TAD NewsDesk, Kolkata: According to a statement by the rating agency Crisil, the government has announced a sugar subsidy of Rs 3,500 crore to sustain exports at last years levels. The subsidy has been announced for the October-September sugar season 2020-21 (SS21).
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% this fiscal.
These factors will also keep inventory levels for mills almost flattish in SS21, despite sugar production increased to 30-31 million tonne from 27 million tonnes in SS20, a study of 24 Crisil-rated players indicates said.
It is also important to keep the debt level in check.
Anuj Sethi, Senior Director, Crisil Ratings said,
“Though lower than the Rs 10.4 per kg subsidy announced for SS20, the current subsidy, in tandem with ruling international prices, will help domestic mills cover the cost of production, rendering exports viable.”
Due to a small export window, Crisil expects export volumes slightly below the target of 6 million tonnes in SS21 to be in the 5-5.5 million tonnes range (5.7 million tonnes in SS20).
The agency said in a statement,
“Further, a bulk of exports may need to take place by April 2021 given the likelihood of a resumption of sugar exports by Brazil. In contrast, sugar exports by Indian mills last season continued until September 2020.”
Moreover, the industry expects the industry’s domestic consumption level to stay constant at last year’s level of 25.5-26 million tonnes due to higher industrial demand, which accounts for 60 per cent of total demand.
The statement added,
“Demand from the hotels, restaurant and cafes, however, remains tepid with consumers exercising caution with respect to dining out.”
The sugar industry is expecting to continue the export level at the rate that it had last year and is also holding on to the domestic export and the increased consumption.
Source: The Economic Times
