Higher domestic sugar prices and increasing sales of ethanol will help offset the rise in sugarcane cost and lower exports in fiscal 2024, leading to stable operating profitability for integrated sugar mills, or those with sugar, distillery and power co-generation facilities.
Domestic sugar prices have increased by about 5% between March and June this year to Rs 34/kg after remaining flat at Rs32/kg for the past two fiscals. This is because the total production is estimated to be lower by nearly 7% for the ongoing sugar season (SS 2023) due to unseasonal rains in key growing areas of Maharashtra and Karnataka.
Prices are expected to hold at these levels in the short term as net sugar production (post diversion for ethanol) is expected to see only a modest increase in the next season (SS 2024) due to higher diversion for ethanol (5 million tonne vs 4 million tonne in the ongoing season), says a CRISIL press release.
Being an essential commodity, the entire value chain of sugar - including procurement price of sugarcane, quantum of monthly sugar distribution and its annual export quota, as well as the prices of ethanol - is regulated by the government. Even, the quantum of exports is determined considering sugar production (net of diversion for ethanol), domestic consumption, and need to maintain stock for consumption during the lean season.
The Cabinet Committee on Economic Affairs recently announced an increase in the fair and remunerative price (FRP) for sugarcane by 3.5% to Rs 315 per quintal for the next season. Ethanol prices, which typically are adjusted as per the increase in cane prices, are also expected to see a modest increase shortly, as seen in the past.
Says Poonam Upadhyay, Director, CRISIL Ratings, “Tailwinds from steadily growing ethanol volume and better realisation, supported by the government’s policy, basis which price of ethanol derived from sugarcane has been revised by 3-4% annually, will offset the impact of higher cane prices. This, together with recent improvement seen in domestic sugar realisations will keep the operating profitability of integrated sugar mills steady at 11-12% in fiscal 2024, compared with 11% last fiscal, despite lower export volumes.”