Detailed Narrative
Sugar Segment Performance and Outlook
The sugar segment delivered strong results in Q3 FY25, supported by improved margins. Indian sugar production net of diversion is estimated at 272 lakh tonnes, a 15% decline from 320 lakh tonnes last season, primarily due to lower cane yields in UP, Maharashtra, and Karnataka. Despite this, overall sugar availability is deemed sufficient, with a closing stock expected around 62 lakh tonnes. The company's sugar recovery, though down by 48 bps, is showing an uptrend and is considered strong relative to the state average, with expectations for further improvement.
Distillery Segment Challenges and Ethanol Policy
The distillery segment faced challenges in Q3 FY25, primarily due to lower recovery and reduced Pol%, leading to a loss for the quarter. Management expressed significant disappointment with the government's decision to keep ethanol prices unchanged, which makes diversion to ethanol unattractive and could jeopardize the ethanol blending program. The company has shifted two units from B-heavy to C-heavy production to prioritize sugar, and FY25 alcohol volume is projected to be 21.5-22.5 crore liters, down from 28 crore liters in the previous year.
PLA Project Update and Enhanced Vision
The Poly Lactic Acid (PLA) project remains on schedule for commissioning by October 2026. The project's gross cost has been revised upwards to ₹2,850 crore (from an initial estimate of ₹2,000 crore) after detailed engineering, but the net cost is ₹1,750 crore after an expected capital subsidy of ₹1,100 crore. This increased investment will enhance capacity from 75,000 to 80,000 tons and is projected to generate ~₹2,000 crore in revenue with over 35% EBITDA margins at full capacity. The company is actively exploring diverse end-use applications, driven by the Single-Use Plastic (SUP) ban.
Capital Structure and Funding
The PLA project is being funded through ₹1,650 crore of long-term debt and ₹1,200 crore from internal accruals. The company borrowed ₹325 crore for the PLA project in December. Existing long-term debt of ₹200 crore will see ₹22 crore repaid by March 2025, with ₹89 crore payable annually over the next two years. The company maintains a strong liquidity position, with net cash and cash equivalents estimated between ₹1,200 crore and ₹1,300 crore. The cost of debt on some existing loans has decreased by 25 basis points due to lower repo rates.
Market Dynamics and Inventory Management
Current sugar prices in UP and the company's mills are upwards of ₹41/kg. For Q3, the sugar inventory was valued at ₹38.26/kg against a costing of ₹41.21/kg, resulting in an inventory loss. Management clarified this is a seasonal phenomenon due to the short crushing period in Q3 and expects the cost to normalize in Q4 with a longer crushing season. The company has an export quota of 31,000 tonnes, which will be released over five months starting March 2025, providing an upside in domestic sales.