Dwarikesh Sugar Industries Ltd
NSE:DWARKESH
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Dwarikesh Sugar Industries Ltd
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Ladies and gentlemen, good day, and welcome to the Dwarikesh Sugar Industries Q1 FY'24 Results Conference Call hosted by Dolat Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Tejas Sonawane. Thank you, and over to you, sir.
Thank you, [ Lisa ]. Good afternoon, everyone. On behalf of Dolat Capital, I would like to thank the management of Dwarikesh Sugar Industries Limited for giving us the opportunity to host their Q1 FY'24 earnings call. From the management team we have with us today Mr. Vijay Banka, Managing Director; Mr. B.J. Maheshwari, Managing Director and Company Secretary Cum Chief Compliance Officer; and Ms. Priyanka Morarka, President, Corporate affairs.Without further ado, I would like to hand over the call to the management team for their opening remarks, post which we'll open the forum for a Q&A session. Thank you, and over to you, sir.
Very good afternoon to everyone. Happy to be with you all back again with -- during this earning call conference of our Q1 FY'24 results. The results are already in public domain, and I'm sure you must have gone through the same. Nonetheless, I'll take this opportunity to quickly run through some of the highlights. During this particular quarter, we had clocked [ a ] profit before tax of INR 59.09 crores and profit after tax of INR 40.62 crores, which is marginally better when compared to the PBT of INR 56.70 crores and PAT of INR 39.70 crores that we had clocked in the corresponding quarter last year.The total income during the quarter was INR 572 crores as compared to INR 648 crores during the corresponding quarter last year. It's down, of course. The top line is lesser than what it was, but the bottom line is better. I've already told you what our PBT and PAT numbers are as compared to the PBT and PAT numbers of the corresponding quarter last year.So, few more highlights. EBITDA was INR 77 crores as against INR 75 crores in the corresponding quarter last year. We've been able to compress the finance costs, which are at INR 5.51 crores vis-a-vis INR 7.76 crores. Our tax obligation or tax provision is about INR 18.47 crores vis-a-vis INR 17 crores. So that's mainly the financial snapshot.I'll give you some quantitative details. During this particular quarter, we have sold 9.70 lakh quintals of sugar as compared to 15.29 lakh quintals of sugar that we [ export ] in the corresponding quarter last year. 5 lakh quintals of sugar was exported in the corresponding quarter last year. So which means in the domestic market we have sold about 10.29 lakh quintals. [ Which ] number is 9.70 lakh quintals during the quarter just completed.So sugar stock, we had about 9.87 lakh quintals of sugar as compared to 13.30 lakh quintals of sugar on the same date last year. We have valued -- I mean, this number is a number which is of interest to all concerned. Our stock -- sugar stock is valued at INR 3,052 a quintal as against INR 3,179 a quintal on the same date last year.Sugar sales, as I have mentioned earlier, was on the lower side because we got lesser releases from the government, plus we did not do any exports. There was -- as you are all aware, there is -- presently no exports have been announced. So in a sense, there is a virtual ban on the exports at this point in time.Our distillery segment has performed good. We have sold 3 crore plus litres of ethanol during this quarter, which is almost double of what we have sold. It's actually 94% higher than what we had sold in the corresponding quarter last year. So we have had an extended crushing season this time. We -- 2 of our units in the Bijnor district, there the crushing operations concluded on the 12th of June.So we have in this quarter crushed 98.51 lakh quintals of sugar as compared to 79.42 lakh quintals, which is an increase of almost about 24%. And during the season, we have crushed [ 4 crore ] quintals of sugarcane vis-a-vis 378 lakh quintals of sugarcane during the last season. So in terms of volumes, both in this quarter as well as for the season that has concluded, the crushing numbers are better.However, we have suffered a dent in so far as the gross recovery is concerned, which is at 11.70% vis-a-vis 12.01%, a drop of almost 31 bps. So, during this quarter, we produced 8.97 lakh quintals of sugar vis-a-vis 8.96 lakh quintals that we had produced in the corresponding quarter last year.During the season -- entire season, we have produced 32.99 -- 33 lakh quintals of sugar vis-a-vis 39.5 lakh quintals that we had produced in the season '21-'22. So the big drop in the production number is mainly because we have diverted sugar crushing specifically for the distillery operation. So we have diverted sugarcane juice and used the same for making ethanol in our distilleries. So that's the model we have followed in the season.Throughout the season we have [ used ] sugarcane juice, converted it into syrup and then used it for making -- for producing ethanol in both the distilleries. The recoveries are lower for a couple of reasons. Number one, there was red rot problem in the DD command area, as a result of which the recovery in DD unit was almost 50 bps down as compared to the last season.Similarly, the DD command area also had the problems of top borer and unseasonal rainfall as a result of