Dwarikesh Sugar

Dwarikesh Sugar Industries reported a modest improvement in Q3 FY25, with Profit Before Tax (PBT) increasing to ₹16 crores from ₹14 crores YoY, and Profit After Tax (PAT) rising to ₹11 crores from ₹10 crores YoY. However, the nine-month performance showed a significant decline, with total income for 9M FY25 at ₹906 crores, down from ₹1,339 crores in the prior year. This substantial drop was primarily attributed to lower sugar and industrial alcohol sales volumes over the nine-month period.

The company's Q3 FY25 sugar sales volume saw a marginal improvement to 4.99 lakh quintals from 4.94 lakh quintals YoY. However, the average realization for Q3 FY25 decreased to ₹3,772 per quintal from ₹3,852 per quintal. For the nine-month period, sugar sales volume was significantly lower at 17.71 lakh quintals compared to 21.83 lakh quintals in 9M FY24, although the average realization improved marginally to ₹3,793 per quintal from ₹3,692 per quintal. The company carried a stock of 8.27 lakh quintals on December 31, 2024.

Industrial alcohol sales for Q3 FY25 increased slightly to 14,958 kilo liters from 14,172 kilo liters YoY. In contrast, 9M FY25 industrial alcohol sales saw a significant decline to 30,570 kilo liters from 73,262 kilo liters in 9M FY24. This drop was due to the early conclusion of the 2023-2024 crushing season in March 2024, leading to minimal distillery activity in the first two quarters. The company has bid for approximately 7 crore liters of ethanol for the current year and expects production to be in the same region. Management anticipates an increase in sugarcane-based ethanol procurement prices soon, potentially within one month, which is expected to boost profitability.

The current crushing season remains challenging due to 'lingering problems' such as the red-rot menace, which has impacted sugarcane yields and recovery, particularly in Uttar Pradesh. The company expects a downward revision in UP's sugar production estimates for the current season. Dwarikesh is actively working to improve its varietal mix, propagating new varieties like 118, 15023, and 14021, to reduce dependence on single varieties and mitigate the impact of red-rot. Substantial improvement in crushing performance is anticipated for the 2025-2026 season.

A significant positive development is the Government of India's approval for 1 million tonnes of sugar exports. Dwarikesh Sugar has been allocated a quota of 10,444 metric tonnes, representing about 3.23% of its average production. The company plans to swap this quota with coastal mills for a consideration (differential) and will receive an equivalent domestic quota over five equal months from March to July 2025. This policy is expected to improve cash flows for sugar mills and provide a boost to sugar prices, which have already rebounded to around ₹3,950 per quintal from below ₹3,800.

The company maintains a lean loan profile with ₹162.58 crores in term loans, all at subsidized interest rates. While there was a cash surplus of approximately ₹216 crores at the September quarter-end, by December 31, 2024, the company had paid all cane dues ahead of schedule. Working capital requirements typically build up from November and peak in March, meaning there were no fixed deposits on the books as of December 31. The company is marginally utilizing its credit limits to manage these seasonal working capital needs.

The carrying cost of sugar inventory has increased to ₹3,764 per quintal, primarily due to lower recovery rates and higher sugarcane procurement costs compared to the previous year. Management does not anticipate any increase in the State Advised Price (SAP) for sugarcane this season, given the delay in its announcement. While sugar prices have rebounded, their sustainability is a key focus, with expectations that prices will hover around ₹40 per kg in the near future, supported by factors like increased cost of production and lower overall output.