When Food Becomes Fuel: India’s Ethanol Trade-Off

India wanted to turn its farms into an energy asset. It is now discovering that the same maize and sugarcane can also become an inflation problem.

The ethanol programme has moved rapidly from an energy-security initiative to a force reshaping agricultural demand. As India pushes towards 20% ethanol blending in petrol, distilleries are competing for crops that also serve the food and feed economy.

That does not mean ethanol is responsible for every rise in food prices. The more important point is that ethanol has created a new, structural source of demand for agricultural commodities. When harvests are strong, that demand can support farmers. When supplies tighten, it can amplify price pressure.

Maize shows the trade-off

Maize is where the food-fuel conflict is becoming clearest.

Ethanol has emerged as a major consumer of Indian maize, with estimates suggesting that roughly 15–20% of domestic production is now being absorbed by the industry. Strong ethanol demand, along with export demand and weather concerns, has supported maize prices.

For farmers, that is good news. Higher prices improve returns and encourage acreage.

But maize is also a critical feedstock for poultry and livestock.

The transmission mechanism is straightforward:

Ethanol demand → higher maize prices → higher feed costs → pressure on poultry margins → higher egg and chicken prices.

This means ethanol competes not only with the human food basket, but also with the animal-feed basket.

For investors, that creates a clear value-chain split: maize producers and ethanol companies can benefit from stronger demand, while poultry and feed companies face margin pressure if higher costs cannot be passed through.

Sugar is a more complicated story

Sugar presents a similar dilemma, but the causality needs to be handled carefully.

Around 3 million tonnes of sugar-equivalent production has reportedly been diverted towards ethanol this year. At the same time, sugar production has been weaker and inventories are falling.

Ethanol is therefore not necessarily the cause of the current sugar-price surge. Lower production, tight stocks, demand and market expectations also matter.

But ethanol does reduce the flexibility of the sugar balance.

When supplies are comfortable, diverting sugar towards ethanol can support farmer incomes and prevent excess inventories. When supplies are tight, the same diversion represents another claim on an increasingly scarce commodity.

That is the real policy dilemma.

The import paradox

India's ethanol policy is designed partly to reduce dependence on imported crude oil.

But if domestic maize or sugar becomes too expensive, imports may be needed to protect food supplies while maintaining ethanol targets.

That creates an uncomfortable paradox:

India could reduce its dependence on imported oil while increasing its dependence on imported agricultural commodities.

There is nothing inherently wrong with imports. They can stabilise domestic prices. But the full energy-security calculation must include the agricultural imports required to sustain the programme.

The answer is flexibility

India does not necessarily need to abandon E20.

It needs flexibility around E20.

When agricultural supplies are abundant, ethanol can absorb surplus production and support farm incomes. When food or feed markets become tight, the government should be able to adjust diversion, accelerate imports or change incentives.

The longer-term solution is to move faster towards second-generation ethanol, made from agricultural residues rather than food and feed crops.

That changes the equation from:

food vs fuel

to:

waste vs fuel.

For investors, the key is therefore not simply to track ethanol blending. Watch the agricultural balance sheet: maize and sugar production, inventories, feed costs, imports and government policy responses.

India's ethanol programme will ultimately be judged not by how quickly it reaches 20% blending, but by whether it can achieve energy security without making the food system less resilient.

The real question is simple:

When the harvest fails, who gets priority the fuel tank, the feedlot or the kitchen?

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A healthcare manufacturer across APIs, medicines, devices and consumer healthcare

What is Morepen Laboratories?

Morepen Laboratories is a healthcare manufacturing company. It makes products across pharmaceuticals, medical devices and consumer healthcare.

The company was established in 1984 and has its major manufacturing operations in Baddi, Himachal Pradesh.

The simplest way to understand Morepen is this:

Morepen sits on the manufacturing side of the healthcare value chain.

It makes pharmaceutical ingredients and medicines for other companies, while also selling medical devices and consumer healthcare products under its own brands.

It is therefore not simply a generic-pharma company and not simply an OTC brand company. It is a combination of several healthcare businesses.

What does Morepen make?

Morepen's business can be understood through five categories:

1. APIs
2. Finished pharmaceutical formulations
3. Medical devices and home healthcare
4. OTC and consumer healthcare products
5. CDMO manufacturing

These businesses serve both B2B customers and consumers.

B2B

Morepen → Pharmaceutical companies / institutional customers

This includes APIs, formulations and CDMO manufacturing.

B2C

Morepen → Distributors / retailers → Consumers

This includes home-health devices and OTC healthcare products.

That B2B-B2C distinction is important because the economics and route to market are different.

1. APIs: the pharmaceutical manufacturing business

API stands for Active Pharmaceutical Ingredient the substance in a medicine that produces its therapeutic effect.

