New Delhi [India], June 27 (ANI): India's gross sugar production is expected to rise in the sugar season (SS) 2026, helped by above-average monsoon, boosting cane acreage and yields in key sugar-producing states such as Maharashtra and Karnataka, according to a report by Crisil. The Crisil report estimates that sugar production is expected to rise by about 15 -35 per cent to 35 million tonnes. This surge is expected to boost sugar mills and give some relief from the trifecta of challenges, such as high cane costs, subdued ethanol prices and muted exports that compressed their operating profitability by about 200 basis points (bps) to 8.7-9 per cent in FY2025.With improved supplies and potentially higher diversion of sugar for ethanol blending with gasoline, the operating margin of sugar mills is likely to recover to about 9-9.5 per cent in FY 2026. This is likely to support the credit profiles of sugar players, which saw some pressure last fiscal.Additionally, diversion for ethanol is expected to rise to nearly 4 million tonnes, supported by high sugar output and the government's 20 per cent blending target, as it offers faster cash-flow churn.'The strategic diversification to ethanol was intended to de-risk the earnings and cash flow of sugar mills. But rising cane costs (cane FRP has been hiked by 4.5 per cent to Rs 355 per quintal for SS 2026) and stagnant ethanol procurement prices have limited improvement in profitability,' said Anuj Sethi, Senior Director, Crisil Ratings.The report adds that despite this 15 per cent rise in sugar production, margins of integrated millers will improve only marginally 'As a result, the operating margin of integrated millers is likely to improve only marginally by 40-60 bps to 9-9.5 per cent despite a 15 per cent jump in sugar output. That said, standalone millers, lacking distillery or cogeneration power sales, may continue facing margin pressure,' noted the reportOn the domestic price side, sugar prices have held steady at Rs 35-38 per kg this season. With output expected to rise, sugar prices are likely to remain range-bound, limiting any significant upside in the profitability of sugar millers. (ANI)