India's ethanol sector grew. The profits didn't follow

Summary: Ethanol is on a roll in India, thanks to rising crude oil prices and the push for ethanol blending over 20 per cent. While this has resulted in ethanol prices trading at premiums, their profits seem to stay the same. We explore why this is the case.

The US-Iran conflict has rattled global energy markets. Brent crude is trading above $100 a barrel. The Strait of Hormuz closure has choked the movement of goods, and the International Energy Agency warns that the supply shock is large enough to damage growth and fuel inflation well beyond Asia.

Amid all this, ethanol has quietly moved to centre stage.

In late March, the All India Distillers' Association urged the government to push ethanol blending beyond 20 per cent and speed up the rollout of flex-fuel vehicles — cars and two-wheelers that can run on higher ethanol blends. This wasn't just a reaction to the oil shock. It was a deliberate effort to bring ethanol blending back into the policy conversation, after months of mixed signals and stalled progress.

Markets moved fast. Dalmia Bharat Sugar rose about 22 per cent in a month. Shree Renuka Sugars gained about 17 per cent. Balrampur Chini Mills rose about 7 per cent.

But look at their financials, and a different picture emerges. Rising stock prices haven't translated into rising profits.

The national case is real. The shareholder case is not.

India's ethanol programme has genuinely worked. Blending rose from 1.53 per cent in 2014 to 20 per cent this year — well ahead of the original target. That saved significant foreign exchange and built a domestic biofuel supply chain that barely existed a decade ago.

But a programme that works for the country doesn't automatically work for shareholders. Ethanol added revenue to these companies. It justified capacity expansion. It made them look more diversified. What it didn't do was become the high-margin, steadily growing profit engine investors were promised. Scale came faster than quality — and that one sentence sums up four years of this sector's ethanol story.

Companies built for a future that demand didn't deliver

Here's the part that rarely comes up in the ethanol bull case: these companies expanded distillery capacity aggressively, but actual sales volumes didn't keep pace.

At Dalmia Bharat Sugar, distillery capacity grew at about 33 per cent a year over four years, while sales volume grew at only about 21 per cent. At Balrampur Chini Mills, capacity rose about 17 per cent a year while volume grew only about 9 per cent. At Triveni Engineering, capacity expanded roughly 28 per cent a year while alcohol sales volume grew only about 18 per cent. Each of these companies built plants for a much bigger future. Demand simply didn't arrive fast enough to fill them.

EID Parry is the one partial exception. Its distillery capacity grew at about 25 per cent a year, but volume actually outpaced that at roughly 29 per cent a year. Yet even EID doesn't rescue the larger argument. Revenue was never really the problem — profitability was. EID's distillery revenue grew strongly, yet segment profit barely improved over the full period, and actually fell in FY25 as raw-material costs rose. Even the best volume converter in the group couldn't escape the margin trap.

What the numbers actually look like

In FY25, Dalmia Bharat Sugar's distillery segment sold 18 crore litres of ethanol at a capacity of 850 KLPD (kilolitres per day), generating revenue of Rs 1,202 crore. But EBIT — operating profit before borrowing costs and taxes — was just Rs 70 crore. That's a margin of 5.8 per cent. The company itself acknowledged that profitability was under pressure because the government hadn't revised prices for two of its major ethanol production routes.

The same story repeats across the sector. Balrampur's distillery profit before interest and tax fell from Rs 326 crore in FY24 to Rs 192 crore in FY25, on revenue of about Rs 468 crore. Management said in August 2025 that ethanol prices for the juice and B-heavy routes had been unchanged for two years. Balrampur wasn't complaining about demand. It was complaining about economics.

EID Parry's distillery revenue reached Rs 1,102 crore; segment profit was Rs 37 crore. Triveni's alcohol business brought in Rs 1,473.5 crore and made Rs 39.7 crore. Triveni also flagged that feedstock shortages and a higher grain mix weighed on margins. In every case, ethanol became a bigger business — but not a better one.

Three reasons margins stayed weak

The government sets the price, not the market. In January 2025, the government revised the price for only one production route. The C-heavy molasses route — the final-stage by-product left after maximum sugar extraction — was revised to Rs 57.97 per litre. Prices for the B-heavy molasses route stayed at Rs 60.73 per litre, unchanged since November 2022. Juice and syrup route prices stayed at Rs 65.61 per litre, also frozen. When feedstock costs rise but selling prices are fixed, volumes can grow and profits can still fall.

Policy has never moved in one consistent direction. When sugar availability tightened, the government restricted ethanol production from cane juice and B-heavy molasses to protect food supply. Shree Renuka's annual report described directly how those restrictions hurt output. Triveni cited feedstock shortages as a drag on profitability. The sector has swung between encouragement and restriction — it has never operated under one clean, steady tailwind.

Before the war, there was already a glut. India's ethanol production capacity had climbed to roughly 18 billion litres, with plants under construction pushing that figure toward 21 billion litres. Demand from oil companies stood at only around 11–12 billion litres. Shree Renuka's executive chairman was quoted saying capacity had reached about 20 billion litres while oil marketing companies were buying only 10.5 billion litres. The war has arrived just in time to mask an overcapacity problem that was already quietly building.

What could actually change things?

The All India Distillers' Association is right that the policy conversation needs to move. Three things could genuinely improve the investment case — but they work on very different timescales.

A government revision to B-heavy and juice prices, frozen since November 2022, would show up in company margins within two to three quarters. That's the signal to watch most closely right now. Higher procurement from oil companies would improve capacity utilisation across the sector — spreading fixed costs over more output and helping margins even without a price increase. A real rollout of flex-fuel vehicles would create the next genuine wave of demand, the one that could finally absorb the capacity overhang. But meaningful adoption at scale takes years, not months.

A war headline lifts a stock in a day. A price revision shows up in earnings in a quarter. A vehicle ecosystem takes years. These are three different stories on three different timescales. Treating them as one is how investors end up in the right sector at the wrong entry point.

What this means for you

The ethanol case for India hasn't weakened. The oil shock and the All India Distillers' Association push mean this conversation isn't going away. But the investment case for these specific companies depends on something more precise than national energy strategy. It depends on whether EBIT margins actually move — not revenue, not volume, but margins.

Watch the next government pricing announcement. Watch segment margins in the next two quarterly results. Watch whether oil companies' procurement rises in volume. Until those numbers move, the ethanol story remains what it has mostly been: important for the country, but still unproven for your portfolio.

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