Lower exports to dilute profitability of sugar mills this financial year: Crisil
Nov 23, 2022
New Delhi [India], November 23 : A decline in exports in sugar season 2023 (October 2022 to September 2023) coupled with a 3 per cent increase in the fair and remunerative price of sugarcane will impact the profitability of sugar mills this financial year, said Crisil Ratings in a report.
Sugar exports are likely to decline to 8-8.5 million tonne year-on-year in the 2023 season from an all-time high of 11.2 million tonne last season, despite production staying stable at 39.5-40.0 million tonne.
This, the report said, will be largely on account of two factors -- the higher diversion of sugar for ethanol blending and maintaining sufficient carryover stocks of sugar for domestic consumption during the non-crushing season.
For the record, carryover stocks of sugar had declined to a five-year low at the end of the 2022 season that ended in September.
The sugar sector in India is highly regulated, with it being an essential commodity. The government decides the quantum of exports, as well as the monthly sugar quota for domestic sales, besides determining the fair remunerative price of sugarcane.
Given that sugar exports are more remunerative than domestic sales, operating profitability will shrink 50-100 basis points year-on-year to 13 per cent for integrated players and by as much as 150-200 basis points to 9 per cent for non-integrated ones, which are primarily dependent on sugar sales.
That said, the sector's credit outlook remains "stable" due to lower working capital debt following reduced inventory, and only modest spend being undertaken to enhance distillery capacity for ethanol, the report said.
"Integrated sugar players will be better-positioned compared with non-integrated ones despite the pressure on profitability. This is because higher ethanol volumes, increase in ethanol realisations by 3-6%, and higher co-generation revenues will help integrated players partly offset the impact of higher cane price and sluggish domestic sugar prices," said Anuj Sethi, Senior Director at CRISIL Ratings.
"It also helps as these players have continued to invest in distillery capacity for ethanol blending to meet the requirement of oil companies, given the ethanol-petrol blending target of 20 per cent by April 2025 (blending level was 10 per cent in fiscal 2022)," Sethi added.
