‘Ethanol making may attract ~130-billion investment’

Shares of sugar firms have rallied as much as 50 per cent after the government decided to increase ethanol price by 25 per cent last week. Can the celebrations last for long? TARUN SAWHNEY, vice-chairman and managing director at Triveni Engineering and Industries, which owns seven mills, tells Ajay Modithe decision will give birth to a new industry and in the next two-four years substantial revenue of sugar companies will come from ethanol. Edited excerpts:

Tell us about the way last week’s decision will shape the sector?

We expect a number of new distilleries to come up in the next two-four years. It is said that 200 new applications have been submitted for setting up distilleries. The next important thing for the governments, especially in states, is to ensure that the movement of molasses (the raw material) and ethanol is allowed freely within the state and between states. The sector needs an ease of doing business.

What kind of investments could the distillery segment attract? What is the revenue potential?

Conservatively, even if half of these applications move forward and culminate into actual setting up of capacities, the numbers could be huge. Setting up a distillery with a 100 kilo litre (kl) per day capacity can cost ~1.3 billion. So, a 100 distillery means investment of ~130 billion. Given the current ethanol price, one distillery of 100 kl per day could easily generate annual revenue of ~1.5 billion and 100 such distilleries can generate revenue of ~150 billion. Not to forget that each such distillery will create 250 direct jobs in rural areas and the total job creation can be 25,000. It is literally the birth of a new industry. One can expect a re-rating of sugar shares in a couple of years.

What per cent of Triveni's revenue now comes from distillery? How can it change? How are banks looking at this business, considering they have been wary of the sugar business?

We currently get about 10 per cent revenue from distillery business and it can easily double in the next few years. We are already investing ~2 billion in a new distillery and in modification of old capacities. The banks are excited about lending to the project.

Can this one announcement and the renewed focus on ethanol blending change the economics of the ailing sugar industry?

This is a bold step and it means a lot for the industry. However, I do not think that it will be a panacea for all the issues that we face. Look at the pricing of sugarcane, the raw material for both sugar as well as ethanol. We continue to seek a solution to this illogical pricing mechanism so that we can have flexibility in conversion of sugarcane into sugar or ethanol based on financials.

Do you see entry of non-sugar players into this segment?

Yes, I see the entry of new players, including those outside the sugar industry. It is good for the sector. The advantage for a sugar mill is that it has its own raw material that does not need transportation.

More on business-standard.com