which the recovery there was also lower as compared to the last season. And what accentuated the decline in the recovery was that we [ center ] our crushing operations in the hot months of May and June. So there the recovery fall is actually faster than usual.So we have to combat all these problems. We are bringing about a big varietal change in the combined area of DD unit where the red rot menace in that particular region, the Central UP region is much more. Fortunately, the Bijnor district is not affected by red rot menace. So there we are bringing -- in the DD command area we are bringing about varietal change, and we should see the transformation and the recovery in the coming season.So, like I mentioned, we have diverted sugarcane juice to the distilleries. So nearly 18.3% of the total cane that we had crushed was diverted directly to the distilleries for making ethanol from the sugarcane juice. So we have consciously sacrificed about 1.39 metric tons of -- 1.39 lakh tons of sugar during the season. So -- which is what explains the lower production and higher production of ethanol.So our payment track record in so far as the sugarcane payment is concerned is exemplary. We are ahead of schedule and within 3 days of the end of the crushing season in all the [Technical Difficulty] [ respective ] -- in the units, we made the full payment. So our payment records have been -- our cash flows have been reasonable. Our payment track record has been exemplary.And our loan profile -- long-term loan profile is also lean and trim. We have 30th of June term loan outstanding of INR 271 crores. All the installments have been repaid as and when due. All the loans are at subsidized rate of interest. So there's no real incentive to prepay any of these loans.So that's about it from my side. Thank you very much, and I invite you all to ask questions to get your doubts clarified. We are ready to answer them all. Thank you very much.
[Operator Instructions] The first question is from the line of [ Somnath Saha] from B&K Securities India Private Limited. As there's no response from the current participant, we'll move on to the next. That is from the line of Shailesh Kanani from Centrum Broking.
Sir, I have couple of questions with respect to industry and couple of questions with respect to company per se. So first, sir, if you can give some update on the rains for the season, or I should say, excess rains in northern part of the country? So how is the crop looking at for the next season?
Yes. I'll talk about all our 3 units. You see the rainfall has been pretty good this time, which, in a sense, [ hovers ] well for the growth of sugarcane. But the one unit which is closer to a [ dam ] -- so there normally it so happens that when the rainfall is heavy, they let open the gates and that inundates the -- some of the area under sugarcane cultivation. Fortunately, that has not happened. 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 – which -- where the rainfall was scanty last time along, so there we see good rainfall and growth of the -- whatever growth we are -- the crop should have, until this time seems pretty good.
So in nutshell, not only for Dwarikesh, for UP state per se and in general for country per se, we are not seeing problem because of excess rain, right? Is that a fair assumption as of now?
UP, definitely not much of a problem, unless it rains again very heavily in the coming days. So far, it's not created any kind of a problem. But where we are hearing reports of some stunting of growth in the crop in the states of Maharashtra and Karnataka because of excessive rainfall. There were 2 problems actually. Number one, the advent of monsoon was delayed in -- across the country, but that doesn't impact the sugarcane growth in the North because mostly the area is irrigated. But in Maharashtra and Karnataka, yes, the areas or [ rainfed], they are dependent on the monsoon. So late advent of monsoon did impact -- did have an adverse impact, and so did the heavy rain downpour thereafter. That's what we hear, but it's too early to make any kind of estimation as to what will happen because ISMA hasn't yet come out with its estimate for -- first estimate of the production for season '23-'24.
The reason -- one of the reasons I asked is because the projections are kind of flattish. There has been no decline per se in spite of less rains in Maharashtra, as you rightly said in the initial part, and in spite of higher diversion expected next year as compared to this season. So I just wanted to confirm that.
Some experts are talking of a higher production. Season '22-'23, we have ended with a production of 32.8 million tons. I mean, we will end actually -- because there are a couple of mills which have the extended season in the month of July, August. So they are working, but those numbers are kind of given and taken. So 32.8 million tons is the production for '22-'23. Now some international trade houses have [ total ] production of 34.2 million tons for season '23-'24 with a diversion of about 4.7 million tons of sugar in favor of ethanol. So last year the gross production was [ 32.8 million ] and [ 4.1 million ], which is [ 37 million ]. So this year, the gross production that has been spoken about is 39 million tons, but these are all early numbers, early estimate. We cannot attach much credence to this. We have seen multiple revisions happening in the estimate last season.
