Bitter Blow For Sugar Cos: Bajaj Hindusthan Sugar, Shree Renuka Tumble Up To 7% As Govt Halts Ethanol Diversion

Shares of sugar companies came under pressure on October 19 as they declined up to 7 per cent in early trade. On the NSE, Bajaj Hindusthan Sugar saw a steep drop, falling 7.4 per cent to hit an intraday low of Rs 19.66 apiece.

Dhampur Sugar Mills followed a similar trajectory, plunging 7.42 per cent to a low of Rs 183 apiece. Shree Renuka Sugars witnessed selling, going down by 6.27 per cent to touch an intraday low of Rs 20.76 apiece. Balrampur Chini Mills declined by 4.01 per cent to an intraday low of Rs 692.2 apiece, while EID Parry India dropped 2.39 per cent to touch an intraday low of Rs 677.9 apiece as investors reacted to the latest regulatory developments.

Why Are Sugar Stocks Falling

Sugar stocks fell as the market factored in a government directive which restricts how mills can use their sugarcane produce. The government instructed oil marketing companies to reduce the diversion of sugar for ethanol production to zero for the 2026 to 2027 supply year. The newest ethanol tender explicitly excludes supplies produced from sugarcane juice, sugar syrup, and B-heavy molasses.

Notably, this decision comes amid the government's bid to safeguard domestic sugar supplies and control food inflation, following weak rainfall in key producing states, which in turn has raised concerns about the total output. Additionally, sugar prices have recently surged by more than 10 per cent amid festive demand, prompting the government to take preventative measures to ease record-high prices across the country.

These new rules are likely to affect the business of sugar companies. The mandate to reduce the diversion of sugar for ethanol production limits the flexibility of sugar mills to shift sugarcane derivatives between traditional sugar production and ethanol blending.

By cutting off the supply of B-heavy molasses and sugarcane juice for ethanol, the government has temporarily removed a higher-margin revenue stream for these businesses. The loss of operational flexibility and the threat to operating margins is expected to reduce the return on investment these companies would have gotten from their recent investments to expand their ethanol capacity. It is likely that the threat of potentially reduced profit margins has turned investor sentiment negative, leading to the heavy selloffs witnessed across sugar stocks.

At the time of writing, shares of Bajaj Hindusthan Sugar traded at Rs 20.06 apiece down by 5.60 per cent, shares of Dhampur Sugar Mills traded at Rs 190.67 apiece down by 3.54 per cent, and shares of Shree Renuka traded at Rs 20.81 apiece down by 6.05 per cent on the NSE.

Shares of Balrampur Chini traded at Rs 700 apiece, down by 2.93 per cent on the NSE. At the time of writing, shares of EID Parry India traded at Rs 681.20 apiece, down by 1.87 per cent on the NSE.