The Centre's export subsidy for the October-September sugarseason 2020-21 (SS21) will help sustain the commodity's exports at almost lastyear's level, Crisil Ratings said on Monday.
Recently, the Cabinet Committee on Economic Affairs approvedexport subsidy of Rs 3,500 crore for up to 6 million tonne - around Rs 5.8 perkg - for SS21.
This subsidy together with stable domestic demand, highercontribution 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 per cent thisfiscal, the agency said.
These factors will also keep inventory levels for millsalmost flattish in SS21, despite sugar production increasing to 30-31 milliontonne from 27 million tonne in SS20, a study of 24 Crisil-rated playersindicates said.
Besides, debt levels are expected to remain in check,supporting credit profiles.
"Though lower than the Rs 10.4 per kg subsidy announcedfor SS20, the current subsidy, in tandem with ruling international prices, willhelp domestic mills cover the cost of production, rendering exportsviable," said Anuj Sethi, Senior Director, Crisil Ratings.
Accordingly, Crisil expects export volumes in SS21 to be inthe 5-5.5 million tonnes range (5.7 million tonnes in SS20), slightly below thetarget of 6 million tonnes, due to the smaller export window available.
"Further, a bulk of exports may need to take place byApril 2021 given the likelihood of resumption of sugar exports by Brazil,"the agency said in a statement.
"In contrast, sugar exports by Indian mills last seasoncontinued until September 2020."
In addition, the agency expects domestic consumption in SS21is likely to sustain at last year's level of 25.5-26 million tonnes due tohigher industrial demand, which accounts for 60 per cent of total demand - drivenby increased consumption of packaged foods such as biscuits, chocolates andconfectionery that contribute over 30 per cent of total industrial demand - andstable household demand.
"Demand from the hotels, restaurant and cafes, however,remains tepid with consumers exercising caution with respect to diningout," the statement said.