Sugar Companies Set for 6–8% Revenue Growth in FY2026, But Ethanol Price Stagnation May Limit Margins: ICRA

Rating agency ICRA anticipates that an above-normal monsoon will lead to increased cane acreage in Maharashtra and Karnataka. Combined with expectations of improved yields in key sugar-producing states, this is likely to result in a 15% jump in sugar output this year. ICRA estimates that the revenues of integrated sugar mills will expand by 6–8% in FY2026, supported by an expected increase in sales volumes, firm domestic sugar prices, and higher distillery volumes.

However, the operating profit margin gains for sugar mills in FY2026 are expected to remain modest if ethanol prices stay stagnant. ICRA’s outlook for the sugar sector is Stable, backed by the anticipated improvement in revenues, stable profitability, comfortable debt coverage metrics, along with the Government’s policy support, including the ethanol blending programme (EBP). 

Girishkumar Kadam, Senior Vice President & Group Head - Corporate Ratings, ICRA, said: “ICRA projects the gross sugar production to increase to 34.0 million MT in SY2026 from 29.6 million MT in SY2025 amidst an above-normal monsoons and expected improvement in cane acreage and yield in key sugar-producing states. Post estimated diversion of 4 million MT towards ethanol production, net sugar production will increase to 30.0 million MT in SY2026 from 26.2 million MT in SY2025.”

"Despite the expected increase in diversion towards ethanol in SY2026, the closing sugar stock is likely to be comfortable. Further, domestic sugar prices, which are currently in the range of Rs. 39-41/kg, are expected to remain firm till the start of the next season, thereby supporting mills’ profitability,” Kadam added. 

Sugar Stocks and Consumption Outlook

ICRA expects the closing sugar stock to be around 5.2 million MT as of September 30, 2025, lower than the 8.0 million MT recorded on September 30, 2024. This would be equivalent to approximately two months of consumption. The closing stock is projected to increase to 6.3 million MT (around 2.5 months of consumption) by September 30, 2026, assuming domestic consumption and export quotas remain the same as in SY2025, according to ICRA’s estimates.

Ethanol Prices Pose a Concern

Commenting on ethanol blending and the segment’s profitability, Kadam said: “The ethanol blending trend has remained encouraging, with the 20% blending target set by the Government of India being achieved in recent months. Furthermore, the Government is exploring the possibility of increasing the blending target beyond 20%, which would support distilleries. However, juice- and B-heavy-based ethanol prices have not been revised for two consecutive years, despite an increase of approximately 11.5% in the Fair and Remunerative Price (FRP) of sugarcane. Therefore, a revision in ethanol prices remains critical to sustaining the profitability of distilleries and the sugar industry.”

Stable Outlook for Sugar Sector

ICRA has maintained a 'Stable' outlook for the sugar sector, citing the expected revenue growth, stable profitability, manageable debt coverage metrics, and continued policy support from the government, especially under the ethanol blending initiative.

With India continuing to lead as one of the world’s largest sugar producers, the sector’s future performance will now largely depend on price reforms, climate stability, and sustained policy backing.