Dwarikesh Sugar Industries Ltd

NSE:DWARKESH

Earnings Call Transcript 2025-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to Dwarikesh Sugar Industries Q2 FY '25 Earnings Conference Call hosted by Dolat Capital. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Krishna Parekh from Dolat Capital. Thank you, and over to you, sir.

[Krishna Parekh]

Thank you, Shifa. Good afternoon, everyone. On behalf of Dolat Capital, I would like to thank the management of Dwarikesh Sugar Industries for giving us the opportunity to host their Q2 FY '25 earnings conference call.

From the management team, we have with us today, Mr. Vijay S. Banka, Managing Director; and Mr. B.K. Maheshwari, Managing Director and Company Secretary cum Chief Compliance Officer.

Without further ado, I would like to hand over the call to the management for their opening remarks, post which we'll open the forum for a Q&A session. Thank you. And over to you, sir.

[Vijay Banka, executive]

Yes. Very good afternoon. Thank you so much, Krishna. I welcome all the participants to the Q2 FY '25 earnings call conference of our company. Our results were published yesterday. And as you may have seen, the results are not very encouraging although as we go along, I will tell you, I mean, what is going to be shaping for the future, et cetera.

So in this particular quarter, we had a loss before tax of about INR 36 crores and loss after tax of about INR 24 crores. And this is as compared to a profit of INR 15 crores that we made in corresponding quarter last year. Profit before tax was INR 15 crores. And PAT of -- and we had PAT also during the same period. So half year in -- for half year also, the numbers do not compare very well.

So let me first talk quickly about the sugar scenario, the macro sugar scenario -- I mean, in terms of how India is going to be faring in the coming season. So last season, the sugar production is pegged at 32 million tonnes. This is after factoring for a diversion of 2 million tonnes, so which means gross production was about 34 million tonnes. In the coming season, we have number -- estimates of gross sugar production, which is expected to be around 33.3 million tonnes. And this year, there is -- since the government has resumed the ethanol blending program, so it is expected that 4 million tonnes will be diverted for ethanol production. So bringing down the net sugar production to about 29 million tonnes.

So stock position is extremely comfortable. Season 2023, '24, we have ended with a closing stock of 9 million tonnes. So which means there is scope for allowing exports also, but I'm sure government will perhaps wait and watch. There will -- they would like to have more clarity on the production levels for '24/'25 before they make any announcement regarding exports. So as of now, the encouraging news is that ethanol blending program has been received, and we are at -- we will be able to tweak our production planning such that we can use juice during the season, for juice as we start for making ethanol during season and during off season, we can use the B-heavy molasses.

So during this quarter, we sold about 5.97 lakh quintals of sugar as compared to 7.19 lakh quintals in the corresponding quarter last year. So sugar was sold at a price of INR 3,767 per quintal vis-a-vis INR 3,696. For the half year, the numbers are 12.72 lakh as compared to -- 12.72 lakh quintals as compared to 16.89 lakh quintals. So in terms of price realization, the price realization is better as compared to the corresponding period last year. So people are carrying a stock of about 5.9 lakh quintals as on the 30th September 2024, vis-a-vis 2.68 lakh quintals that we carried on the same date last year.

Sugar stock is valued at INR 3,383, the same rate at which it was valued at the end of quarter 1, 2025, and also the year ended FY '23/'24. So our sales turnover, the total income has come down significantly because our -- not only our sugar quantity that we sold was lesser, but industrial alcohol that we sold was substantially lesser. During the quarter, we have sold about INR 31.54 lakh kiloliters of ethanol, and as compared to INR 2.87 crore liters that we sold in the corresponding quarter last year. So you can see the turnover coming down, the total income down is mainly on account of lesser sugar sales as well as lesser ethanol sales. So our numbers were impacted during this quarter and half year because of the quantity of -- lesser quantity of sugar sold. And because not only sugar sold was lesser, but ethanol sold was also lesser. So these 2 have been the major factors contributing to the lesser turnover.

Then we are crushing operation for season '23/'24. They got over in the month of March itself across all 3 units. So we have had no benefit of -- I mean, we do not have any crushing operation during the ongoing season. So as a result, that is obviously going to have cascading effect on our working, and it has already had in this quarter's working. So ethanol -- I mean, no molasses was -- feedstock was not available for making ethanol. So basically, the operations were curtailed because of lesser availability of sugarcane and therefore, shorter crushing season and which again resulted in lower availability of feedstock for ethanol production.