Sir, another question with respect to industry per se. There have been certain recent reports about [ unavailability ] of surplus rice from FCI for ethanol production. So can you shed some light on this development?
No, we actually don't use grains. Our distilleries are -- the feedstock that we use in our distilleries is only molasses [ juice ], B-Heavy molasses. So we have no facility for making -- using grain and making ethanol out of that. But we do hear that FCI, Food Corporation of India, has kind of restricted -- There has been some kind of political ruckus which has been raised about rice being given -- broken rice being given to the grain distilleries at a price of about INR 20 a kg, which has perhaps put the government on the back foot. But according to me, there is no real concern on the availability of food grains. There should not be any problem at all. But as of now, yes, there is a problem the grain distilleries are facing.
Sir, on company specific, sir, we have seen this rot red disease affecting the recovery levels in last [ season ], right? So if you can just elaborate what steps we are taking and how we are going to reduce the dependence on 0238 in the next, say, 2, 3 years down the line? What is the percentage right now? The season '23 what was the percentage of dependence, and going ahead how we are planning to reduce it?
Okay. See, the red rot menace has been more in the Central UP and the Eastern UP area. So we have our Bareilly unit in the Central UP area which has been -- I must admit that yes, it was -- the availability of sugarcane and even the recovery, both of them got impacted because the farmers had lower yield in their farms. And we -- from a company's perspective, we had lower recovery. So we have brought about -- we're doing a lot of work on the varietal replacement. So last year the 0238 variety, which is become susceptible to this red rot problem, so there the supply was in excess of 95%. But in the coming season, we expect the -- some moderation to happen. So we expect this particular variety to constitute about 70% of the total cane supply, and we should have 30% of other varieties, and -- which number will go up in the season thereafter. Now -- that's number one.Number two, so as to ensure that red rot -- the growth of the drop is healthy, we've been doing a lot of work on the [ return ] management. We've been -- very aggressively we are trying to encourage farmers to use pesticides and chemicals. So [ corrosion ] is a chemical which is a pesticide which is very good for the growth of the sugarcane crop. Plus there are a couple of other pesticides which are there in the market.So we are monitoring the end use of these and we have seen the -- I mean, okay, the coming days we'll have more clarity. But as of now, if you compare the crop position as on today as compared to the last year around the same day, the crop position seems to be better. The crop seems to be more healthy.
Just a follow-up on this. Just to get it right, we were dependent 95%, and we are going to take it in a couple of years to 30%. How confident are we that we'll be able to replace this 0238 from 95% to 30% in couple of years?
So, 95% will become 70% in the season '23-'24, and then progressively it will come down. So we will have about 30%. So -- but we're not just [ drifting ] with replacement. We are also trying to see that whatever 2, 3 years surviving -- I mean, whatever variety is under plantation, farmers take good care of that and they do the right dosing of chemicals and fertilizers. So we are also ensuring that.
[Operator Instructions] The next question is from the line of Rajesh Majumdar from B&K Securities.
So actually, I may have missed out a little bit of the first part, but I had a few questions, sir. One is that, you are talking about lower recoveries in Eastern UP. Is that correct, for the sugar season '22-'23?
Yes, we have lower by about 31 bps as compared to the last season.
You said the bulk of the problem is in Eastern UP, but that narrative is not matching with one leading competitor of yours who's had better recovery this year. Why is that so?
No. See, the lower recovery out of 31 bps -- lower recovery that we have got for the group as a whole -- DD unit which is in Bareilly district, the drop was about [ 50 bps ]. So we are working on the varietal replacement there. Now the intensity of the red rot menace can vary from command area to command area and you cannot generalize the same. So somebody may have had lesser impact, somebody -- well, everybody is making efforts to replace and everybody is making efforts to ensure that the crop growth is better. But, I mean, it cannot be -- it may or may not reflect in the recovery numbers. So there could be various other reasons as well.
Also, sir, your quota for 1Q is about [ 10.16 ] as per our calculation, but you've sold lesser than the quotas. So you've sold [ 9.7 ].
Yes, we've not been able to sell with -- kind of lapsed. But having said that, as it is we are carrying very low inventory and the reason which we've been repaying quotas, I think we should exhaust our stock by the end of October or so.
But does that also mean they'll get a lower quarter for Q2 since you've not been able to exhaust your 1Q quarters?
No, it's actually the -- they calculate the quota based on the stock. So the -- all numbers are given to the government department. So based on the -- see -- based on the stock availability, based on the numbers that have been provided to the government, they work out the quota that is to be given to each of the sugar mill.
