crore it had paid to acquire the unit.
Why is this important
The current price of sugar is less than the cost of production for most companies due to a bumper crop. And if a unit doesn’t have its own distillery, it may have to throw away the molasses because of a glut. Though the price of ethanol is regulated, the government has been raising the price. Currently, ethanol is selling at Rs40.85 a litre, compared with Rs39 last year. A revision is expected in the ethanol prices by the sugar industry
Stock to be positively impacted
Jay Shree Tea & Industries is expected to be positively impacted as the commercial production from the distillery would help the Company to recover the losses faced due to excessive production of sugar and eventually lower sugar prices in the country.
Jay Shree Tea & Industries (CMP: Rs. 87, MCap: Rs. 251 crs, TTM P/E 272).