So our term loan profile is very lean and trim. As on 30th September, we have had the term loan outstanding of INR 107 crores. All -- both the loans are in the respect of loans taken by us for the distillery project, and our rating continues to be good. We are AA rated over our long-term goals, and we are rated A1+ for our commercial paper program.

So as I was talking earlier, the lower availability of sugar coal in season 2023 is what is responsible for level of operations that we have seen. And that, again, is a result of Red Rot infestation that has happened across the command area of all our 3 units. So we have fostered our varietal replacement program. And we are also making a lot of efforts towards crop protection. So all these efforts will bear fruits in the coming season. We will see some partial recovery in the season of '24/'25, which is about to commence. In fact, we are going to start crushing across all our 3 units on the 4th of November. But yes, full recovery, we will get back our mojo, we will get back our momentum in the season thereafter.

So efforts are on, total -- and what is encouraging is that ethanol blending program has been resumed. So we'll be able to utilize our distillery capacities also in a proper manner. So I strongly believe the worst is behind us. And going forward, we should see substantial improvement in our numbers.

Thank you very much. I open this house to all our friends who can now start asking questions.

[Operator]

[Operator Instructions] We have the first question from the line of Vikram Suryavanshi from PhillipCapital.

[Vikram Suryavanshi, analyst]

Sir, just wanted to confirm what was our total crushing in the season we completed?

[Vijay Banka, executive]

We crushed across 3 units, 268 lakh quintals in season '23/'24. This is as compared to 401 lakh quintals that we crushed in the previous season, which is '22/'23 season.

[Vikram Suryavanshi, analyst]

Got it. And how is the outlook because now we'll start season next few days, in terms of cane development and from the...

[Vijay Banka, executive]

We have -- see, replacement of variety is a 2-year program at least. So in our Bareilly unit, we're going to experience a significant change in our varietal balance. The other 2 units in Bijnor district where the Red Rot insects attack happened only in the last season. So there, the varietal replacement will -- may perhaps take 1 more season. But having said that, I can say that we will be able to see better utilization of our distillery capacities, our varietal balance should be much better than what it was last season. So recovery should be definitely better than what it was in the last season.

In terms of cane availability, we will have to wait and see. Weather could play a significant role. And there are multiple factors on which the cane availability is dependent. So we'll be able to have more clarity only as we go along.

[Vikram Suryavanshi, analyst]

Okay. And with this new varieties, are they comparable in terms of yield and recovery compared to 238 or say, 1, 2 years down the line? Or how is the...

[Vijay Banka, executive]

Yes, of course. See, there is this variety 118, which has become very popular. So it's maybe not as good as 238, but is definitely very close to 238, but there are other varieties 15201, 15203, 14201. These are all the varieties which are, in fact, better than 238. So complication of all these varieties, this is a phase which is evolving. So I'm sure this time the industry will be wise and they will not be dependent on 1 single variety.

We will try and propagate more than 2 or 3 varieties. The Prime Minister has also released a few varieties for propagation. So we are trying out 1 of that variety also, 16202. So I don't think there is any problem in so far as the adoption of new varieties is concerned, both in terms of yield as well as recoveries.

[Vikram Suryavanshi, analyst]

And was there any meaningful diversion to liquor [indiscernible] because of the election and probably that also can help us to recover or that was not so meaningful?

[Vijay Banka, executive]

Yes, yes. So this is -- in last season, you see the molasses diversion was -- I mean molasses that we were compelled to offer for levy sale purposes was substantially higher. It was 26% for C-heavy and 19% for B-heavy, which was subsequently reduced, for B-heavy to 18% and C-heavy was accordingly commensurately reduced. So it moves around 24.86% or something like that. So this year, there being no election, I think -- and the government has done another good thing. They've brought the grain distilleries also into the gamut of this levy obligation. So and [indiscernible] are also being covered. So with this happening, our levy obligation percentage should definitely be coming down.

[Vikram Suryavanshi, analyst]

Okay. So grain is also under levy obligation now? How much is that...

[Vijay Banka, executive]

Yes, yes. They will have to make ENA and give to the distillers.

[Vikram Suryavanshi, analyst]

Any percentage you -- or how is it significant for them?

[Vijay Banka, executive]

No, we expect at least 1% or 2% lesser than what it was for last season.

[Vikram Suryavanshi, analyst]

Okay. And for us, I hope I think now the distillery capacity to utilize will run during season with the juice for distillery and then probably B-heavy. So broadly, how would be the mix for B-heavy and diversion?

