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 Q3 and 9M FY '23 Earnings Conference Call of Dwarikesh Sugar Industries hosted by Dolat Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Tejas Sonawane from Dolat Capital. Thank you, and over to you, sir.
Thank you, Vivian. 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 Q3 FY '23 earnings call. From the management team, we have with us today, Mr. Vijay Banka, the Managing Director. Without further ado, I would like to hand over the call to the management for their opening remarks, post which we'll open the poll for a Q&A session. Thank you, and over to you, sir.
A very good afternoon to everyone. I welcome you all to our Q3 9 months FY '23 earnings call conference. Our results were published on the 30th of January 2023. The results are already there in the public domain. We had a rather muted performance in this particular quarter. We had a total income of about INR 392 crores, which is a big drop from the turnover that we dropped in the corresponding quarter last year. On 9-month basis, our turnover are more or less similar to what we had locked at the -- near the last year's 9-month period. And we had a profit before tax of about INR 15 crores and profit after tax of INR 10.5 crores. So I'll just take you through some of the financial highlights.
Total income, INR 392 crores, EBITDA of about INR 34 crores, finance cost INR 6 crores. I remind you the finance cost of that being quoted by now -- by me now is the gross finance cost. We have had the benefit of some earnings out of our deals, et cetera, which is considered in other income.
So earnings before depreciation and tax is about [ INR 28 crores ], profit before tax, INR 15 crores. So this is how our quarters are said. 9 months results, total income of INR 1583 crores, EBITDA of INR 140 crores, vis-a-vis INR 191 crores and a PBT of INR 83 crores vis-a-vis INR 133 crores and PAT of INR 58 crores vis-a-vis INR 96 crores. Let me take you through some of our key numbers. During this quarter, we had a sugar sales of 6.47 lakh quintals only, which included export of about 4.34 lakh quintals. This is as compared to 14.17 lakh quintal that we sold in the sort of funding quarter last year, which included 2.5 lakh quintals of export sale. So which means there is 2.13 lakh quintals that is sold in the domestic market. In the corresponding quarter last year, we had sold more than -- nearly 11.67 lakh quintals. So this is how -- this reflects why our income -- total income is lower.
And during the 9-month period, we sold about 33.25 lakhs quintal, which included for export, 9.34 lakh quintals as compared to 35.88 lakh quintals, which included for export 2.5 lakh quintals of sugar. So we will carry a stock of INR 4.72 lakh quintals compared to stock of 11.07 lakh quintals that we carried on the 31st of December 2021. Our opening stock was substantially lesser, which is the reason why we got lesser individuals in this quarter. We, of course, had some export sales, which is how our number of 6.47 lakh quintals is arrived at. On the industrial alcohol front, during this quarter, we sold industrial ethanol made from cane juice directly. So we had -- both the plants were fully operational, not during the entire quarter. When the season commence in Dwarikesh Nagar. So I mean, you can assume that in Dwarikesh Nagar, we started from the first half -- in the first week of November in Dwarikesh Dham we started -- commenced ethanol production from the second week of November. So we sold 1.684 crore liters. And for 9-month period, we sold lose 5.47 crore liters.
So we were significant jump as compared to the corresponding numbers of the previous year. So as I mentioned, the entire quantity of ethanol was produced from cane juice and we've been using this in both our distilleries and this is going to be our [indiscernible] in during season, we'll be using cane juice for making ethanol. And during off-season, we'll be using B-heavy molasses which as being generated and being stored.
So our season 2022, '23 is underway. We -- till 31 December, we crushed 125 lakh quintals of sugarcane across all 3 units, and we produced 9.38 lakh quintals of sugar. Sugar production, of course, was lesser because we diverted a significant portion of our production capacity -- of our sugarcane crust for making enough ethanol. So our crushing numbers are expected to be more or less similar as compared to the last season. Last season, we crushed about 378 lakh quintals, we will be maybe more or less around the same number. And we got export order of about 50 -- 86,000 -- our allotment was 86,000 metric tons, out of which 50,000 metric tons has been exported so far. And the balance has been traded in favor of [ Melbourne ] Maharashtra. So we swapped the quota. So we will be getting the benefit of additional releases in the -- from the month of April 2023 onwards. So our loan book -- term loan profile is -- I mean, as we mentioned, we have all loans at subsidized rate of interest. We have 2 distillery loans and one we have SEFASU 2018 loan, which was sanctioned by the government of UP. This is the -- about it and I'll give you -- I'll take you through some more numbers which might be relevant.
Our opening stock of sugar on the first of December -- from the first of -- sorry, October was only 1.80 lakh quintals. So which is what is the reason why we have got lower releases. I now open the house to all the participants, and I would request you to please ask the question. I'd be too happy to answer you all.
