For the next three quarters, we estimate better year-on-year profitability for most sugar mills, driven mainly by an improving price trend seen since August 2015 and stock correction. But the absolute profit and net margins would continue to be weighed down by high amounts of debt outstanding and/or cane dues incurred to cover losses in the previous sugar years. Further, the extent of profitability improvement is going to vary substantially across mills, not only from state to state but also across mills within the same state, depending on operating and financial parametres, such as sugar recovery rate, control over operating expenses, extent of forward integration into cogeneration and distilleries and control over interest expenses by appropriate leveraging. The price increase has followed a reduction in stock during sugar year (October to September), driven mainly by a drought-induced supply reduction (about 11 per cent to 25.2 million tonne) as well substantial exports. We expect further reduction in production by around 4 per cent to 8 per cent in the coming sugar year (SY17), which is likely to keep prices steady in the near-term. While the net cane prices for SY16 are higher than the previous year, the increase in sugar realisations is expected to improve the contribution margins for sugar in SY16. These factors, together with the higher sugar recovery rates, are expected to drive a significant improvement in profitability for sugar mills based in Uttar Pradesh. Profitability improvement is, however, likely to be relatively more modest for mills based in Maharashtra and Karnataka, given the lower cane availability coupled with the increase in cane prices in SY16. This apart, profitability is also likely to be supported by improved realisations for by-products, particularly cogeneration power and ethanol. While cogeneration revenues and margins are being supported by remunerative tariffs offered in most states, ethanol business is being supported by the central government’s ethanol blending programme (EBP), wherein better realisations are being offered and the extent of sourcing is being improved. Going forward, we expect price and profitability trends to be influenced by the international sugar price trend and the government policies on import duties; state government policies on cane prices (impacting margins from Q4FY17 onwards); and also expectations on sugar production during SY17-18, which would largely be a function of monsoon conditions during 2016 and 2017.