ICRA expects the domestic sugar production to increase by 3.3%-3.7% YoY to around 25 million MT during SY15 and the domestic sugar production is expected to outstrip domestic consumption for fifth year in a row.

Decline in the international sugar prices coupled with the expectation of higher sugar production during SY15 has impacted the domestic sugar prices in August and September 2014, it said.

Liquidation of sugar stocks by the mills following court action in UP has also affected the sugar prices in September 2014. Despite exports, current sugar surplus scenario prevailing in the domestic market which coupled with the arrival of fresh supply into the market is likely to put pressure on the sugar realizations in the near term. 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.
 
Profitability of sugar mills based in Uttar Pradesh and Tamil Nadu is most hit due to the high cane costs and lowery recovery rates when compared to other regions across the country. Debt levels continue to remain on higher side, although availment of interest free excise duty loans (under Scheme for Extending Financial Assistance to Sugar Undertakings) by the sugar mills could ease pressures on coverage indicators and liquidity to an extent.

"Going forward, with the range bound realizations and high cane prices, continued government support remains critical for viability of the sugar mills in 2014-15," ICRA added.