Sugar Industry Crisis Looms as Elara Capital Warns of Policy Stagnation
Overview
Elara Capital forecasts an imminent crisis for India's sugar and ethanol sector, citing a lack of policy interventions. Rising costs, falling realizations, and the growing preference for grain-based ethanol are pressuring profitability. While Balrampur Chini Mills faces short-term margin headwinds, its long-term outlook remains positive due to planned entry into polylactic acid manufacturing.
Stocks Mentioned
Policy Inaction Fuels Crisis Fears
Elara Capital is sounding the alarm over the Indian sugar industry, predicting an escalating crisis if policymakers fail to act. The brokerage notes that despite steady cane acreage, sugar output, and sales, serious concerns are emerging. Cost inflation is biting hard, while revenue streams from both sugar and ethanol are strained.
Grain Ethanol's Ascendancy
A significant factor exacerbating the sector's woes is the increasing preference for grain-based ethanol. Using rice and maize as feedstock offers superior margins compared to sugar-based ethanol, especially as cane prices rise without a commensurate increase in ethanol prices. Elara Capital highlights that reduced maize prices could further boost grain ethanol's competitive edge.
Balrampur Chini Outlook
Among specific companies, Elara Capital remains tactically cautious on Balrampur Chini Mills (BRCM) for the next twelve months. The brokerage anticipates margin pressure in the short term. However, it maintains a positive long-term view, largely due to the company's planned entry into polylactic acid (PLA) manufacturing, which is expected to yield benefits from fiscal year 2028 onwards.
Uttar Pradesh Cost Pressures
Adding to the challenges, the Uttar Pradesh government has increased the State-Advised Price (SAP) for sugarcane by ₹30 per quintal, an 8% rise to ₹400 per quintal for the early variety for the 2025-26 season. This hike will directly increase costs for mills operating in the region. Meanwhile, there has been no revision in ethanol prices for the current season, further squeezing margins.
Margin Erosion Expected
Without timely policy interventions, Elara Capital warns of a significant erosion of profitability for sugar mills in the coming quarters. While the fundamental viability of the mills is not in question, short-term financial performance is expected to suffer considerably. Calls for an increase in the minimum support price (MSP) for sugar are growing but have yet to yield a decision.
