MUMBAI: Domestic sugar companies have struggled on the profitably front over past few years, given surplus production and depressed prices in the country. India's sugar output is now pegged at 30.2 million tonne for the 2020-21 season, lower than the earlier estimate of 31.4 million tonne, which was up 14% year-on-year. With domestic demand at 26 million tonne and carry forward stocks of 10.6 million tonne, another year of surplus is a foregone conclusion.
The sugar year runs from 1 October to 30 September.
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An export quota at 6 million tonne is helpful but the projected surplus will keep sugar prices in check this year as well.
"Sugar prices are expected to remain largely rangebound, backed by an MSP of ₹31 per kg. Domestic prices are unlikely to increase unless sugar MSP is hiked by the government," said a CARE Ratings Ltd report.
However, offering some respite are the rising global prices, which will help Indian sugar fetch decent returns in the export market. Not only that, government incentives on ethanol blending, and a consequent rise in demand for the biofuel will also aid, going ahead.
A higher diversion for ethanol production can help trim the sugar surplus gradually, and has kept analysts optimistic on the sector.
Also, domestic opening stocks that were at a record 14.5 million tone in September 2019, are seen at 8-9 million tonne as of September 2021.
The industry will divert 2 million tonne of the sweetener for ethanol production, and given the government's intent of increasing ethanol blending with petrol to 20% by 2025, this number will only rise going ahead.
The sugar industry, meanwhile, has been undertaking capacity expansion to meet this rising ethanol demand, pegged at 10 billion litres by 2025.
Analysts at ICICI Securities Ltd say, "We believe this distillery capacity addition to utilising the B-Heavy & sugarcane juice route to produce ethanol, would be earnings accretive after the significant increase in ethanol prices in last two years."
Not surprisingly, stock prices of sugar manufacturers have rebounded in the last one year, aided by easing of lockdown curbs which has allayed demand concerns.
Shares of Balrampur Chini Mills Ltd were up over 4% on Tuesday, adding to the more than 180% gains in the last one year. EID Parry (India) has seen its stock price triple in last one year to was up more than 1% on Tuesday.
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