Ethanol push beyond 20% may face capacity hurdles, say experts

Prashant Biyani, VP–Institutional Equity at Elara Securities, believes that if ethanol blending targets increase meaningfully, the gains will be spread across the sector, with all sugar and green ethanol players likely to see higher volumes.

India has already made progress towards 20% ethanol blending (E20), but moving significantly beyond that will require a sharp jump in production capacity.

Atul Chaturvedi, former Executive Chairman of Shree Renuka Sugars, pointed out that while the idea is directionally positive, the numbers don’t yet add up for a quick shift.

“India consumes roughly about 5,000 crore litres of petrol… at 85% it would work out to something like 42.5 billion litres… and I don’t think India has the capacity at this point of time,” he said.

The government is likely to allow testing of E85 to E100 blended fuels. Govt has held discussions with automakers to evaluate vehicle testing for E85-E100 blends.

For now, the industry’s realistic target is to move towards 30% blending over the next few years. That itself would stretch current capacity limits and require steady expansion in feedstock like sugarcane and grains. The transition will also depend on policy support, especially incentives for flex-fuel vehicles and possible GST cuts.

From a market perspective, the ethanol theme remains a positive trigger for sugar companies. Prashant Biyani of Elara Securities believes the benefits will be broad-based if blending targets are raised meaningfully. “All companies who are into sugar-based ethanol or green ethanol will benefit… there will be volume uptick from everyone,” he noted.

That said, there is no immediate rush for capacity expansion. The industry currently has some spare capacity, which can support incremental demand in the initial phase. Fresh investments are likely to pick up only after a few years of sustained higher blending.

Among stocks, companies with diversified revenue streams and ethanol-linked businesses are better placed. Within the sector, Balrampur Chini Mills remains a preferred pick for Elara Securities, driven not just by ethanol but also its entry into new segments like bioplastics (PLA), which could support future growth.

The bigger structural question, however, is the balance between food and fuel. As ethanol diversion increases, concerns around sugar availability and pricing could resurface. At the same time, the push is tied closely to India’s energy security goals, especially in a volatile global environment

For the entire discussion, watch the accompanying video

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