And sir, my other question was, we have been hearing that the offtake by oil companies was lower than 1Q. But as against that you've shown a significant jump in the alcohol sold in this quarter. So is there any difference in what you're hearing about your alcohol sale? Or is it just that you have been able to sell higher volumes because of the juice quota?
Yes. You see in the corresponding quarter last year, our DD distillery was not functional. It commenced its operations in the month of July 2022, okay? So in the last -- corresponding quarter last year, we had only sale of ethanol from our DN distillery unit. So this year, we have had production and sale of ethanol from both the units. So we produced -- when the season -- those respective units was on, we produced ethanol from sugarcane juice. And for the balance part of the quarter we produced ethanol from using B-Heavy molasses of the feedstock. So -- but you are right, there are issues -- logistic issues with the oil marketing companies. We are facing that problem in Q2. So we are -- while our sales and [ uptake ] from the DD distillery unit is all right, but sales and uptake 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 and the second quarter.
So some people have been impacted in 1Q, you're getting impacted in 2Q on the same...?
Yes. But be it Q1 or be it Q2, all are impacted. Just that the timing may have been different.
But sir, help me on this one. We have a certain target of alcohol volumes for the ethanol year '22-'23, which ends in October. Now we are well short of the target as in July. Does that mean the target will not get fulfilled or...?
We are not so -- you see -- [ it's ] like, okay, every effort is made by us to see that we complete our quotas. But if the uptake is not there, we -- the next step that we take is -- now, for example, what's happening is the [ depots ] are full, some of the [ depots ] that we had opted for, for which we received LOIs from the oil marketing companies. So where -- there the [ depots ] are full with stock, the decanting of the tankers is not happening. So the next step we take is we opt for depos at some far-flung locations. But the entire process is sometime involved and in the -- what happens is we do lose on the supply. So that's what happens. But yes, every effort will be made, and I don't think as of now -- we are confident that we will be able to fulfill whatever contractual obligations that we have.
But sir, if your Q2 is going to be weak, and then we have only 1 month left to fulfill the entire quota for [ later on ]...?
We have -- we are on target, and we did estimate that the numbers -- You see, what happened was, in Q2 -- and the uptake was not there, our production -- our storage was full. So we have lot of ethanol stores, so that we will be able to give it to them.
So you're expecting that the oil companies will make up for this towards the latter end of the ethanol year? Is that right assumption?
Yes. We do expect -- we have escalated the problem to the highest levels in the oil marketing companies as well as the concerned ministries, also our food ministries and the petroleum ministry. I mean, this is a problem which the entire industry is facing. So efforts are on. And it's not that they are also not working on a resolution. They are also working. They are trying their best to see that the ethanol uptake is accelerated.
And sir, my last question was, you were talking about SAP increase in the last call, if I remember correctly. It might take place this year because of the election [ year ]. So while we saw an increase in the FRP, we have not seen an increase in the [ SAP ]. Is that still expected or can still come?
See, we have had a hiatus of 1 year -- 1 season. The SAP was increased the season before. So we have not seen any SAP increase in '22-'23. The SAP was increased in '21-'22, okay? So we have seen that there is kind of virtual delinking between the SAP and the FRP. Our SAPs even at these levels are the highest in the country, and they are way above the FRP, okay? So -- but -- well, we must accept the reality that the election is around the corner, and there is every possibility that there could be some increase. And we only hope that the increase is reasonable enough that we can absorb it in our economics. And we also simultaneously expect that there is improvement in the sugar prices so that the impact of the -- yes, I mean, at least increase in selling prices commensurate with the increase in SAP.
But sir, this being an election year, the government will not allow exports at least till the first half of FY '23-'24. That is taken for sure by the industry now. So, if the crop is better than last year, then the prices will not go up again, right? Is that...?
No. See, I must -- again -- once again, with the [indiscernible] that the prices have not gone up in spite of the fact that we are looking at a season end stock of only 6 million tons, which is less than 3 months consumption. So -- but having said that, I must also say that the prices have gotten better from April onwards. So -- otherwise in FY '22-'23, the prices were flattish towards the year, but the prices have seen some revival post April. And we do expect that there is enough scope for improvement in the prices. And if you recall in 2016, '17, the prices had gone up to INR 3,800 a quintal and there was no hue and cry raised at that point in time. So there is no reason why there should be -- why [ things ] should be any different this time. There is scope for increase in the price and the prices should get better here onwards.
The next question is from the line of Prashant Biyani from Elara Securities.
Sir, typically, what is the height of cane come by this time in UP?
Sorry, I didn't get your question? What is the …?
What is the height of cane crop by this time?
You mean the -- how tall is the sugarcane crop?
