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    Dwarikesh Sugar

    DWARKESH
    Fast Moving Consumer Goods·25 Jul 2023
    Management Summary

    Dwarikesh Sugar reported a mixed Q1 FY24, with improved profitability metrics like PBT, PAT, and EBITDA despite a decline in total income. The ethanol segment showed robust growth with sales nearly doubling, while sugar sales volumes were lower due to lack of exports and reduced government releases. Challenges included a drop in gross sugar recovery and ongoing issues with ethanol off-take from OMCs, which management is actively addressing.

    Highlights

    7

    • PBT marginally better at INR 59.09 crores compared to INR 56.70 crores in Q1 FY23.

    • PAT at INR 40.62 crores, up from INR 39.70 crores in Q1 FY23.

    • EBITDA increased to INR 77 crores from INR 75 crores in Q1 FY23.

    • Ethanol sales volume significantly higher at 303.54 lakh liters, almost double the previous year's 15.64 lakh liters.

    • Crushing operations saw a 24% increase, reaching 98.51 lakh quintals in Q1 FY24.

    • Finance costs compressed to INR 5.51 crores from INR 7.76 crores YoY.

    • Exemplary payment track record for sugarcane farmers, with full payment made within three days of crushing season end.

    Concerns

    5

    • Total income decreased to INR 572 crores from INR 648 crores YoY.

    • Sugar sales volume declined to 9.70 lakh quintals from 15.29 lakh quintals YoY, primarily due to no exports and lower government releases.

    • Gross recovery dropped by 31 bps to 11.70% from 12.01% YoY, attributed to red rot, top borer, unseasonal rainfall, and extended crushing into hot months.

    • Significant issues with OMC ethanol off-take due to logistical problems and full depots, impacting Q2 sales.

    • Dependence on 0238 sugarcane variety (95% last season) makes it susceptible to red rot, though efforts are underway for varietal replacement.

    What Changed2

    vs Q3 FY24

    Guidance items6 → 8 (+2)Risks discussed5 → 6 (+1)

    Key financials

    Single quarter

    09 metrics
    1. 01Total Income₹572 Cr-11.7%YoY
    2. 02Profit Before Tax₹59.09 Cr+4.2%YoY
    3. 03Profit After Tax₹40.62 Cr+2.3%YoY
    4. 04EBITDA₹77 Cr+2.6%YoY
    5. 05Finance Costs₹5.51 Cr-29.0%YoY

    Capital allocation

    3
    high confidence
    CategoryHeadline
    Capex

    Capex disclosed

    Debt

    Gross ₹271 crores

    Liquidity

    Liquidity disclosed

    Cash flows have been reasonable. Company is carrying very low sugar inventory. Ethanol storage capacity is 70-75 lakh liters, equivalent to about 25 days of production.

    Guidance & targets

    8
    CategoryTargetPriority
    Sugarcane Variety
    0238 variety dependence
    70%
    		High
    Sugarcane Variety
    0238 variety dependence
    30%
    		High
    Crushing Volume
    Crushing numbers improvement
    2-3%
    		Medium
    Cane Availability (Bareilly unit)
    Cane availability
    410-415 lakh quintals
    		Medium
    Ethanol Sales
    Ethanol sales volume
    11 crore liters
    		High
    Sugar Prices
    Sugar price trend
    better
    		Medium
    Ethanol Pricing
    Government pricing for juice-based ethanol
    incentivized
    		Medium
    Sugar Diversion
    Sugar diversion for ethanol
    4.7 to 5.2 million tons
    		Medium

    Ethanol off-take resolution

    next quarter
    CurrentSignificant issues with OMC off-take, impacting DN unit sales in Q1 and expected Q2.
    TargetImproved off-take and sales velocity for ethanol, especially from DN unit.

    Why it matters

    Resolution of off-take issues is crucial for achieving the 11 crore liter ethanol sales target for FY24 and maximizing distillery profitability.

    So, while our sales and off-take from the DD distillery unit is all right, but sales and offtake from our DN distillery unit has suffered a setback in this quarter. And we may not be able to, although all efforts will be there, but we may not be able to replicate the numbers of first quarter in the second quarter.

