India Reverses Sugar Policy to Fight Shortage — Which Mill Stocks Benefit Most?
India's sugar sector is at a crossroads. After years of pushing mills to divert sugarcane towards ethanol production — a cornerstone of the government's 20% blending target — a sharp sugar price surge has forced a policy U-turn. The government is now restricting sugarcane-based ethanol production and easing sugar import barriers to cool domestic prices.
For retail investors, the question is simple: which sugar stocks benefit from this pivot, and which get hurt?
The policy shift explained
India's sugar balance tells the story. Per EID Parry's latest investor presentation, sugar year 2024-25 saw gross production of 29.6 million metric tonnes, but after diverting 3.5 MMT to ethanol, net production fell to just 26.1 MMT — below domestic consumption of 28.1 MMT. Closing stocks dropped to approximately 5 MMT, the lowest in years.
The government responded with two moves: restricting ethanol production from sugarcane juice and syrup (the highest-margin feedstock for mills), and reversing the restrictive sugar import policy. Dwarikesh Sugar's annual report noted that "not only was there an immediate curb on use of juice/syrup for making ethanol, but the quantity of ethanol produced using B-heavy molasses was also limited to the original quantity offered by sugar mills."
This is the opposite of what mills had been investing for. And yet, some are positioned far better than others.
The winners: mills with diversified ethanol and strong sugar operations
Balrampur Chini Mills (BALRAMCHIN) stands out as the most resilient player. Per their Q4 FY26 results presentation, the company reported full-year revenue of Rs 6,271 crore with EBITDA of Rs 741 crore. Their distillery segment generated Rs 1,721 crore in revenue in FY26, with average blended ethanol realization of Rs 60.2 per bulk litre (up from Rs 57.5 in FY24). Critically, Balrampur operates 10 distillery units alongside 10 sugar units with 80,000 TCD crushing capacity. Their diversification into Poly Lactic Acid (PLA) — a bioplastic derived from sugarcane — adds another revenue stream that doesn't compete with sugar supply. Triveni Engineering (TRIVENI) achieved its highest-ever alcohol production and sales volume in FY26, per its investor presentation. The company's alcohol segment posted net revenue of Rs 1,220 crore in the first nine months of FY26, up from Rs 1,022 crore in the same period of FY25 — a 19.4% jump. More importantly, alcohol segment PBIT swung to Rs 81.9 crore from just Rs 16.3 crore in the prior year. Management guided for around 25 crore litres of alcohol production in FY26, and their board approved Rs 20 crore in capex for expanding their Indian Made Indian Liquor (IMIL) business, signalling a push into potable spirits that is completely unaffected by ethanol policy changes. Dhampur Sugar Mills (DHAMPURSUG) demonstrated the power of revenue diversification. Per their earnings call transcript, ethanol contributed 23.2% of quarterly revenue at Rs 223.1 crore (up from Rs 175.2 crore year-on-year). The company noted that "ethanol fetching superior realisations" compared to sugar, with shorter working capital cycles since oil marketing companies pay within a month. However, their annual report also acknowledged that cane crushed in FY 2025-26 fell to 26.69 lakh tonnes from 29.79 lakh tonnes, reflecting the tighter supply environment.The broader industry picture
EID Parry (EIDPARRY), the Murugappa Group flagship, operates at significant scale with distillery capacity of 582 KLPD and crushing capacity of 40,800 TCD. Per their investor presentation, their consolidated revenue stood at Rs 7,355 crore in FY24. EID Parry's analysis of the sugar balance highlighted that the government's ethanol blending programme reached about 15% in ESY 2023-24, with bids for ESY 2024-25 suggesting 18% blending. The 20% target was set for ESY 2025-26, but the sugar shortage has put that timeline in doubt. Dalmia Bharat Sugar (DBOL) noted in its annual report that "ethanol brings better margins compared to sugar" and that "the production of ethanol is a priority area" for the government. However, the policy reversal now forces a recalculation — mills that can switch between ethanol feedstocks (sugarcane juice vs. B-heavy molasses vs. grain) hold the advantage. Dwarikesh Sugar (DWARKESH) flagged the scale of excess industry capacity in its filings: total ethanol offers from mills exceeded 1,776 crore litres, comprising 471.63 crore litres from sugarcane-based feedstocks and 1,304.86 crore litres from grain-based feedstocks. The filing noted this "indicates a surplus ethanol production capacity in the country" and that "it is expected that the Government may discourage ethanol production from sugarcane going forward."What retail investors should do
The sugar sector is entering a period where stock-picking matters more than sector bets. Favour companies with three characteristics: (1) grain-based distillery capacity that can produce ethanol regardless of sugarcane restrictions, (2) strong sugar operations that benefit from higher domestic prices, and (3) diversification into adjacent products like potable spirits, chemicals, or co-generation power. Balrampur Chini and Triveni Engineering check all three boxes based on their filings. Avoid companies that invested heavily in sugarcane juice-based ethanol without feedstock flexibility — the policy reversal hits them hardest. Watch for the government's next move on the Minimum Selling Price (MSP) for sugar and ethanol procurement prices from oil marketing companies, as both will directly impact margins across the sector.
Data sourced from company filings on NSE via Xaro.