Yes.
[indiscernible] in terms of varieties. There are some varieties which are where the -- I mean, the cane be as high as -- as tall as 15 feet also.
Even by this time?
No, not at this point in time. When fully grown.
By this time, it should be how much?
It should be about [ 4 ] or [ 5 ] -- 4 feet or so.
And typically, it should be same for Maharashtra and Karnataka as well?
No, Maharashtra I'm not aware, sir. We don't know how much -- what should be the height of the cane in Maharashtra, but UP yes, 4 to 5 feet is cane height we can see in the farm this time around.
And sir, how much was the molasses stock at Q1 end for us?
One second sir, I'll have to see the number. Just a second. Well, you can ask me further questions. In the meantime, I'll try and get the molasses stock number.
Sir, second data point was production of syrup for Q1?
I think that has been given in our presentation. I'll tell you how much it was. One second. So we have -- out of the ethanol that we sold, about -- one moment... Yes. So of the 303.54 lakh litres of ethanol that we stored in Q1 FY '24, 113.88 lakh litres of ethanol sold was produced from -- by using the syrup, [ sir], of feedstock. The rest of it was produced by using -- making use of B-Heavy molasses.
Sir, syrup production, or can we get…?
See, it's -- more or less they would be the same. There wouldn't be any much difference between the 2.
And sir, depending on the demand supply situation and government actions, how do you see the price headed in the next 3 months?
Sugar prices should get better, according to me. See, the sugar prices are always -- we see sugar prices getting better. You see, August [ would be ] the month of festivals. So August prices are always better. And September, October also the prices -- the rally in the prices we should see till the start of the next season. And by which time, of course, we will have more clarity on the production numbers of the next season. So until then, we should see some improvement in the prices.
Till what price could the government be comfortable increasing it to, I mean, before which they will not interfere directly or indirectly with the prices?
You see -- we have seen in 2016, '17, the government did not react until the prices had touched INR 3,800 or so. There was -- the prices -- of course, is the fact that the price is subsided thereafter. But until then, there was no hue and cry whatsoever.
Sir, how much will be the country sugar stock currently with dealer as well as with the company?
You mean with our dealers?
No. I mean, for country as a whole, with all the dealers and all the companies.
No. It's expected that the year-end stock would be about 60 lakh tons. So August and September, these 2 months, even assuming about -- what, about 45 lakh tons of releases for these 2 months. So it must be about 105 lakh [ quintals ] at this point in time.
And sir, with regard to OMCs, seeing some problem in uplifting the ethanol, what exactly is the logistical problem that they are facing? Because this is -- I think, the second quarter may not be for you, but for the industry that it is a recurring thing now.
No. See, it's a fact that most of us we opted for depots which are close by, and the OMCs gave the -- they issued the LOIs also. It's not that we opted and unilaterally -- and there was no -- I mean, they also gave us the allotment. They issued LOIs in our favor. So -- but then maybe some district were -- some depots were overfed and some districts -- some [ more ] depots were starved. So that they are trying to make good -- they're doing the redistribution, and I'm sure the problem will be resolved.
And lastly, sir, if the government is denying FCI rice for grain distilleries, would the sugar companies have a temporary upper hand in supplying more ethanol? Although our molasses stock will also be limited, but would we have a temporary upper hand vis-a-vis grain-based players?
You see, the grain-based companies' distilleries will not be able to meet the -- fulfill their requirements, okay? So how will it impact us? I don't think it will impact in -- we have a certain amount of stock of molasses which we will convert it into ethanol and we will sell. So whether anybody will capitalize on the situation or not, that we don't know.
Sir, I was waiting for the molasses stock.
I'll tell you Banka ji. It's 8,51,000 quintals.
Correct.
The next question is from the line of Sandeep Raj from Oculus Capital Advisors, LLP.
Sir, so, I have a few questions. It's regarding the recent [ plus ] which is happening in the country. So what can be the impact on this from the industry and when can we witness this impact?
I think somebody else had also asked this question. Now you see in UP we have not seen any impact. The rains have been so far -- well, the rains have been heavy, the downpour had been heavy, but so far it has not [ caused ] any damage to the crop. On the contrary, it has helped the drop. So I think so far, the rainfall is, I would say, more than adequate. But any more rainfall and [ incessant ] rainfall in the future could have caused some -- may result in inundation of some of the command area and your lodging of the sugarcane, and that may impact the yield of the sugarcane in the state of UP.Maharashtra and Karnataka, I'm told the later arrival of monsoon stunted the growth of sugarcane, and now with heavy rainfall, whether it will help them or not, I'm not too certain. But we have heard from some -- we have heard some -- we've got some reports that the crop may not be as good as what it looked like 1.5 months or 2 months ago before the monsoon arrived.
