Ethanol scarcity a myth, says InCred; 'Add' on grain-based players, 'Reduce' on sugar-based; shares top picks

InCred Equities, in its latest report, dismissed concerns over ethanol feedstock shortage, calling the "ethanol scarcity" narrative in the agribusiness sector a myth. The brokerage highlighted India's record grain output and surplus buffer stock as evidence of structural abundance, favouring grain-based ethanol producers over sugar mills.

"India's ethanol story quashes the feedstock scarcity myth. There's a structural surplus that makes grain-based players unstoppable. While sugar mills face policy headwinds and stagnant pricing, grain-based distilleries are sitting on a goldmine of record crop and also huge buffer stock," the brokerage said.

InCred, which remains 'Overweight' on the sector, reiterated its 'Add' rating on grain-based distilleries and a 'Reduce' call on sugar-based players.

Backing its stance with data, the brokerage noted that rice output touched an all-time high of 150 million metric tonnes (mmt) in FY25, well above the 10-year average of 120 mmt. Similarly, maize production hit 42 mmt against a long-term average of 30 mmt. "The pattern is crystal clear: India's grain production machine is outstripping demand," it said, adding that stronger numbers are expected in FY26.

Further, the Food Corporation of India's (FCI's) rice buffer norm stands at 13.5 mmt, while current stock levels have surged to 54 mmt -- four times the required buffer. "Anyone claiming feedstock shortage at this point isn't just incorrect but wilfully ignores the striking data before them," InCred said.

According to its calculations, 23 mmt of rice alone can yield 11 billion litres of ethanol, enough to meet India's entire 20 per cent blending requirement for Ethanol Supply Year 2025 -- without factoring in maize or other feedstocks.

On stock picks, InCred maintained its 'Add' rating on Globus Spirits Ltd and India Glycols Ltd. For Globus Spirits, it set a higher target price of Rs 1,850, citing ethanol spread expansion and IMIL volume growth as dual drivers. For India Glycols, it gave a target price of Rs 1,384, noting that the company's restructuring into alcobev, biofuels, chemicals and biopharma segments has sharpened focus and improved growth prospects.