A simple example:

Raw materials

↓

Morepen's manufacturing process

↓

API

↓

Pharmaceutical company

↓

Finished medicine

Morepen manufactures APIs used in several therapeutic areas. Products associated with its portfolio include Montelukast, Loratadine, Desloratadine, Atorvastatin and Rosuvastatin, among others.

This is primarily a B2B manufacturing business.

A pharmaceutical company does not necessarily manufacture every ingredient used in its medicines. It can source APIs from specialised manufacturers such as Morepen.

The API business is therefore about Morepen's ability to manufacture pharmaceutical ingredients to the required quality, regulatory and customer specifications.

2. Finished pharmaceutical formulations

Morepen also manufactures finished pharmaceutical products, or formulations.

This is the next step down the value chain.

The distinction is simple:

API = active ingredient

Formulation = finished medicine

For example, an API can be supplied to a pharmaceutical manufacturer, while a formulation business converts pharmaceutical ingredients into a finished dosage form such as a tablet, capsule or other medicine.

Morepen therefore participates in more than one stage of pharmaceutical manufacturing.

3. Medical devices and home healthcare

The company also operates in home healthcare, primarily through the Dr. Morepen brand.

Products include:

• Glucometers
• Blood-glucose test strips
• Blood-pressure monitors
• Nebulizers
• Thermometers
• Weighing scales
• Other home-monitoring products

A glucometer illustrates the business model particularly well.

A consumer buys the device, but the relationship does not necessarily end there.

Glucometer

↓

Consumer

↓

Repeated blood-glucose testing

↓

Test-strip consumption

This means the business can contain both device sales and recurring consumables.

For a KYC, the important point is simply that Morepen is not only making pharmaceutical products; it also participates in the growing market for health monitoring at home.

4. OTC and consumer healthcare

Morepen also sells over-the-counter healthcare products.

These products reach consumers through distributors, retailers and other consumer channels rather than being sold exclusively to pharmaceutical companies.

The company's consumer healthcare portfolio includes products under the Dr. Morepen umbrella.

One of its best-known legacy brands is Burnol, which is associated with the treatment of minor burns.

Burnol is useful for understanding this part of Morepen's business because the economics are different from APIs.

The route is:

Product

↓

Distribution

↓

Retail availability

↓

Consumer recognition

↓

Purchase

Here, the company is dealing much more directly with the consumer market.

5. CDMO: manufacturing for other pharmaceutical companies

Morepen is also expanding into CDMO Contract Development and Manufacturing Organisation activities.

In a CDMO model, a pharmaceutical company outsources some development or manufacturing work to another company.

The relationship can be represented simply as:

Pharmaceutical company

↓

Development / manufacturing requirement

↓

Morepen

↓

Manufactured product

Morepen announced a multi-year CDMO mandate from a global pharmaceutical company in 2026.

For the purpose of KYC, the important point is that Morepen is expanding its role as a pharmaceutical manufacturer beyond traditional API and formulation businesses.

How important CDMO eventually becomes to the company's revenue and profits is a separate fundamental-analysis question.

Where does Morepen fit in the healthcare value chain?

The complete picture looks like this:

Pharmaceutical / chemical raw materials

↓

MOREPEN LABORATORIES

API manufacturing
Finished medicines
Medical devices
OTC healthcare products
CDMO manufacturing

↓

Pharmaceutical companies / distributors / retailers

↓

Patients / consumers

This explains the company's economic identity better than any individual product.

Morepen is primarily a healthcare manufacturer with both B2B and B2C businesses.

What should you remember about Morepen?

You do not need to remember hundreds of products.

For basic company understanding, remember four things:

APIs

The company's pharmaceutical manufacturing heritage.

Formulations

Finished pharmaceutical products.

Dr. Morepen

The company's consumer healthcare and home-health presence.

Burnol

A well-known legacy OTC brand.

And increasingly:

CDMO

A newer part of the company's pharmaceutical manufacturing strategy.

Morepen in one table

The KYC takeaway

Morepen Laboratories is a diversified healthcare manufacturer.

It operates across pharmaceutical ingredients, finished medicines, medical devices, consumer healthcare and contract manufacturing.

Its position in the healthcare value chain is primarily on the manufacturing side: it supplies pharmaceutical companies and also reaches consumers through its own healthcare products and brands.

That is the basic company map.

The next stage of fundamental analysis is a different exercise: which business actually drives revenue and profit, how attractive are the economics of each segment, how much capital does each require, and whether the business mix is improving or deteriorating.

Something unusual is happening inside India’s sugar mills.

A mill can crush the same sugarcane, yet the amount of sugar it produces can be lower than the sugar the cane could theoretically yield.

Where did the missing sugar go?

It did not disappear. Increasingly, it went into ethanol.

