Integrated Sugar mills that upgrade
distilleries could see a higher margin improvement of up to 1,000-1,100 bps,
credit raiting agency CRISIL Research said in its latest report.
Along with a decline in raw material cost, they
would see a 20% increase in revenue from the distillery segment driven by
higher realizations for ethanol, the agency said.
Integrated mills typically earn higher margins
than standalone sugar mills owing to better operational economics of their
distilleries and power segments with revenues from the distillery and power
segments accounting for 9-10% each of overall revenues.
Given the low sugar prices, we expect many of
the integrated mills to upgrade facilities to produce ethanol from B heavy
molasses (intermediate sugarcane juice). These investments would happen
gradually over the next few quarters. We expect very few large mills to upgrade
all the way to divert 100% sugarcane juice to ethanol despite the 25% increase
in ethanol realisations and the healthy demand prospects from OMCs to meet
higher blending norms, given the order of investment required, CRISIL said.