Dwarikesh Sugar

Dwarikesh Sugar reported a profit after tax of Rs. 9.81 crores in Q3 FY24, marking a 6.75% decline from Rs. 10.52 crores in Q3 FY23. The company's top line also saw a significant reduction, falling by 18.41% to Rs. 319 crores compared to Rs. 391 crores in the corresponding quarter last year. This downturn was primarily driven by lower sales volumes across both sugar and ethanol segments.

Sugar sales volume in Q3 FY24 decreased to 4.94 lakh quintals from 6.47 lakh quintals in Q3 FY23, largely due to the absence of exports this quarter, which accounted for 4.34 lakh quintals in the prior year. Despite the volume decline, the average domestic sugar realization improved by 8.2% to Rs. 3,852 per quintal in Q3 FY24 from Rs. 3,560 per quintal in Q3 FY23. For the nine-month period, average realization also saw a healthy increase to Rs. 3,692 per quintal from Rs. 3,483 per quintal.

Ethanol sales volume for Q3 FY24 stood at 1.42 crore liters, a 15.5% decrease from 1.68 crore liters in Q3 FY23. The distillery segment's EBIT margins were negatively impacted by lower volumes, a Rs. 20 per quintal increase in the State Advised Price (SAP) for sugarcane, and the government's decision not to increase ethanol prices for juice and B-Heavy molasses this year. The government's policy aimed to restrict sugar diversion for ethanol to 1.7 million tons to ensure adequate sugar production.

The company anticipates lower sugarcane crushing numbers for the current season compared to the 4.01 crore quintals crushed last season. This is attributed to multiple factors including unseasonal rainfall, red rot disease affecting cane yields, the emergence of a new Bindal plant, and diversion of sugarcane to gur and khandsari makers. Despite these challenges, the gross recovery rate for Q3 FY24 was 11.05%, a marginal dip from 11.11% in Q3 FY23, with expectations for overall improvement for the full season.

Dwarikesh Sugar is actively implementing varietal change programs to enhance sugarcane quality and yields. In its Bareilly unit, approximately 65% of the existing variety 238 is projected to be replaced by improved varieties such as 15023, 14021, 98014, and 118 in the upcoming season. The Bijnor districts, which experienced significant red rot impact, are also expected to undergo substantial varietal changes over the next 2-3 years as farmers become more receptive to adopting new varieties.

The company maintains a lean loan profile, with only subsidized term loans being repaid as due. While continuously focusing on efficiency enhancements, such as steam consumption savings to maximize power generation, there are no immediate plans for significant capital expenditure in grain-based ethanol production. Management views the capital cost for such projects as high relative to potential benefits, especially given the current pause in the ethanol blending program.

Management expects sugar prices to remain firm, around Rs. 3,800 per quintal, for the remainder of the quarter. They plan to request the government to revisit the ethanol blending program and consider price enhancements for ethanol, believing that such requests may be favorably considered if crushing numbers are robust. The company also noted that the red rot issue, which impacted its Bijnor units, is a broader regional problem that will likely affect other sugar companies in Western UP sooner or later.