ICRA sees India’s net sugar output declining to 30 mt in SY2025 on likely higher diversion to ethanol

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India’s net sugar production for the sugar season 2025 starting October is projected to decline to 30 million tonnes (mt) from 32 mt in the previous year on expectations of higher diversion will be allowed to ethanol, ICRA said.

The ratings firm estimates that revenues of integrated sugar mills to expand by 10 per cent in financial year 2025, supported by an expected increase in sales volumes along with firm domestic sugar prices and higher distillery volumes after the operationalisation of new capacities.

Girishkumar Kadam, Senior Vice-President & Group Head – Corporate Ratings, ICRA, said: “ICRA projects the net sugar production to decline to 30 mt in SY2025 from 32 mt in SY2024 based on the expectation that higher diversion will be allowed towards ethanol production amid the high sugar stock level. Even if the diversion towards ethanol is increased to 4 mt in SY2025, the closing sugar stock level is likely to remain moderately high. Therefore, clarity on the policy for allowing diversion beyond the cap of 1.7 mt and the exports remain the key monitorables for the sector. Further, domestic sugar prices, which are currently in the range of ₹38-39/kg, are expected to remain firm till the start of the next season, thereby supporting the profitability of the mills.”

Further, the operating profit margins of the sugar mills are projected to remain comfortable in FY25, in line with FY24, because of firm sugar realisations and higher cane prices for the sugar year 2025 (SY2025) starting October. ICRA’s outlook for the sugar sector is Stable, backed by the anticipated improvement in revenues, stable profitability, and comfortable debt coverage metrics along with the Government’s policy support, including the ethanol blending programme (EBP).

“The ethanol blending trend has remained encouraging till Ethanol Supply Year (ESY) 2024, given the higher contribution from grain-based distilleries. For ESY2025, the extent of the increase in diversion towards ethanol production over and above the cap remains critical to meet the 20 per cent blending target set by the Government of India. The other key challenges that also need to be addressed include the availability of sufficient feedstock for grain-based distilleries and the infrastructure ramp-up required to support higher blending levels. Further, the timely launch of the E-20 (20 per cent ethanol blended)-compliant vehicles and public adoption of the same would be key to achieving the blending targets,” Kadam said

ICRA expects the closing sugar stock to be around 9.1 mt as on September 30, 2024, appreciably higher than the sugar stock of 5.6 mt as on September 30, 2023. This would be equivalent to 3.8 months of consumption (PY: 2.4 months). The closing stock is expected to further increase to over four months as on September 30, 2025, per ICRA’s estimates.