India's Sugar Production Set to Increase Amid Favorable Monsoon Conditions

Projected Growth in Sugar Production

According to a recent report by a financial services firm, India's sugar production is anticipated to rise significantly during the 2026 sugar season, driven by favorable monsoon conditions that are expected to enhance both cane acreage and yields in major sugar-producing regions like Maharashtra and Karnataka. The report suggests that sugar output could increase by approximately 15 to 35 percent, reaching around 35 million tonnes.

This increase in production is likely to benefit sugar mills, providing some respite from the ongoing challenges they face, including elevated cane costs, low ethanol prices, and limited export opportunities, which have collectively reduced their operating profitability by about 200 basis points to between 8.7 and 9 percent in the fiscal year 2025.

With better supply levels and a potential rise in the diversion of sugar for ethanol blending, the operating margins for sugar mills are projected to recover to around 9 to 9.5 percent in fiscal year 2026. This recovery is expected to bolster the credit profiles of sugar producers, which experienced some financial strain in the previous fiscal year.

Moreover, the diversion of sugar for ethanol production is expected to increase to nearly 4 million tonnes, aided by the government's target of 20 percent blending, which facilitates quicker cash flow. Anuj Sethi, Senior Director at the ratings agency, noted that the strategic shift towards ethanol was designed to mitigate risks associated with earnings and cash flow for sugar mills. However, rising cane costs, which have been raised by 4.5 percent to Rs 355 per quintal for the 2026 season, along with stagnant ethanol procurement prices, have hindered profitability improvements.

The report further indicates that despite the anticipated 15 percent increase in sugar production, the margins for integrated sugar mills are expected to see only a slight improvement. Specifically, the operating margin for these mills is likely to rise marginally by 40 to 60 basis points to between 9 and 9.5 percent, even with the significant boost in sugar output. In contrast, standalone mills that do not engage in distillery operations or cogeneration power sales may continue to experience margin pressures.

On the domestic pricing front, sugar prices have remained stable at Rs 35 to 38 per kg this season. With the expected rise in production, sugar prices are likely to stay within this range, limiting any substantial increase in the profitability of sugar mills.