And like will -- this large [Technical Difficulty] in Karnataka, will this lead to any price increases in the cane and therefore lower margins in ethanol?
No. FRP for -- you see, Maharashtra and Karnataka, the sugarcane prices are FRP driven. The FRP for the season '23-'24 has already been announced. So there is going to be no change in the -- there is no any likely increase in the prices on account of the floods or whatever it be. So the prices are already determined. The cane price is already determined. So it will not impact anything. I mean, the [ floods ] -- what will eventually do is they will [ alter ] the production -- estimated production number which as of now some international agencies are talking of, about 34 million tons, so our season '23-'24.
And will it have any impact on the exports? Like will it reduce export quota? Or will it reduce -- Will it lead to any reduction in inventory?
So the government works backwards, in the sense that they target a particular closing stock numbers. Now the government is very comfortable with the closing stock -- the season end stock of about 6 million tons, okay, which means 3 months of consumption approximately -- less than 3 months of consumption. This kind of stock will not result in any runaway inflation. And at the same time, sugar mills will be assured of a reasonable price for the sugar sold by them. So what government will do is -- for example, we -- next season, we begin with opening stock of 6 million tons. Now assuming the production is 34 million tons, so that means the total sugar availability is 40 million tons, and 6 million tons is what we wanted to end up with. So again, we are back with [ 34 million ]. And if the consumption is [ 27.5 million ], [ 28 million ], that means there is scope for exporting 6 million tons. So -- which call the government will take closer to the start of the season because by then they will have some clarity about the probable production number and therefore, the probable closing stock number.
The next question is from the line of Riya Mehta from Aequitas Investments.
Sir earlier, we were -- while discussing with other sugar companies as well, so basically, syrup-based sugar is less margin or greater than B-Heavy sugar or…
[ Correct ].
just to say making sugar itself.
Yes.
So why have we…?
Sorry? No. I think I have clarified this in my earlier call also. So the most profitable thing to make is to make the ethanol by using B-Heavy molasses, and second priority is to make ethanol by using cane juice directly. If the price of sugar is, let's say, not more than INR 3,700 a quintal -- If the price of INR 3,700 -- price of sugar is more than INR 3,700 a quintal, then the question comes, whether we should make ethanol from juice or not.
And my second question is in terms of cost of conversion, with the increase in employee cost last time because of the wage revision. How is the cost structure right now happening for us, and considering similar SAP increase? Could you help me understand that?
Yes. Just a moment. Yes. So in this particular quarter, our employee benefit expenditure was -- one second. Yes, our employee benefit expenses was INR 26.78 crores, which was as compared to INR 24.11 crores in the corresponding quarter last year. So this is mainly on account of year-on-year increase. We normally -- we've increase of about 8% to 10% every year. And secondly, whatever -- secondly, last year, around -- in this quarter, the DD distillery was not operational. So the employee cost whatever we had incurred during the corresponding quarter last year was capitalized. And so therefore, the increase -- employee benefit expense increase, whatever you see is [ reasonable ]. And cane cost, of course, it's all dependent on the SAP that the government had announced. So let's wait and see what SAP they announce for the season -- coming season of '23-'24.
Apart from the cane cost, what is the cost of conversion [indiscernible]?
You're talking about sugar?
Yes, sugar.
Sugar is approximately [ INR 4.00 ] a kg.
And in terms of the red rot, you said that it's predominantly in [ center ] and Eastern areas.
Yes.
So do you think that coming through to our catchment areas?
No, we already have -- one of our units is facing the brunt of this problem, the unit in Bareilly district. Bareilly is located in Central UP. So we're already facing this problem. So we are doing 2 things at a time -- at the same time. Number one, we are trying to bring about varietal replacement, and number two, we are trying to protect the crop. We're trying to ensure its healthy growth by encouraging the farmers to use the right dose of chemical fertilizers and pesticides. So we are doing that.
How much impact on recovery does it have on aggregate basis?
Yes, it does have an impact. Like I had explained, the recovery in our DD unit is lower by 50 bps this season as compared to the last season. So which trend we are expecting to reverse in the coming 1 or 2 seasons. So in -- so far as the Bijnor district or units in Bijnor district is -- they are concerned, there, there is no such problem. There, whatever [ stray ] incidents of red rot that are reported, we ensure that the farmers approve the [ clumps ] of those plants and do the right treatment of chemicals and fertilizers so that it doesn't spread to the –- the problem doesn't spread.
