The Covid pandemic is expected to exert pressure on sugar mills’ profit due to sharp fall in industrial usage of sugar, fall in exports and lower demand for sugar derivative ethanol.

The operating profit of 26 Crisil-rated companies with cumulative debt of ₹11,000 crore is expected to fall by 150-300 basis points this fiscal.

Fall in demand

The demand from food manufacturing units such as soft beverages, chocolates, confectionery, bakeries, hotels, restaurants and cafes, which together account for 18 million tonne of the annual demand of 26 mt, have dried up due to the lockdown.

Following this, overall domestic demand is expected to be lower by 1.5-2 mt in the current sugar season, as reflected in softening prices over the past few weeks.

Moreover, oil marketing companies would reduce ethanol off-take due to lower demand for fuel amid Covid lockdown. Besides, they have limited storage capacity available. Production of potable alcohol from ethanol would also be impacted due to lower demand from distillers.

Global price fall

International sugar prices have fallen 23 per cent between January and April as large supplier-nations, including Brazil, are switching from ethanol to sugar due to low crude oil prices.

Thus, exports from India are likely to remain flattish compared with a 25-30 per cent growth expected earlier.

Notwithstanding the challenging market condition, the sugar season (started last October) with high opening stock of 14.5 mt. Despite 20 per cent lower production, the closing inventory is likely to be high at about 14 mt, equal to six months’ consumption.

Gautam Shahi, Director, Crisil Ratings, said sugar millers can expect an operating profit of 7.5-9.5 per cent in the current fiscal against 9-12.5 per cent in last fiscal.”

The saving grace for domestic sugar mills is the minimum selling price of ₹31 per kg fixed by the government.

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