Dwarikesh Sugar

Dwarikesh Sugar reported a challenging Q2 FY25, incurring a loss before tax of INR 36 crores and a loss after tax of INR 24 crores, a significant decline from a profit before tax of INR 15 crores in Q2 FY24. This underperformance was primarily driven by substantially lower sales volumes across both key segments. Sugar sales volume decreased by approximately 17% YoY to 5.97 lakh quintals, while ethanol sales plummeted by nearly 89% YoY to 31.54 lakh litres. The company's crushing operations for the 2023-24 season concluded in March, resulting in no crushing activity during Q2 FY25, which also impacted feedstock availability for ethanol production.

The company's operations in the 2023-24 season were severely impacted by red rot infestation across its three units, leading to lower sugarcane availability and a shorter crushing season. To address this, Dwarikesh Sugar has fast-tracked a varietal replacement program. In its Bareilly unit, the share of the susceptible Co-238 variety is expected to reduce significantly to 30-35% of supplies in the upcoming season. While other units in Bijnor still have a high Co-0238 presence (90%), a substantial reduction to nearly 60% non-Co-0238 varieties is targeted for the subsequent season (SS 2025-26).

The resumption of the ethanol blending program is a positive development, enabling the company to better utilize its distillery capacities. Dwarikesh Sugar expects to supply over 7 crore liters of ethanol in total from juice and B-heavy molasses, with more than 4 crore liters planned from juice alone. Management is highly optimistic about an imminent increase in ethanol prices, anticipating an INR 4.5 per liter hike for juice-based ethanol and INR 3-3.5 per liter for B-heavy molasses, to account for past and current Fair and Remunerative Price (FRP) increases for sugarcane.

For the upcoming 2024-25 season, gross sugar production is estimated at 33.3 million tons, with an expected 4 million tons diverted for ethanol, leading to a net production of 29 million tons. Combined with a closing stock of 9 million tons from the 2023-24 season, the total availability is projected at 38 million tons against an estimated consumption of 29 million tons, leaving a comfortable closing stock of 9 million tons. This surplus creates scope for the government to allow 2-3 million tons of sugar exports, though a final decision is expected by January or February 2025.

As of September 30, 2024, the company's term loan outstanding stood at INR 177 crores, primarily for distillery projects, with strong credit ratings of AA (long-term) and A1+ (commercial paper). Despite the current quarter's disappointing results, management believes the worst is behind them and anticipates substantial improvement in numbers going forward^⏳, driven by the varietal replacement program, better recovery, and optimized distillery operations. The company also noted that the levy obligation percentage is expected to decrease this year due to the inclusion of grain distilleries and khandsari under the obligation.