CRISIL SME Tracker: Sugar MSMEs set for steady growth amid diversification

The sugar industry is poised to witness a revenue growth of ₹3 per cent in the ongoing sugar season 2025-26 (October 2025 - September 2026), driven by the government’s decision to allow incr-eased sugar exports of 1.5 million tonnes (mts). This move, coupled with no restrictions on diverting cane to ethanol production, is expected to keep sugar prices firm, with a potential increase of around 1 per cent. Despite a surge in sugar output, inventory levels are expected to remain comparable to the previous season, at around 5 mt.

 

The government’s Financial Assistance to Sugar Mills for Enhancement and Augmentation of Ethanol Production Capacity has prompted MSME sugar players to diversify into distilleries. This strategic move is anticipated to significantly boost their Ebitda margins, by 50-80 basis points, compared to when they operated standalone mills. The higher realisation from both sugar and ethanol will be a key driver of this growth. 

In the previous sugar season (SS25), the industry experienced a sharp 6 per cent growth in revenue, primarily driven by a 4 per cent year-on-year increase in sugar prices and a steady 2 per cent rise in consumption. However, small and medium enterprises (SMEs) witnessed a relatively slow expansion in margins, by 20-30 basis points, due to rising raw material prices. This was largely a result of the central government’s decision to raise the Fair and Remunerative Price (FRP) by 8 per cent, from ₹315 per quintal to ₹340 per quintal. 

The industry is now seeking an increase in the minimum support price (MSP) for sugar, which has remained unchanged at ₹31 per kilogram since February 2019. If the government agrees to this proposal, it is expected to further enhance sugar realisations and profitability for SMEs, providing an additional impetus to the industry’s growth.