The export subsidy of Rs 3,500 crore, recently announced by the government for sugar season 2020-21 (SS21), stable domestic demand and rise in ethanol price are likely to increase the operating margin of sugar mills to 10.5-11.5 per cent this financial year, according to a report.
The export subsidy, announced by the government for October-September SS21, will help sustain the commodity’s exports at almost last year’s level, Crisil Ratings said in a report.
This, together with stable domestic demand, higher contribution from ethanol due to higher cane diversion for ethanol production and increased ethanol price, will lead to a 100-200 basis points (bps) increase in the operating margin of sugar mills to 10.5-11.5 per cent this fiscal, it added.The Cabinet Committee on Economic Affairs (CCEA) had recently approved an export subsidy of Rs 3,500 crore for up to 6 million tonnes (around Rs 5.8 per kg) for SS21. “Though lower than the Rs 10.4 per kg subsidy announced for SS20, the current subsidy, in tandem with ruling international prices will help domestic mills cover the cost of production, rendering exports viable,” Crisil Ratings Senior Director Anuj Sethi said.Crisil expects export volumes in SS21 to be in the 5-5.5 million tonnes range, slightly below the target of 6 million tonnes, due to the smaller export window available.
