India’s gross sugar production is likely to rise by around 15 per cent in sugar season (SS) 2026 starting October to about 35 million tonne, aided by above average monsoon, boosting cane acreage and yields in key sugar producing states such as Maharashtra and Karnataka, Crisil Ratings said.
The growth is expected to ease tightness in domestic supply and has the potential to boost ethanol diversion and revive exports with appropriate policy support. This would offer sugar mills some relief from the trifecta of challenges of high cane costs, subdued ethanol prices and muted exports that compressed their operating profitability by about 200 basis points (bps) to 8.7-9 % in fiscal 2025.
In fiscal 2026, with improved supplies and potentially higher diversion of sugar for blending ethanol with gasoline, the operating margin of sugar mills is likely to recover to about 9-9.5 per cent. This should support credit profiles of sugar players, which saw some pressure last fiscal, Crisil Ratings said based on the analysis of 54 sugar mills with total revenue of around ₹70,000 crore.
Over the past two seasons, while the fair and remunerative (FRP) price of sugarcane has risen 11 per cent, ethanol prices have largely remained unchanged, compressing the miller’s revenue-cost dynamics.
In SS 2026, diversion for ethanol is expected to rise to around 4 million tonne (from around 3.5 million tonne in SS 2025), supported by high sugar output and the government’s 20 per cent blending target (about 19 per cent average achieved so far), as it offers faster cash-flow churn. Profitability gains, however, remain limited under the current pricing landscape.
“The strategic diversification to ethanol was intended to de-risk earnings and cash flow of sugar mills. But rising cane costs (cane FRP has been hiked by 4.5 per cent to ₹355 per quintal for SS 2026) and stagnant ethanol procurement prices have limited improvement in profitability. As a result, the operating margin of integrated millers is likely to improve only marginally by 40-60 bps to 9-9.5 per cent despite a 15 per centjump in sugar output. That said, standalone millers, lacking distillery or co-generation power sales, may continue facing margin pressure,” said Anuj Sethi, Senior Director, Crisil Ratings in a statement.
Meanwhile, domestic sugar prices have held steady at ₹35-38 per kg this season. With output expected to rise, sugar prices are likely to remain range-bound, limiting any significant upside in profitability of sugar millers. Exports, restricted at 1 million tonne in SS 2025 owing to domestic supply concerns, can comfortably continue at similar levels in SS 2026 with high sugar output and opening inventory of around 2 months of consumption.
That said, any easing of export curbs will depend on the decision to divert higher volumes for ethanol, adequate domestic availability, benign inflation trends and favourable global price parity as seen in SS 2023.
“Sugar inventory levels at the end of fiscal 2026 are expected to remain at levels similar to last year, limiting the rise in working capital debt despite higher distillery operations. With capital spends restricted to routine modernisation, overall debt levels of integrated players rated by Crisil Ratings are expected to remain under control,” Poonam Upadhyay, Director, Crisil Ratings.
For the upcoming season, key watchpoints for the sector include temporal and spatial distribution of monsoon, its impact on cane yield, timely ethanol price revisions and clarity on export policy amid global sugar price movements.