[Vijay Banka, executive]

So we will do -- during the season, totally, we will do juice diversion. So whatever are -- at 2 of our units where the distilleries are located. So in the third unit where there is no distillery, we will generate B-heavy molasses from day 1. In the other 2 units also after diversion of juice, whatever molasses generation will happen that will also be of B-heavy molasses. So that way, we will have a good quantity of B-heavy molasses available for running our distillery during the off season. Maybe we will not be able to run during the entire duration of off season, but some part of the off season definitely we'll be able to run.

[Vikram Suryavanshi, analyst]

And any quantity which have tendered for OMCs under this supply?

[Vijay Banka, executive]

We expect to supply more than 7 crore liters of ethanol totally. Together, made from juice as well as from B-heavy molasses.

[Vikram Suryavanshi, analyst]

Okay. And any plan for this grain related as a long-term opportunity just to increase the capability of operations?

[Vijay Banka, executive]

See, now the grain prices have shot through the roof actually. So this is a very -- it's a very cash generative kind of situation. So we will take a call at the appropriate time.

[Vikram Suryavanshi, analyst]

Okay. But for us, it will be like more like using existing infrastructure largely, so cost of...

[Vijay Banka, executive]

It will still require a capital outlay of about INR 35 crores, INR 40 crores.

[Vikram Suryavanshi, analyst]

Understood, sir. Okay. Yes, if there are no questions, I'll come back in the queue.

[Operator]

[Operator Instructions] We have a question from the line of Vikram Suryavanshi from PhillipCapital.

[Vikram Suryavanshi, analyst]

Okay. Sir, I think there has been a top demand from the industry for increasing the ethanol prices. So what is the demand and how -- because already we are now close to starting of the season. So any outlook on the next increase, export or ethanol price side?

[Vijay Banka, executive]

See, ethanol prices will definitely be increased. Now the last season if you recall, they had not passed on the -- there was FRP increase last season as well -- also and as well as this season. Ethanol prices directly, it's correlated with the FRP price. So they will have to -- we expect government to give cognizance to the increase in the FRP last season as well as this season and work out a price for all the feedstock based ethanol. So we expect decent increase. And as we understand the matter is under process, it may take some time, but definitely, there will be a price increase of ethanol.

Now export price, as I said, maybe the government would want to have more clarity on the production level. As of -- as the numbers indicate, as on date it is expected that about 29 million tonnes of net sugar will be produced. So if 29 million tonnes of net sugar is produced and if we add to that about 9 million tonnes of opening stock of sugar. So that makes it 38 million tonnes. And if the consumption is about 29 million tonnes, we are still left with about 9 million tonnes of sugar as closing stock, which is quite a comfortable number. So it offers enough scope for the government to allow at least 2 million to 3 million tonnes of export. But as I said, perhaps the government may wait till January or so -- January or February before it takes a final decision in the matter.

[Vikram Suryavanshi, analyst]

All right. And I think there was no announcement for UP in terms of SAP when there is increase for FRP?

[Vijay Banka, executive]

Last year the SAP was increased, so we don't expect any SAP increase this year.

[Vikram Suryavanshi, analyst]

Understood. So for us, what would be the landed price broadly?

[Vijay Banka, executive]

So we -- it's mostly the early variety that we buy. So it's INR 370 delivered -- per quintal, delivered as needed.

[Vikram Suryavanshi, analyst]

Understood. okay. I think that was really helpful, sir.

[Operator]

[Operator Instructions] We have the next question from the line of Pratik Tholiya from Systematix.

[Pratik Tholiya, analyst]

Just wanted to -- one clarification, you said 7 crores liters of ethanol, it is for the season for this financial year because if I see your presentation, you've done 1.5 crore liters in H1, so the 7 crores, which is totally...

[Vijay Banka, executive]

This is for the ethanol season.

[Pratik Tholiya, analyst]

For the season. So for FY '25 or for H2, how much are you planning to sell?

[Vijay Banka, executive]

No. See, beginning now, if we sell -- complete it -- out of this, we expect our 4 crore liters at least, more than 4 crores liters to be done within the financial year '24/'25. So the balance will be done in financial year '25/'26. And then in that financial year, again, we will have opportunity to build for the new season, which will start in November 2025.

[Pratik Tholiya, analyst]

Okay, understood. That's helpful. And sir, secondly, what is the talk around the price hikes of ethanol, because it's almost now we are entering November.

[Vijay Banka, executive]

We should -- we are very optimistic. We are very optimistic, we should expect to hear very shortly.

[Pratik Tholiya, analyst]

And sir, any clarity on what sort of quantum can you expect?

