Exports, Ethanol To Boost Sugar Margins: CRISIL

High sugar exports for the second sugar season (SS; October-September) in a row, coupled with increased supplies of ethanol - and at remunerative prices - for blending with petrol, will improve the operating profitability of integrated sugar mills by 75-100 basis points (bps) to 13-14% this fiscal, a CRISIL Ratings analysis shows. Also, the recent announcement by the government to advance the ethanol-petrol blending target of 20% by two years to 2023, could help sustain this momentum over the medium term, the rating agency says.

"Additionally, sugar closing stocks are expected to decline to their lowest levels in the past four SSs to 9-9.5 million tonne (MT) in SS 2020-21, resulting in lower working capital borrowings. The improvement in profitability and controlled debt levels will, in turn, bolster the credit profiles of CRISIL-rated integrated mills this fiscal. The credit outlook on non-integrated ones, at the other end, will remain largely stable," CRISIL has stated.

Says Anuj Sethi, Senior Director, CRISIL Ratings, "The improvement in profitability of integrated sugar mills will be supported by higher sugar exports, with remunerative prices and increasing proportion of more profitable ethanol, which will offset impact of lower profitability in domestic sugar sales, and subdued returns from co-generation of power."

Says Sushant Sarode, Associate Director, CRISIL Ratings, "The credit profiles of integrated players will benefit from better profitability, prudent funding of capex and lower working capital borrowings, leading to improvement in interest coverage ratio to 4.5-5 times in current fiscal from 4 times in the last fiscal. For non-integrated players, however, interest cover is likely to decline to 1-1.3 times from 1.5 times estimated for last fiscal, due to moderate impact on profitability. Nevertheless, lower working capital borrowings, will help keep the credit outlook for these players 'stable' as well."