Crisil Ratings expects operating margins to fall to around 6% in FY27 even as firm sugar prices and steady demand lift operating income.
Key Highlights
- Sugar mills’ operating margins could shrink by 140–160 basis points to around 6% in FY27.
- Operating income is projected to rise 4–5%, supported by firm sugar prices and steady demand.
- Ethanol production from sugarcane-based feedstocks is effectively limited to C-heavy molasses for the 2027 ethanol supply year.
- The Centre raised the fair and remunerative price of sugarcane by about 3% to ₹365 per quintal for the 2027 sugar season.
- Gross sugar production is expected to fall to 29 million tonnes from 31.1 million tonnes a year earlier.
- Interest coverage for Crisil-rated mills could drop to 2.7 times from 3.7 times last fiscal.
New Delhi, Nov 10 — Indian sugar mills could see their operating margins fall by 140–160 basis points to around 6% in FY27 as restrictions on sugar-based ethanol production cut into a higher-margin business and sugarcane procurement costs rise, according to Crisil Ratings.
The rating agency expects operating income to grow 4–5% this fiscal, supported by firm sugar prices and steady demand. However, higher sugar prices are unlikely to make up for the loss of ethanol earnings and rising cane costs. Crisil’s analysis covered 55 mills that accounted for nearly a quarter of India’s sugar production in the previous season.
Ethanol curbs narrow mills’ options
For the 2027 ethanol supply year, production from sugarcane-based feedstocks has effectively been restricted to C-heavy molasses. In recent years, mills routinely diverted nearly 10% of gross sugar output to ethanol, Crisil said. The agency expects limited relief from ethanol made with C-heavy molasses because its administered price has remained unchanged for three years. A growing share of sales from lower-margin extra neutral alcohol is also expected to weigh on profitability.
The Centre has raised the fair and remunerative price of sugarcane by about 3% to ₹365 per quintal for the 2027 sugar season. Any increase in Uttar Pradesh’s state advisory price would add to procurement costs.
Tight sugar supply raises funding needs
Crisil expects gross sugar output to decline to around 29 million tonnes in the 2027 sugar season from 31.1 million tonnes a year earlier, citing weather-related risks to cane yields. Domestic consumption is expected to broadly match production. The government has permitted imports of 1 million tonnes between August and December 2026, which Crisil expects will limit sharp price increases.
Firm sugar prices will also raise the value of inventories, increasing working-capital needs and borrowings. Crisil expects interest coverage for the mills it rates to fall to around 2.7 times this fiscal from 3.7 times last fiscal. Mills with large debt repayments and limited financial flexibility could face greater refinancing pressure.
The FY28 outlook will depend on how sugar prices move relative to cane costs, as well as on ethanol pricing and monsoon performance. Those factors will shape how quickly mills can rebuild margins and ease pressure on their finances.