And in terms of production for the next sugar season, what are you guiding for?
You see, we have -- during this season, our crushing went up by 6%. So last season, we crushed 378 lakh quintals and this reason we have crushed 401 lakh quintals. In the coming season, given the same capacity, same command areas, we do expect that there may not be a big improvement, but certainly 2% to 3% improvement in the crushing numbers we do expect in the coming [ crushing ] season. We have done some small [ CapExs ] in our units in Bijnor district, which will result in the increase in the crush rate at both the units. So which means either we will have -- either -- we mostly should have more scale available there, or at least we should be able to compress our crushing number of days in those 2 units. And in Bareilly unit, we are trying to increase -- ensure that the cane availability is more than what it was in the last crushing season. So what was 401 lakh quintals last season can be about 410 lakh quintals or so or, anything between 410 lakh quintals and 415 lakh quintals.
And in terms of lower offtake from [ OMC ], is it specific to Dwarikesh or it is entire...?
No. It's an industry-wide problem.
Even from players of Maharashtra and Karnataka?
I'm not aware about them, but certainly, all UP sugar mills are having this problem. All UP distilleries are having this problem.
And in terms of rainfall, which areas predominantly are facing issues in UP right now?
No, the entire UP has received a good amount of rainfall. But at this point in time, we cannot call it excessive. It is not -- the quantity is not such that it could cause serious damage to the crop.
The next question is from the line of Nikhil Gada from Abakkus AMC.
Sir, my first question is regarding our -- when you mentioned -- so specifically regarding the molasses stock, you mentioned that the closing inventory was 8.51 lakh quintal. Can I get the starting inventory, please?
I don't have the numbers right now. Wait a moment. You mean at the beginning of the quarter...?
Yes, end of 4Q FY '23 or year beginning.
One Second.
We can share it later, Banka ji.
We can share it later certainly.
And what will be the transfer pricing?
So we transfer -- B-Heavy molasses is transferred at INR 1,190 a quintal. So that's the transfer price.
And sir, just -- as you mentioned that we are facing some amount of supply -- we are not being able to do it to the OMCs as of now and which will be visible in 2Q. But the full year numbers of INR 11.50 crores, which we had guided for in terms of the volumes, that still stays or do you feel like...?
11.50 crores is what we have told, and that number is still same, INR 11 crores.
And sir, just in terms of the overall pricing on the ethanol via different routes. And you have also mentioned it a couple of times that the prices on the juice should go on the higher side.
Correct.
Any update on that? Where are we, and do we see any visible increase in those prices?
So we will have to wait and see. Normally, before the start of the crushing season the government announces the price -- procurement price of ethanol as well. We have done multiple -- given multiple representations to the government. There was a study conducted, which -- ISMA got it conducted by Grant Thornton. So the study report was also made available to the government. So we do expect the government will price -- made from juice such that sugar mills are incentivized -- more incentivized to produce ethanol from juice. So we do expect that government will announce the ethanol price from juice such that sugar mills are more incentivized to produce juice from ethanol because in doing so, we can see larger sacrifice of sugar production.
And sir, my last question. You mentioned about going to 30% on the new variety in the coming season. Any idea how we are going to go ahead for the next couple of seasons? Do we completely replace CO 0238?
No. We will bring it down to the level of 30% so that C0 0238 is only 30% and the other varieties constitute 70%. So -- and we'll make efforts to ensure whatever 30% of the CO 0238 variety is there, it's protected from the problems of red rot.
And this we are trying to achieve in the by sugar season '25?
So we -- '23-'24, '24-'25, yes, by '25 -- see, next year, we -- season '23-'24 we expect other varieties to constitute about [ 6% ]. So this number will go up to 50% and '24-'25 and '25-'26 we can see dependence on CO 0238 only about 30%.
And we are more or less -- in terms of at least from the perspective of what we have understood as of now, this variety would -- it [ is ] -- not be infected from the red rot, but the yield would be very similar to CO 0238?
Yes. You see, when a variety is new, it's [ normally ] sturdy, and it's only when the variety has been in existence for a long, long time, Like CO 0238 has been in existence for very long time. So it's become susceptible, it's become prone to such diseases. When a variety is new it's sturdy and it can withstand all these pest attacks.
The next question is from the line of Rajesh Majumdar from B&K Securities.
I just had a strategic question, sir. On the long run, we have -- the country is looking at, say, a full sugar production of over 40 million tons, nearly maybe 41 million, 42 million tons in say 3 years' time with the kind of increase in prices and the area and the cultivation and the kind of change in cropping that we are seeing. So structurally that would mean that we would need to divert somewhere between 6 million to 8 million tons, is that a correct assumption?
