Govt Announces Rs. 3,500 Crore Sugar Export Subsidy for 2020-21

The recently announced export subsidy of Rs 3,500 crore reported by the centre for the sugar season 2020-21 between October and September (SS21) will help support the export of commodities at par with previous year's level, said CRISIL rating agency. That, along with steady homegrown demand, higher commitment from ethanol because of greater cane redirection for ethanol creation, and expanded ethanol prices, will prompt a 100 to 200 bps (basis points) increment in the working margin of sugar factories to 10.5-11.5% this monetary year.

CRISIL commented that these variables will likewise keep stock levels for sugar mills practically leveled in SS21, against sugar creation expanding to 30 to 31 million ton from 27 million ton in SS20. Levels of debt ought to stay within proper limits, supporting credit profiles, an investigation of 24 CRISIL-appraised players demonstrates. Lately, an export subsidy of Rs 3,500 crore for as much as 6 million ton i.e. around Rs 5.8 per kilo for SS21 is approved by the Cabinet Committee on Economic Affairs.

Senior Director, CRISIL, Anuj Sethi stated, "Subsidy announced for SS21 is lower than the subsidy announced for SS20 @Rs 10.4 per kilo. Yet, the current subsidy scheme, in accordance with the global prices, will help homegrown mills cover the expense of production, making exports feasible."

CRISIL forecasted export total in SS21 to be in the 5 to 5.5 million ton range compared to 5.7 million ton in SS20, somewhat underneath the mark of 6 million ton, because of the less time frame accessible for exports. Further, most of the exports have to occur by April 2021 given the probability of resumption of sugar trades by Brazil adding upto 30 to 40 percent of worldwide sugar creation.

Consumption in the country in SS21 is probably going to bolster previous year's mark of 25.5 to 26 million ton mainly because of higher rate of demand from the industries, which represents 60% of the total demand. To support supplies of ethanol for mixing with fuel, the costs of ethanol secured by oil organizations were increased lately by 4.4 to 6.2 percent.

Starting 1^st December 2020, ethanol prices will be increased and will lead to more cane diversion towards production of ethanol. The same will cut down the production of sugar by 2 million tonne in SS21, compared to 0.8 million tonne in SS20. Relatively steady exports and homegrown demand, along with higher redirection of cane for the creation of ethanol, should help keep stock levels at 10.5 to 11 million ton in SS21, like 10.7 million ton seen in SS20.

CRISIL Chief, Gautam Shahi, said "Elevated prices of ethanol, alongside stable realization of sugar and consistent sales volume will drive up working profitability for plants and mills by 100 to 200 bps in financial year 2021, counterbalancing effect of higher cane costs." This will help improve interest cover for sugar factories and mills in CRISIL's sample set to more than 3 times in the current monetary term from 2.3 times in the last.

In addition, superior money generation and flattened stock related credit loans will empower the sugar mills to improve to 1.1 to 1.2 occasions this financial year against 1.3 times in 2020. MSP increase for sugar in SS21 will be a key aspect, as it could additionally uphold productivity of sugar mills.