The Indian Sugar Industry, with an annual productive capacity of ~ 25 mn tons, is the second largest in the world after Brazil, accounting for ~ 14 per cent of the global sugar production. In India, Uttar Pradesh and Maharashtra produce 60 per cent of total sugar production. Around 80% of all sugar is derived from sugar cane and is largely grown in tropical countries; the remaining 20 per cent comes from sugar beet. Currently, around 5.09 million hectares of land is under sugarcane in India with an average yield of ~ 65 tons per hectare. Principal by-products derived from sugar manufacture comprise molasses, bagasse and press mud, accounting for about 40 percent of crushed sugarcane by weight. The beverages and biscuit manufactures and other sweet makers in India consume around 65% of sugar produced in the country and balance 35% is actually consumed by the households. Nearly 20% of Indian sugar production comes from the organized sector and much influence is wielded by the corporates and co-operatives. By being directly responsible for the sustainability of over 50 million rural families, the sector has a significant contribution in India's macro-economic stability.

Sugar comes under the Essential Commodities Act, 1955. In April 2013, the Cabinet Committee of Economic Affairs has cleared the proposal for partial decontrol of the sector which is in line with the suggestions put by the C. Rangarajan Committee wherein 10% levy obligation has been removed, sugar release mechanism has been scrapped, import duty increased and has been provided interest subvention.

In the year 2014, the government of India had announced export subsidy at Rs 3.3 per kg on exports of 4 million tons of raw sugar over the following two years. The continuation of the export subsidy remains critical to relieve pressure from the domestic sugar stocks and support the domestic sugar prices to an extent. However, the government has been reluctant to reduce the 20% export duty it imposed in June 2016 on raw sugar as domestic demand generally outstrips supply. In SY17, even though prices have breached the Rs. 40/kg (wholesale) level due to poor quality and insufficient supply of crop- the Government has refused to cut duties.

Source: Acuité Research; Ace Equity

Key Risks & Attributes

• Monsoon/ Irrigation
• Ethanol Blending
• Fertilizer Usage
• Demand Supply Equilibrium
• Consumer Sentiment/ Inflationary Situation
• Economic Growth & Outlook
• Government Policy & Support (MSPs)