Kolkata: After several failed attempts to sell its sugar business, the BK Birla Group is setting up a distillery at an estimated cost of Rs80 crore to make the unit viable, unfazed by lacklustre performance in the current year.

In 2016, Jay Shree Tea and Industries Ltd, a BK Birla Group firm, spun off its loss-making sugar business, which was acquired in 2010, with the aim of finding a buyer for it. But two years on, the group has decided to invest in the business again.

D.P. Maheshwari, managing director of Jay Shree Tea, said the group is looking to process molasses, a by-product from sugar-refining, to produce ethanol.

The government is looking to scale up blending of ethanol with automotive fuel. As a result, ethanol prices are firming up, Maheshwari said.

The group’s sugar business—now held by a private firm, Majhulia Sugar Industries Pvt. Ltd—has obtained clearances from the environment authorities of Bihar to set up the distillery.

Construction will commence by the end of 2018, and the unit is expected to be ready by the next sugar season, Maheshwari said. Most of the investment will come from the group’s own reserves, he added.

However, the group isn’t giving up its search for a buyer for the sugar business. The idea is to make it “more viable", according to Maheshwari. The group has so far invested Rs200 crore in the business, inclusive of the Rs113 crore it had paid to acquire the unit.

Setting up a distillery could help revive the unit, said an industry expert, who asked not to be identified.

The current price of sugar is less than the cost of production for most companies due to a bumper crop, this person said. And if a unit doesn’t have its own distillery, it may have to throw away the molasses because of a glut, he added.

The government is encouraging all sugar mills to scale up distillation capacity so that they could produce more ethanol.

Though the price of ethanol is regulated, the government has been raising the price. Currently, ethanol is selling at Rs40.85 a litre, compared with Rs39 last year, this person said. The sugar industry is expecting a further revision soon, he added.

“The government wants ethanol blending with automotive fuel to be scaled up by several multiples, which means there is a lot of headroom to grow," the expert said.

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