Crisil Ratings in its report has indicated that India's gross sugar production is likely to rise 15 per cent in sugar season 2025-26 to about 35 million tonnes (MMT), supported by above-average monsoon, boosting cane acreage and yields in key sugar-producing states like Maharashtra and Karnataka. It added that the growth is expected to ease tightness in the domestic supply and has the potential to boost ethanol diversion and revive exports with appropriate policy support. In fiscal 2026, it expects operating margin of sugar mills to recover to about 9-9.5 per cent aided by improved supplies and potentially higher diversion of sugar for blending ethanol with gasoline. It also expects the growth to support credit profiles of sugar players, which saw some pressure last fiscal.

Supported by high sugar output and the government's 20 per cent blending target, Crisil estimates the diversion for ethanol to rise to 4 million tonnes (from 3.5 million tonnes in sugar season 2025) in sugar season 2026. It added that the strategic diversification to ethanol was intended to de-risk earnings and cash flow of sugar mills. However, it noted that the rising cane costs (cane FRP has been hiked by 4.5 per cent to Rs 355 per quintal for sugar season 2026) and stagnant ethanol procurement prices have limited improvement in profitability. Therefore, the operating margin of integrated millers is expected to improve only marginally by 40-60 bps to 9-9.5 per cent despite a 15 per cent jump in sugar output. It added standalone millers, lacking distillery or co-generation power sales, may continue to face margin pressure.

It has estimated the exports to limit at 1 million tonnes in sugar season 2026 owed to high sugar output and opening inventory of 2 months of consumption. It added that any easing of export curbs will depend on the decision to divert higher volumes for ethanol, adequate domestic availability, benign inflation trends and favourable global price parity as seen in sugar season 2023. Further, it emphasized a need to watch the temporal and spatial distribution of monsoon, its impact on cane yield, timely ethanol price revisions and clarity on export policy amid global sugar price movements.