[Vijay Banka, executive]

Quantum of what?

[Pratik Tholiya, analyst]

I mean what sort of price hikes can we expect?

[Vijay Banka, executive]

What is being discussed in general is that there will be INR 4.5 per liter increase in case of ethanol where feedstock used is juice because last year also, they did not give any increase. So they will have to factor for the FRP increase last year as well as this year and about INR 3, INR 3.5 for ethanol, where the feedstock will be B-heavy molasses. So C-heavy, they have already given increase last year. So we don't expect any increase in the price of ethanol made out of C-heavy molasses. So B-heavy and C-heavy, this is what the numbers tell, eventually government will take a call as to how much, what kind of price increase they will give.

[Pratik Tholiya, analyst]

Okay. And sir, this 7 crores can you give a breakup in terms of how much we are planning from juice and B-heavy?

[Vijay Banka, executive]

More than 4 crores from juice and the rest from B-heavy.

[Operator]

[Operator Instructions] We have the next question from Krishna Parekh from Dolat Capital.

[Krishna Parekh]

So sir, I have a couple of questions. So the Red Rot that we are affected by our Co 0238 variety, so how much of our command area is under that irrigation? .

[Vijay Banka, executive]

No. You see it happened in sequence, actually first it hit the unit, which is closer to the Eastern UP state, I mean it's actually in the Central UP, which is the Bareilly unit. So there the devastation happened 2 seasons ago. So there now, we have brought about a substantial change in our varietal mix. So there 238 will constitute only about 30% to 35% of the supplies coming in this season, okay?

Whereas in the rest of the unit, Co 0238 will still be about 90%. But next year, the number will be substantially reduced. Next season, it will be same as what we have going to experience in our Bareilly unit, nearly 60% of non-Co 238 variety and the rest will be Co 0238 variety.

[Krishna Parekh]

Okay. Got it. And sir, in relation to the exports of sugar, are we expecting any exports of sugar for the next season as there are enough surplus and now the restriction has been lifted?

[Vijay Banka, executive]

Well, you are right. Actually, there is enough stock in the system, but the government would want more clarity on the production for the season, 2024/'25. So they would perhaps -- although there are indications that the gross production number would be more than 33 million tonnes. But government waits till -- for some more -- some more clarity to come before they will take a decision on this.

[Krishna Parekh]

Okay. And the export realizations are similar to the domestic or they are a slight higher?

[Vijay Banka, executive]

Yes, yes. The export prices are very good actually because of the wildfires in Brazil, the export prices have -- in fact, sometime in September, the prices went to as high as 23.68 cents per pound of raw sugar. The prices are reasonable, even now with some correction, the prices are at fairly decent levels.

[Operator]

We have the next question from the line of Vikram Suryavanshi from PhillipCapital.

[Vikram Suryavanshi, analyst]

Sorry, just can you share again that inventory and what is closing the inventory right now? I think I missed that number.

[Vijay Banka, executive]

So you want the inventory as on the 30th September, right?

[Vikram Suryavanshi, analyst]

Yes, that's right, sir, and valuation.

[Vijay Banka, executive]

One moment. So we were carrying about 5.59 lakh quintals of sugar as on the 30th September, which was valued at INR 3,383 per quintal. .

[Vikram Suryavanshi, analyst]

INR 3,383, okay.

[Vijay Banka, executive]

Yes.

[Operator]

[Operator Instructions]

[Balkishan Maheshwari, executive]

I think there are no more questions.

[Vijay Banka, executive]

So we can conclude.

[Operator]

As there are no further questions, I would now like to hand the conference over to management for closing comments.

[Vijay Banka, executive]

Thank you, everyone, for participating in this earnings call conference. And thank you very much for reposing confidence in us. I know the results have been a tad disappointing, but I can assure you that the worst is behind us. And going forward, we should see substantial improvement in our varietal mix and recovery, et cetera. So all efforts are being made to bring about varietal replacement and crop protection in our Command area. This will obviously bear fruits in the times to come.

Thank you very much. I hand over this -- the forum to my colleague, Mr. Maheshwari, who may have to say -- who may have a few words to say.

[Balkishan Maheshwari, executive]

Thanks, everyone, for your active participation, and we look forward to see you again -- meet you again in the next earnings call, and we also hope that the time to come will be good for us. Thank you.

[Vijay Banka, executive]

Thank you.

[Operator]

On behalf of Dolat Capital, that concludes this conference. Thank you for joining us. You may now disconnect your lines.

[Vijay Banka, executive]

Thank you.

[Operator]

Thank you, sir.