Sugar production in India seems to have shown a healthy increase and there has also been a spurt in sugar exports as of mid-February 2021. A total of 208.89 lakh tonnes of sugar has been produced by sugar mills across the country, as compared to 170.01 lakh tonnes produced during the corresponding date of last year. Of 497 sugar mills that had started crushing in 2020-21, 33 sugar mills have stopped crushing operations due to non-availability of sugarcane. Last year, 447 sugar mills had operated, out of which 20 had stopped crushing on the corresponding date last year.
As per market reports, Maharashtra led in sugar production with 183 sugar mills operating in the state as of mid-February 2021. It had produced 75.46 lakh tonnes of sugar, compared to 43.38 lakh tonnes produced last year during the same period. Uttar Pradesh came a second with 116 sugar mills in operation. It had produced 65.13 lakh tonnes of sugar till mid of February 2021 when compared to 66.34 lakh tonnes produced during the same period of time last year. Karnataka came third and had produced 39.7 lakh tonnes of sugar from 66 sugar mills by mid of February.
Market reports further point out that around 7 lakh tonnes of sugar has been physically exported from India till January 31, 2021. It is estimated that out of total exports done so far, about 4 lakh tonnes has been exported under the current year’s export policy. As per reports from the trade, around 25 lakh tonnes of sugar exports have been contracted for. This is a positive trend considering that only 45 days have passed since the export quota was announced on December 31, 2020 for the current season. Substantial part of the contracted exports are for Indonesia.
As per a recent report from CRISIL, the Rs 3,500 crore export subsidy recently announced by the government for the October-September period of the sugar season 2020-21 (SS21) will help sustain the commodity’s exports at almost last year’s level. That, together with stable domestic demand, higher contribution from ethanol due to higher cane diversion for ethanol production, and increased ethanol prices, will lead to a 100-200 basis points (bps) increase in the operating margin of sugar mills to 10.5-11.5 per cent this fiscal. These factors are expected to help keep the inventory levels of the sugar mills almost flattish, despite sugar production increasing.
CRISIL expects that the debt levels of sugar mill players should remain in check, supporting credit profiles. The Cabinet Committee on Economic Affairs had recently approved an export subsidy of Rs 3,500 crore for up to 6 million tonne or around Rs 5.8 per kg—for the SS21.
“Though lower than the Rs 10.4 per kg subsidy announced for SS20, the current subsidy, which is in tandem with the ruling international prices, will help domestic mills cover the cost of production, rendering exports viable,” remarked Anuj Sethi, Senior Director, CRISIL Ratings. CRISIL expects export volumes in SS21 to be in the 5 to 5.5 million tonne range (5.7 million tonne in SS20), slightly below the target of 6 million tonne, due to the smaller export window available. Further, a bulk of exports is expected to take place by April 2021 given the likelihood of resumption of sugar exports by Brazil (that contributes to around 30-40 per cent of global sugar production). In contrast, sugar exports by Indian mills last season continued until September 2020.
Domestic consumption of sugar in SS21 is likely to sustain last year’s level of 25.5 to 26 million tonne due to higher industrial demand, which accounts for 60 per cent of the total demand driven by increased consumption of packaged foods such as biscuits, chocolates and confectionery that contribute over 30 per cent of total industrial demand and stable household demand. Demand from hotels, restaurants and cafes, however, remains tepid with consumers exercising caution with respect to dining out.
It is also expected that better cash generation and flattish inventory-linked loans will enable the gearing of sugar mills to improve to 1.1-1.2 times this fiscal against 1.3 times in the fiscal 2020. The hike in minimum support price (MSP) for sugar in SS21 will be a key monitorable, as it could further support profitability of the sugar mills in the country.
