Sugar Industry headed for crisis, warns Elara Capital; flags policy holdup

The sugar-ethanol sector, Elara said, is once again losing luster, adding that without policy interventions, the industry may be staring at another crisis

The sugar industry could be headed for another crisis, warns brokerage firm Elara Capital, expecting it to unfold sooner rather than later in the absence of policy interventions.

 

The brokerage has flagged a muted outlook for the sugar sector. The sugar-ethanol sector, it  said, is once again losing luster, adding that without policy interventions, the industry may be staring at another crisis.   Among sector players, the brokerage remains tactically negative on Balrampur Chini Mills (BRCM) for the next year but stays positive on the long-term outlook.

   "We retain our positive stance on the company over a longer investment horizon of more than a year, given the anticipated benefits from its entry into polylactic acid (PLA) manufacturing,” Elara Capital said in a report.

Concerns mount amid policy inaction

According to the brokerage, the sector is staring at another crisis, which is likely to unfold sooner rather than later given the absence of policy interventions. While cane acreages, sugar output, and sales are chugging along, there are serious concerns regarding cost inflation, strained realisation for both sugar/ethanol, and grain (FCI rice + maize) becoming a preferred route for ethanol blending.

 

"While the viability of sugar mills is not under question, there could be serious erosion of profitability in the ensuing quarters without any policy interventions. Even for Balrampur Chini (BRCM IN), we expect margins to come under pressure in the short term and expect it to reap the benefits of PLA FY28 onwards," said the brokerage report.

Cane prices raised in Uttar Pradesh

Elara Capital noted that the Uttar Pradesh government has increased the state-advised price (SAP) for the 2025–26 crushing season by ₹30 per quintal, or 8 per cent, to ₹400 per quintal for the early variety. This is expected to raise costs for UP-based mills, even as the government has yet to revise ethanol prices for the current season.

 

The brokerage added that calls for an increase in the minimum support price (MSP) for sugar are growing, though no decision has been taken so far. In the absence of any relief measures, margins are likely to face significant headwinds.

Grain emerging as a preferred route for blending

Elara Capital further highlighted that grain-based ethanol, using rice and maize as feedstock, is emerging as a preferred route for ethanol blending due to superior margins. With successive increases in cane prices across India and no commensurate hike in ethanol prices, margins for sugar-based ethanol have eroded sharply, reducing its share in the overall blending mix.

 

“With a reduction in maize prices, grain ethanol margins could get a further boost,” said Elara Capital.  ====================== 

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