MUMBAI: India’s sugar production is expected to increase by around 23 per cent to around 25 million MT during SY2018 (sugar year) driven by a projected recovery in production in the key sugar-producing states Maharashtra and Karnataka, a report said.
“Based on the latest estimates, we anticipate sugar production to increase by around 23 per cent to around 25 million MT during SY2018 from 20.30 million MT during SY2017, mainly driven by an expected recovery in sugar production in the key sugar-producing states, ICRA Ratings said in its review here.
Maharashtra production is expected to increase by 71 per cent year-on-year to 7.2 million MT and Karnataka production is expected to rise by 24 per cent year on year to 2.6 million MT, supported by relatively better monsoons during 2016 and 2017, it said.
While North Karnataka is expected to benefit from the monsoons, the mills in South Karnataka and Tamil Nadu (TN) continue to be impacted by poor rainfall, it added.
The production in UP is also expected to increase by 18 per cent YoY to around 10 million MT in SY2018, supported by higher acreage under better cane variety, resulting in higher yields and recovery rates.
ICRA anticipates the domestic sugar consumption to increase to around 24.8 million MT in SY2018 and a closing stock between 4.5 – 5.0 million MT.
The rating agency said prices will soften in short-term on account of the arrival of fresh supply from the new crop.
“There could also be some short-term softening of prices in the next quarter on account of the arrival of fresh supply from the new crop. However we expect prices to remain steady over the near-term,” ICRA said.
However, overall some moderation in margins from Q3 FY18 onwards is not ruled out. The margins and cash flow generations for mills with efficient operations, forward integrations and adequate stocks are likely to remain satisfactory, it added.
This apart, these mills have by and large seen significant deleveraging over the last couple of years, which will help them withstand cyclical downturns better, it said.
The rating agency pointed out that the sugar realisations continue to remain healthy and are likely to augur well for the UP-based sugar mills. The profitability margins of the UP-based mills are further expected to be supported by the healthy cane volumes and recovery rates, ICRA Ratings Senior Vice President Sabyasachi Majumdar said.
“In terms of profitability, the mills in Maharashtra and North Karnataka are likely to be negatively impacted by higher costs for SY2018, but may reap benefits arising out of higher production.
However, the mills in Tamil Nadu and South Karnataka are likely to be adversely affected in FY2018 due to continued low cane availability in SY2018 and the increase in the Fair and Remunerative Price (FRP) cane costs,” Majumdar added.