Sugar sector growth likely to improve in Q4FY21: India Ratings and Research

NEW DELHI: Sugar sector growth is expected to improve in Q4FY21, ratings agency India Ratings and Research (Ind-Ra) said. Accordingly, the improvement is expected to come on the back of the subsidy announced in December 2020 and a strong momentum in exports.

"Ind-Ra expects healthy revenue growth in Q4FY21 after the delay in the announcement of the subsidy led to the aggregate revenue growth for major sector entities slowing down to 4 per cent in Q3FY21."

According to the agency, increase in ethanol prices across categories will aid the profitability of the distillery segment in Q4FY21.

"This is despite the increase in transportation costs on account of allocation to farther depots by oil marketing companies. A strong export revenue should also help, even as domestic spreads could contract on weak sugar prices."

Besides, Ind-Ra expects India's sugar production to increase 10 per cent YoY to around 30 million tonne (mnt) in sugar season 2020-21 (SS21), led by a sharp rebound in production in Maharashtra to 10.5 mnt.

"Production in UP is likely to be lower at around 10mnt (SS20: 12.6mnt) with lower yields and recoveries coupled with the impact of higher cane diversion to sugar due to early closure of gur or khandsari producers because of the Covid-19 led lockdown in March 2020." "Sugar production increased 20 per cent YoY to 25.9mnt up to mid-March 2021."

The agency cited that after a fall in Q3FY21, sugar mills have signed export contracts of almost 4.5mnt of the total quota of 6mnt for SS21 as strong international prices made exports remunerative, despite a reduction in subsidy to Rs 5.8 per kg.

"The strong demand is driven by the seasonal shortage, lower production in Thailand and delayed exports from India. Indonesia has emerged as a key market after the country extended its preferential lower import duty to Indian sugar amid a decline in sugar production in Thailand."

"However, the momentum of raw sugar could be affected with the arrival of Brazilian sugar in April or May though a delay in harvest is likely in an effort to improve recovery."

Furthermore, the agency said exports to Iran could reduce amid an increase in the country's production and shortage of Indian rupee.

"White sugar exports are also affected by the shortage of containers and an increase in ocean freight. As a result, Ind-Ra believes sugar exports could reduce to around 5.4mnt in SS21."

Additionally, the agency said that with strong exports and an increase in ethanol diversion, Ind-Ra expects the closing stock to moderate to 9.5mnt-9.7mnt by the end of SS21. "However, despite the reduction, the stock would remain significantly higher than the normative carry forward requirement." (IANS)

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