    How to verify

    key_financials.metrics[label='Ethanol Sales Volume']

    Risks & concerns

    6
    RiskSeverity

    Red rot problem in DD command area

    Red rot led to a 50 bps drop in recovery at the DD unit; varietal change program initiated. — Management acknowledged

    medium

    Top borer and unseasonal rainfall in DP command area

    Contributed to lower recovery in DP unit; farmers encouraged to use pesticides. — Management acknowledged

    low

    Extended crushing in hot months (May/June)

    Accelerated the decline in sugar recovery. — Management acknowledged

    low

    OMC ethanol off-take issues

    Logistical problems, full depots, and slow decanting of tankers are impacting ethanol sales, particularly for DN unit in Q2. — Management acknowledged

    high

    Potential SAP increase due to elections

    Election year could lead to SAP increase, requiring commensurate sugar price hikes to maintain economics. — Analyst acknowledged

    medium

    Excessive rainfall in UP

    While current rains are good, future heavy rainfall could lead to inundation and lodging of sugarcane, impacting yield. — Management acknowledged

    low

    Q&A highlights

    8

    “So far, the rains seem to be good and they will be conducive for good growth of sugarcane crop. We don't foresee any problem and in the command area of our DD unit where the rainfall was scanty last time along, so there we see good rainfall and the growth of the sugarcane whatever growth we should have until this time, seems pretty good.”

    Analyst sought clarity on a key macro factor (weather) impacting future crop, management provided a generally positive but cautious outlook for UP, noting potential issues in other states.

    asked by Shailesh Kanani

    2 min read5 chapters

    Detailed Narrative

    01

    Q1 FY24 Financial Performance Overview

    Dwarikesh Sugar reported a mixed financial performance for Q1 FY24. Profit Before Tax (PBT) increased marginally to INR 59.09 crores from INR 56.70 crores in the corresponding quarter last year, while Profit After Tax (PAT) also saw a slight improvement to INR 40.62 crores from INR 39.70 crores. EBITDA grew to INR 77 crores compared to INR 75 crores in Q1 FY23. However, total income for the quarter declined to INR 572 crores from INR 648 crores in the prior year, primarily due to lower sugar sales volumes.

    02

    Sugar Operations and Recovery Challenges

    Sugar sales volume in Q1 FY24 decreased significantly to 9.70 lakh quintals from 15.29 lakh quintals in Q1 FY23, largely due to the absence of exports (5 lakh quintals exported last year) and lower government releases. The company crushed 98.51 lakh quintals of sugarcane, a 24% increase from 79.42 lakh quintals in Q1 FY23. Despite higher crushing, gross sugar recovery declined by 31 basis points to 11.70% from 12.01% in the previous year, attributed to issues like red rot in the DD command area, top borer and unseasonal rainfall in DP, and extended crushing into hot months (May and June).

    03

    Ethanol Business Performance and Off-take Issues

    The distillery segment performed strongly, with ethanol sales volume nearly doubling to 303.54 lakh liters in Q1 FY24, a 94% increase over the corresponding quarter last year. This was facilitated by an extended crushing season and diversion of 18.3% of total cane crushed directly to distilleries, sacrificing 1.39 lakh tons of sugar production. However, the company is facing significant challenges with ethanol off-take from Oil Marketing Companies (OMCs) due to logistical problems and full depots, which is expected to impact Q2 sales, particularly from the DN distillery unit.

    04

    Sugarcane Crop Outlook and Varietal Management

    The company is actively addressing the red rot problem, particularly in its Bareilly unit (DD command area), where the 0238 variety, highly susceptible to the disease, constituted over 95% of supply last season. A varietal replacement program aims to reduce 0238 dependence to 70% in the upcoming 2023-2024 season and further to 30% by 2025-2026. Management expects a 2-3% improvement in crushing numbers and 410-415 lakh quintals of cane availability for the Bareilly unit in the next season, up from 401 lakh quintals.

    05

    Industry Outlook and Government Policies

    Management anticipates sugar prices to improve in the coming months, especially during the festival season (August-October), before the start of the next crushing season. They expect the government to announce an incentivizing price for ethanol produced from sugarcane juice to encourage higher diversion from sugar. The company's long-term loan outstanding stands at INR 271 crores as of June 30, with all loans at subsidized rates. While no major capex is planned for the immediate off-season, small investments have been made in Bijnor units to increase crush rates, and future capex for capacity expansion remains a possibility.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.