Early commencement of sugar crushing progresses, sugar mills profitability under pressure

Even as the current sugar season (SS) 2026–27 is progressing steadily with the early commencement of crushing operations, CRISIL Ratings forecasts a squeeze in the profitability of sugar mills due to near-elimination of higher-margin ethanol production from sugar-based feedstock, rising cane procurement costs, and higher funding requirements.

The sugar production during the current season touched 12.85 lakh tonnes (as on November 5), against 3.20 lakh tonnes produced by the corresponding date last year, the Indian Sugar & Bio-Energy Manufacturers Association (ISMA) estimates.  The number of sugar mills that commenced crushing operations across the country by that date was 184 sugar mills, compared to 154 mills during the corresponding period last year.

CRISIL forecast is based on the analysis of the performance of 55 mills that accounted for nearly a fourth of sugar production last season. It says that while firm sugar prices should support revenue growth, they are unlikely to fully offset the impact of an adverse product mix, cost inflation and a rising interest burden. As a result, operating margins and credit metrics are expected to weaken across the sector, increasing vulnerability, particularly among mills with sizeable near-term debt repayments, CRISIL noted.

According to CRISIL, the pressure on sugar mills stems largely from policy measures aimed at preserving domestic sugar availability amid lower expected cane output. For ethanol supply year (ESY) 2027, ethanol production from sugarcane-based feedstock has effectively been restricted to C-heavy molasses, a significant shift from recent years when nearly 10% of gross sugar production was routinely diverted to ethanol, it notes.

The rating agency also observes that sugar exports have been curtailed following limited export permissions last season while the fair and remunerative price (FRP) for sugarcane has been raised by around 3 percent to ₹365 per quintal for SS 2027. Any increase in Uttar Pradesh's state advisory price (SAP) would further raise cane procurement costs, it said.

CRISIL also expects the gross sugar production to decline to around 29 million tonne in SS 2027 from 31.1 million tonne a year earlier, primarily because of weather-related concerns affecting cane yields in key producing states. “Despite policy measures to augment domestic supplies, consumption is expected to broadly match production, keeping the supply-demand balance tight.

To address supply concerns, the government has permitted imports of 1 million tonne of sugar during August-December 2026, marking India's return to sugar imports after nearly a decade. Consequently, sugar prices are expected to remain firm, though additional imports and measures to ensure adequate domestic availability should limit significant upside,” it said.

 “The earnings profile of sugar mills is undergoing a structural shift. Higher sugar prices will not fully compensate for the loss of higher-margin ethanol volumes and rising cane costs. As dependence on sugar and extra neutral alcohol (ENA) sales increases, operating margins are expected to decline by 140-160 basis points to around 6% this fiscal”,  Anuj Sethi, Senior Director, Crisil Ratings said.