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Higher sucrose diversion towards ethanol as well as healthy export levels are likely to support the domestic sugar industry's demand-supply balance, said ratings agency ICRA.

It noted that tailwinds from global sugar demand is expected to drive exports, while higher sucrose diversion towards ethanol would allow the industry to curtail closing inventory levels which in turn would result in lower total debt.

Besides, reduced debt levels and expanded operating profits emanating from favourable pricing as well as increased share of ethanol in revenue mix would support industry's credit metrics despite recent hike in cane prices.

"Higher sucrose diversion towards ethanol that would limit domestic sugar production in addition to healthy export prospects for current fiscal emanating from firmed up international prices is likely to support domestic demand-supply balance," said Sabyasachi Majumdar, Senior Vice President and Group Head, ICRA.

"This would result, not only, in reduced inventory levels and thus lower debt, but would also support domestic sugar prices which would allow expansion of operating profits despite hiked cane prices for the current sugar year. With improved operating profits and reduced debt levels, the coverage metrics and capital structure would emerge stronger by the end of fiscal year."

Furthermore, ICRA said that revenues of its research sample is expected to remain stable with 1-3 per cent YoY growth in FY2022.

"With a favourable mix of ethanol towards 'B-heavy or juice' (feedstock) coupled with higher sugar realisations; operating margins are expected at 12.5-13.5 per cent in FY2022 (slightly higher than FY2021 levels), moderated by the cane price hike," the agency said.