Yes. Of course, yes. It's -- see, we are going to reach 5 million tons of diversion in season '23-'24 itself. So we have diverted about 4.1 million or 4.2 million tons of sugar for ethanol in the season, which got over now. So in the coming season, we...
Sir, that figure is 3.4 million. But ISMA that figure is 3.4 million, I think, sir.
3.4 million was for '21-'22. For '22-'23, it's 4.1 million or 4.2 million. I'm not really sure about that. And '23-'24 will be 4.7 million to 5.2 million, anything between the 2.
So in that light, since we are seeing a slowdown in the uptake of grain-based or in terms of whatever difficulty, do we expect to see more CapEx from the sugar companies? But do you in the annual report have mentioned that you are going to see some consolidation in terms of your capital expenditures. So either we do more CapEx or we do more payouts to shareholders in terms of a buyback. What is the company specific…?
Let me answer your question. Now you see, for example, we have had an extended crushing season in our Bijnor units, okay? Now we are going to watch for another season because there is another sugar mill coming up in that area. Although it is not coming up in our near vicinity, but some of the sugar mills around will lose some cane to that particular unit. So when that happens, there will be some cascading effect. So we will need to watch the situation for maybe 1 season. And -- but see, the general thumb rule in the industry is, you have more capacity, you end up getting more cane. So we'll just be a little watchful in the coming season, and if we get the right signals, right indications, so we might increase the capacity of one of our [Technical Difficulty].
So right now, there is no plan of like buyback or giving the money back to shareholders this year, since there is no CapEx?
Sir, we will have to wait and watch the situation. [ Obviously ] there is reasonable certainty. We have been regarding our shareholders with generous dividends. So we will continue to do that. But yes, we will have to very judiciously keep money aside for our future endeavors.
So we can still think that the company may do a CapEx in the near future, right? That can be a...?
See this off season there are hardly a couple of months left. So there is nothing big planned in this off-season. But yes, next off-season, we have planned something.
Ladies and gentlemen, we'll be taking the last question. That is from the line of Riya Mehta from Aequitas Investments.
My question was how many days before we -- can we store ethanol in our plant?
Sorry?
And what is the storage capacity? Or you [ said ] that ethanol we are storing it?
Yes, we have 40 lakh liters in each of the locations. So we can store about 70 lakh litres at both the locations together, 70 to 75 lakh litres.
And how many days does this -- can...?
So we -- together, we produced about 3 lakh to 3.25 lakh litres of ethanol, so roughly about 25 days of production.
And we can keep it till as much time we want?
Yes. But why think of that. Yes, nothing happens. The quality doesn't deteriorate if you store it over a period of time because it's all under -- there are [indiscernible] tank. Everything is described and the quality of the tanks and all the -- such that it can hold the molasses for as many days as one wants.
And my second question is the offtake from [ OMC ] has reduced. Do you think the chances of ethanol price revision based on the increase in FRP are lower?
No. See, this program of ethanol blending is irreversible. So it's just that the government is -- the OMCs are facing some temporary blips. All one needs to work on is the logistics management, see that all the depots are adequately, properly spread, no depots are overfed and no depots are underfed. So they will have to work out a proper mechanism and ensure that each of the depot receives the right quantum of ethanol and --See, going forward, for 20% blending to be achieved, what one needs is 1,200 crore litres of ethanol. So there can definitely be -- there's definitely no dearth for the requirement of ethanol. And we do see no reason -- we see -- in fact, as I mentioned earlier, we've been asking the government to price the ethanol made from juice directly such that sugar mills are incentivized to [ sacrifice ] more sugar production.
Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Vijay Banka for his closing comments.
Thank you, [ friends ]. Thank you all for participating in this earning call conference. Your confidence -- I mean thanks for the confidence that you all reposed in us. We continue to work hard, try to do well, as good as we can under the given circumstances. And we do expect that the policy framework is [ fright ] and we try and improvise our efficiencies and churn as good performance as is possible. Thank you very much. I would now request Mr. Maheshwari and Ms. Priyanka to say a few words.
Thanks, everyone, for your participation, and we welcome you, and then possibly look forward to the next earnings call for more participation.
Yes. Thank you to everyone for their participation. I think Banka ji summed it up well, and the faith that you repose in us means a lot to us and gives us a lot of confidence. Thank you.
Thank you so much. Thank you.
Thank you.
Thank you, member of the management team. Ladies and gentlemen, on behalf of Dolat Capital, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.