Ravi Dharamshi, CIO, ValueQuest Investment Advisors, has revealed that he is bullish about sugar and ethanol stocks. He opined that sugar companies, infrastructure companies like Praj are in a multi-year bull run.
He explained that ethanol is only step one in that direction, that too, first-generation ethanol. The next steps will be second-generation ethanol and will be giving a lot of push to the other renewables. This trend is here to last and is worldwide and the beauty about the ethanol story is that there are very few players on the equipment manufacturers side. So it is a very solid industry structure and there is an opportunity compared to the size of these companies.
"This is a very time-bound opportunity. It is going to pan out over the next 3-5 years. So these companies can end up being multifold in size from here in the next few years. I am very excited about this particular set of opportunities," he said.
Ravi Dharamshi also stated that for the ethanol producers, it is less than a two-year payback. So, this kind of profit boom and what it does is for the sugar companies is it takes away some of the cyclicality that sugar as a commodity brings into the business. This is a more year-round kind of a commodity, so that adds a lot of credibility to the numbers. There is a possibility that sugar companies might not be valued anymore as a commodity company and might become sugar plus ethanol plus power play.
That can improve their valuation multiples. So yes, decarbonisation is a multi-multi year-long theme, and within that, if you can find a good bet stick around it, the trend is not changing anytime soon, he added.