New Delhi, July 16 : An above normal monsoon is expected to lead to increased sugarcane acreage in Maharashtra and Karnataka, which, in conjunction with expectations of better yield in key sugar-producing states, projects a 15 per cent jump in sugar output during this year, according to a report released on Wednesday.

ICRA estimates the revenues of integrated sugar mills to expand by 6-8 per cent in FY2026, supported by an expected increase in sales volumes, along with firm domestic sugar prices and higher distillery volumes.

Despite this, the operating profit margin gains for the sugar mills will be modest in FY2026 if ethanol prices remain stagnant. ICRA's outlook for the sugar sector is 'Stable', backed by the anticipated improvement in revenues, stable profitability and comfortable debt coverage metrics, along with the government's policy support, including the ethanol blending programme (EBP).

Commenting on the expected domestic sugar production and prices, Girishkumar Kadam, senior vice president at ICRA, said: 'ICRA projects the gross sugar production to increase to 34.0 million tonnes (MT) in sugar year 2026 from 29.6 million MT in sugar year 2025 amidst an above-normal monsoon and expected improvement in cane acreage and yield in key sugar-producing states.'

After the estimated diversion of 4 million MT towards ethanol production, net sugar production will increase to 30.0 million MT in 2026 from 26.2 million MT in 2025. Despite the expected increase in diversion towards ethanol in 2026, the closing sugar stock level is likely to be comfortable, he explained.

Further, domestic sugar prices, which are currently in the range of Rs 39-41 per kg, are expected to remain firm till the start of the next season, thereby supporting mills' profitability, he added.

The report expects the closing sugar stock to be around 5.2 million MT as on September 30, 2025, lower than the sugar stock of 8.0 million MT as on September 30, 2024. This would be equivalent to 2 months of consumption.

The closing stock is expected to increase to 6.3 million MT (approximately 2.5 months of consumption) as on September 30, 2026, if the domestic consumption and export quota remains same as SY2025, as per estimates.

"The ethanol blending trend has remained encouraging with 20 per cent blending target set by the government of India achieved in the recent months. Further, the government is exploring the option of increasing the blending target beyond 20 per cent, which will support the distilleries," said Kadam.

/IANS