New Delhi: According to a research by Crisil, India's overall sugar production is projected to increase in the sugar season (SS) 2026, supported by an above-average monsoon, higher cane acreage, and yields in major sugar-producing states such as Maharashtra and Karnataka.
According to the Crisil report, sugar production is anticipated to climb by roughly 15-35% to 35 million tonnes.
This increase is anticipated to benefit sugar mills and provide some relief from a trio of difficulties that have squeezed operating profitability by about 200 basis points (bps), to 8. 79 percent in FY2025: high cane costs, low ethanol prices, and muted exports.
With enhanced supplies and possibly greater diversion of sugar for ethanol blending with gasoline, sugar mill operating margins are expected to return to approximately 99. 5% in FY 2026. This is expected to help the credit ratings of sugar players, who experienced some stress last fiscal year.
Additionally, ethanol diversion is expected to increase to almost 4 million tonnes, fueled by high sugar production and the government's 20% blending target, which provides quicker cashflow churn.
The strategic shift to ethanol was designed to reduce the earnings and cash flow risk of sugar mills. However, rising cane costs (cane FRP has been raised by 4. 5 percent to Rs 355 per quintal for SS 2026) and stagnant ethanol procurement prices have constrained profitability improvement, according to Anuj Sethi, Senior Director of Crisil Ratings.
The report also states that, despite the 15% increase in sugar output, integrated millers' margins will only improve marginally.
As a result, integrated millers' operating margin is expected to improve only slightly, by 4060 basis points to 99. 5%.
According to the research, standalone millers without distillery or cogeneration power sales may continue to experience margin pressure.
On the domestic price front, sugar costs have remained stable at Rs 3538 per kilogram this season. With production projected to increase, sugar prices are expected to remain stable, limiting any substantial increase in sugar millers' profitability.