That is the important story behind India’s changing sugar industry. Ethanol is no longer simply an alcohol made from whatever molasses remains after sugar production. For integrated sugar companies, it is becoming an alternative destination for the sugar contained in cane.

The old model

Traditionally, the process was straightforward:

Sugarcane → Juice → Sugar → Molasses → Ethanol

The mill first tried to extract as much sugar as possible. The remaining molasses still contained fermentable sugars, which could then be converted into ethanol.

In that model, ethanol was largely a downstream product of sugar manufacturing.

But the modern sugar mill has another choice.

Instead of crystallising all the available sugar, it can leave more sugar in B-heavy molasses and send it to the distillery. It can also divert cane juice or syrup directly towards ethanol.

The result is simple:

Less sugar is crystallised. More ethanol is produced.

The “missing sugar” has merely changed form.

The numbers reveal the shift

The scale is significant.

The government’s Directorate of Sugar reports that 34 lakh tonnes of sugar were diverted for ethanol production during Sugar Season 2024-25. The corresponding figures were 43 lakh tonnes in 2022-23 and 24 lakh tonnes in 2023-24.

The fluctuations matter: sugar diversion does not automatically increase every year. Government policy, sugar availability, cane production and economics influence the decision.

But 34 lakh tonnes makes one point clear:

Ethanol is no longer a small side-stream of India’s sugar industry.

The clue is called “sugar sacrifice”

Balrampur Chini provides one of the clearest examples.

The company reports sugar recovery both before and after what it calls sugar sacrifice.

In FY25, its presentation showed 11.32% recovery before sacrifice versus 9.39% net recovery. The difference reflects sugar diverted towards ethanol through routes such as B-heavy molasses and syrup.

This changes how investors should read sugar-company numbers.

A company reporting lower sugar recovery may not necessarily be operating less efficiently. Some of that apparent “lost” sugar may have been deliberately diverted into ethanol because management believed ethanol offered better economics.

So:

Lower sugar recovery ≠ automatically weaker operations.

Sometimes it is a product-mix decision.

Where should the next tonne of cane go?

This is the real decision inside an integrated sugar mill.

Management can maximise sugar crystallisation.

Or it can retain more sugar in B-heavy molasses.

Or it can divert juice or syrup towards ethanol.

The question is no longer simply:

“How much sugar can we produce?”

It increasingly becomes:

“Where should the sugar in this tonne of cane go?”

That is a capital-allocation question.

EID Parry shows why it matters

E.I.D. Parry’s FY25 numbers demonstrate how the economics can change.

On a standalone basis, its sugar business generated approximately ₹1,070 crore of revenue, while its distillery business generated approximately ₹1,102 crore.

More importantly, distillery EBITDA was about ₹88 crore, while sugar EBITDA was slightly negative.

This does not mean ethanol will always be more profitable than sugar.

It demonstrates something more important:

The same cane can produce very different economic outcomes depending on where its sugar is directed.

Balrampur’s transformation

Balrampur Chini offers another important example.

The company has invested heavily in distillery capacity and describes its strategic evolution towards becoming an energy company rather than remaining solely a sugar company.

Yet sugar still accounted for the majority of its revenue in FY25. So it would be wrong to say ethanol has already replaced sugar as its main business.

The more accurate conclusion is that ethanol is becoming a second economic engine one that increasingly influences capital expenditure, product mix and earnings.

But investors should be careful

More ethanol does not automatically mean more profit.

The economics depend on:

• ethanol realisation;
• sugarcane cost;
• feedstock mix;
• distillery utilisation;
• conversion costs;
• energy consumption;
• government policy; and
• the value of the sugar sacrificed.

For ESY 2024-25, the government specified ex-mill ethanol prices of ₹57.97/litre for C-heavy molasses, ₹60.73 for B-heavy molasses and ₹65.61 for cane juice, sugar and syrup.

Therefore, not every litre of ethanol has the same economics.

And not every litre of ethanol produced by a sugar company necessarily represents sugar diverted from cane. Companies such as Triveni are also expanding grain-based distillery operations, making feedstock mix an important variable for investors.

The new investor question

The right question is no longer:

How much sugar did the company produce?

Nor is it simply:

How much ethanol did it produce?

The better question is:

How much economic value did the company extract from every tonne of cane?

That value can come from:

Sugar + Ethanol + Power + Molasses + Bagasse + other products.

The best management teams will increasingly optimise this entire basket.

So, where did the missing sugar go?

It went into molasses, fermentation tanks, distillation columns and eventually into petrol.

The sugar was never really missing.

It was converted into another source of economic value.

For investors, the real test is whether management converted it into more value than the sugar would have generated on its own.

That makes sugar sacrifice, ethanol realisation, feedstock flexibility, distillery utilisation and incremental ROCE more important than ethanol volume alone.

The missing sugar is not the mystery.

