Shares of sugar manufacturers have increased by close to 20 percent in trade on Friday after the government approved a nearly 25 percent hike in the price of ethanol made directly from sugarcane juice to be blended in petrol. This news comes as a major relief for sugar mills across India that have had a record output this year.

India's production of sugar for the current financial year is expected to be 35.5 million tonnes, the highest ever, which lead to an 18 percent fall in its price. There was also a 20 percent fall in international prices due to record production in the country and Thailand.

The move will make ethanol production a viable option for sugar mills. In fact, Shree Renuka Sugars has already planned to increase its capacity by 25 percent in the next six to eight months, as per an interview with Bloomberg.

The top gainers among sugar stocks were Avadh Sugar and Energy that rose by 19.99 percent, followed by Magadh Sugar and Energy, Dhampur Sugar Mills, Dwarikesh Sugar Industries, Ugar Sugar, Simbhaoli Sugars, Shree Renuka Sugars, Bajaj Hindusthan Sugar and Balrampur Chini Mills.

Ideally, one litre of ethanol can be produced from two kilograms of sugarcane, and at the current prices, ethanol will fetch less profit than that from sugar production. On Wednesday, the Cabinet Committee on Economic Affairs increased the procurement price of ethanol produced from 100 percent sugarcane juice to Rs 59.13 per litre from the current rate of Rs 47.13.

The sugar mills will now look at producing ethanol directly from sugarcane juice instead of using molasses (residue from sugar production).