New Delhi, September 23 (IANS). India's ethanol industry has entered the phase of capacity utilization rather than new capacity addition and with the implementation of E25 blending, ethanol demand in the country is expected to increase to 17.9 billion liters in the base case (normal) scenario by FY31. This information was given in the report released on Wednesday.

According to Brickwork Ratings report, the existing distillation capacity of 18.25 billion liters is already sufficient to meet the demand under 'base' and 'bear' case scenario.

According to the base case, about 98 percent of the existing capacity of 18.25 billion liters will be utilized. If blending remains at E20, the 'bare case' (worst case) demand is estimated at 14.3 billion litres, which means about 78 per cent of capacity will be utilised.

The report said that if blending reaches the level of E30, then in the 'bull case' (best case scenario) ethanol demand could reach 21.5 billion liters by FY 2031. Due to this, the demand will exceed the current capacity by about 18 percent.

During this period, the level of E30 will be the turning point when the sector will move from using existing resources to the need to create new capacity.

The rating agency believes that due to this, the pace of blending policy will remain the main factor determining additional capex and sector growth.

“Structural changes in feedstock are also changing the demand scenario. The share of grain-based routes in the first phase of ESY26 allocation was 72 per cent, while the share of sugar-based routes was 28 per cent. This is in sharp contrast to the ratio of 55:45 (sugar-cereals) stipulated in the Roadmap 2021,” the report said.

Maize alone accounted for 45.7 percent of the total allocation. However, grain-based distilleries have seen their EBITDA margins decline from 9.2 per cent in FY21 to 6.7 per cent in FY25, reflecting pressure from feedstock costs.

“With the E20 target largely achieved and sufficient capacity already in place, the sector is now expected to focus on better capacity utilization, optimum utilization of feedstock and monetization of existing assets,” the report estimated.

If blending moves toward E30, new distillation capacity will become even more important.

The credit outlook for the ethanol sector has been maintained as stable in the report. The factors behind this are government controlled procurement and pricing, achieving the target of E20 blending and approval of more than Rs 420 billion to the sector by banks and financial institutions by October 2025.

–IANS

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