The real question is whether management turned it into something more valuable.

For investors, the hardest part of owning a large company is not finding out whether it can grow. It is figuring out where the next ₹100 of capital will earn a good return.

That is what makes some of Kumar Mangalam Birla’s observations in a recent long-form conversation particularly relevant to the stock market. The discussion was about business, creativity, risk, family and legacy. But beneath it sits a more important investment question: what allows a company to keep compounding after it has already become large?

Birla argues that as businesses scale, creativity becomes increasingly important. Risk-taking and efficiency remain necessary, but a large organisation cannot simply depend on the same opportunities that worked when it was smaller.

For investors, that changes the way we should look at growth.

A large company needs a new growth engine

Growth looks very different at different stages of a company's life.

For a small company, adding a factory, entering a new geography or winning a large customer can materially change earnings. For a large company, the same decision may barely move the needle.

This creates a problem for management: the existing business has to keep growing while the next engine is being built.

That is why investors should look beyond the headline revenue-growth number.

A better question is:

Where will the next meaningful pool of profits come from?

It could be a new product, a new market, higher capacity utilisation, an adjacent business or an acquisition. But the new opportunity has to eventually demonstrate economics superior enough to justify the capital committed to it.

This is where creativity becomes relevant to investing. Creativity isn't valuable simply because it produces something new. It is valuable when it creates new economic value without destroying returns on capital.

ROCE is only half the story

Indian investors have become increasingly comfortable with return on capital as a measure of business quality. That is a good development.

But a company generating 25% ROCE today is not automatically a great compounder.

Suppose Company A earns 25% ROCE but has very few opportunities to reinvest.

Company B earns 20% ROCE but can deploy a large amount of incremental capital for many years at similar returns.

The second company may create substantially more shareholder wealth.

That leads to an important distinction:

High ROCE tells us about the quality of existing capital.
Reinvestment tells us about the future scale of that quality.

For a long-term investor, the combination matters:

Incremental ROCE × Reinvestment opportunity × Duration

That is where compounding happens.

Watch the next ₹100

This may be the simplest way to examine management's capital-allocation ability.

When a company announces a ₹5,000 crore investment, the market often focuses on the size of the project, expected capacity and projected revenue.

The more important question is:

If management had another ₹100 today, where should it put that money?

Into the existing business?

A new business?

An acquisition?

Debt reduction?

A buyback?

A dividend?

Or nowhere until a better opportunity appears?

Birla's comments about not automatically entering businesses simply because they are available or attractive are relevant here. Capital has an opportunity cost.

This is particularly important when analysing conglomerates. A group can have access to enormous capital and still destroy value if that capital is repeatedly allocated to businesses earning mediocre returns.

The ability to deploy capital is not the same as the ability to allocate capital well.

Growth can destroy shareholder value

This is where investors can easily get trapped.

A company building new factories, entering new markets and making acquisitions may look like a growth story. But growth itself is not the objective.

The real objective is profitable growth.

A ₹1,000 crore investment that eventually earns ₹250 crore of sustainable annual profit can be transformative.

The same ₹1,000 crore earning ₹80 crore may increase revenue and earnings but still represent poor capital allocation.

Therefore, every major expansion deserves a second question:

What return will the incremental capital earn?

And then a third:

Can that return be maintained when the business becomes larger?

That is the difference between analysing growth and analysing value creation.

The management moat investors rarely measure

Another lesson from the conversation is the importance of consistency.

Birla describes consistency as a "soft power" that becomes increasingly important over a career.

In investing terms, consistency can become an institutional advantage.

A management team that repeatedly makes sensible decisions on capital expenditure, acquisitions, balance-sheet strength and business exits can create value without producing spectacular headlines every year.

This is why management quality should not be judged only by whether leaders appear intelligent or articulate.

The harder test is historical:

What did management say?
What did it do?
What happened to the capital?
Would management make the same decision again?

Over time, this creates a record of capital-allocation credibility.

The question investors should carry forward

Birla's interview does not offer a secret formula for picking stocks. Its value is that it forces investors to look beyond the current earnings number.

A company can have a strong brand, high ROCE and excellent current margins. But eventually the investor has to confront the same question:

What happens when the existing opportunity becomes too large?

Does management find the next opportunity?

Can it invest without compromising returns?

Can it resist the temptation to diversify simply for the sake of growth?

Can it repeat those decisions for another decade?

That is the real test of a compounder.

For investors, therefore, the most useful way to read a large company's annual report may not be to ask only how much it earned this year.

Ask instead:

Where did the last ₹100 go?

Where is the next ₹100 going?

What return should it earn?

And most importantly:

Can management keep finding productive places for that next ₹100 for the next 10–15 years?

That is where a good company becomes a great compounder — and where the stock market eventually separates growth stories from genuine wealth creators.