[Operator Instructions] The first question is from the line of Rajesh Majumdar from B&K Securities.
I just had a couple of questions. So correct me if I'm wrong, but the gross recovery for the quarter seems to be just 9.1%, and this is more than a 200 bps fall on a Y-o-Y basis. Is that correct?
No, no, no, sir. Gross recovery is down by 0.19%, the drop in the recovery that you are talking is -- I don't know if you have factored for the B-heavy molasses, I mean, sugar that we have sacrificed while producing -- generating B-heavy molasses. And plus, of course, we have diverted a -- divested sugarcane crushing for the ethanol production directly also. So our gross recovery on a comparable basis is down by 0.19%.
Because you gave the quantity of sugarcane diverted for alcohol -- and if you subtract the cane volume from that and conclude the recovery comes to only 9.1%.
Yes. So you are not factoring for the B-heavy molasses generation. So what is important -- what is important is gross recovery. When we in talk of the gross recovery, it is gross recovery in the conventional sense where we have not diverted the heavy molasses and there we have not diverted cane for changing directly for ethanol.
Got it. Got it. And this would be largely the Ratoon cane, right, which is crushed in 3Q.
Sorry?
In 3Q, you would have crushed the Ratoon cane, right? So the plant cane will come...
Ratoon, Ratoon cane. Plant can will come -- has started coming now.
Right. And what are the initial estimates from Ratoon cane -- from the Plant cane in terms of recovery, what is the initial indication? Is it going to be worse than last year or what?
Plant cane into crush early in January, the results are not very encouraging. But as the season advances, recoveries get much better and better. And we don't see any -- the plant recoveries to be any different from what they were in the last crushing season. And in fact, they should be better according to me.
So in terms of overall sugar production, would you like to give a figure for the sugar year '22, '23 compared to last year?
You mean sugar season, is it?
Yes.
Yes, sugar season, we should be anywhere you see, for example, we are going to crush the same quantity of sugarcane, so which is about 375 lakh quintals roughly 20-odd percent will be diverted for production of ethanol directly from cane juice when there will be [indiscernible] size B-heavy ethanol so our production sugar number could be anything between 30 lakh quintal to 35 lakh quintals.
Ok. 30 lakh quintals to 35 lakh quintals?
Yes. So that's a big reduction from our earlier in the numbers that we have had in the earlier seasons.
Right, right. Correct. Okay. That's one. And secondly, sir, what is the inventory valuation at the 347 lakh quintals.
INR 32, 575 per metric ton.
INR [32.57]
Yes.
Okay. And sir, my last question is on the outlook for the prices. Do you think that the production for the country will be short of 34 million tons, which is the last figure by ISMA and the inventory could actually start looking much more weaker than what it is looking right now?
Yes. You are right there, when we talk of -- I mean, personally, I would -- although I would go by the ISMA number, my way of putting it would be that 34 million tons with a lower bias. Okay. So since assuming the production number is so 34 million tons then you have 6 million tons of exports, so 28 million tons, which is going to be more or less equal to the domestic consumption. So we're looking at similar closing stock numbers. But I agree with you, it's very intriguing that the domestic prices are not risen. In fact, I think the same is -- the government is also equally worried that the domestic prices are not risen to the extent they should have risen. So -- but that's how the market has been operating.
The next question is from the line of Pratik Tholiya from Systematics.
So what was the average realization for the export that we have entered into this year?
So we exported -- I mean, not the entire quantity of export we did in the Q3, we exported, I think that number has been given about 43,400 metric tons is what we have exported. But anyway, the contract is won for the entire 50,000 metric tons. So we have the entire contracting for INR 36,000, they are for Kandla. So from that, you did it about INR 2,000 a metric ton for transportation or net realization of INR 34,000 metric tons.
Okay. Sir, any reason why this number is lower because others have contracted around INR 40.
No, that is they have pulled the refined sugar. We have not sold refined sugar. What we have sold is all raw sugar [indiscernible] attribute it to. Number one, we -- the timing of the contract also plays an important growth. We contracted no sooner the quota was allotted to us. And that's number one. And number two, we don't make refined sugar, we make only a sugar. So there are other benefits when we make raw sugar. The costing comes down because we don't use [indiscernible] chemicals, et cetera. So -- but yes, there is a bigger delta available when you export refined sugar.
Right. Sir, just a follow-up on that would be any -- because most of your competitors are now moving more on the refined side, actually 60%, 70% of the total production they want to sell as refined sugar. So any thoughts on that?
So number one, as far as the domestic market is concerned, the delta available on refined sugar is not much, okay? Number two. In case of exports, the export market for the refined sugar is rather small, not like the export market for the sugar, which is very big. So nonetheless, I mentioned it in my earlier calls also that we are evaluating and we will definitely be looking at putting up a refinery at our plant.
Sure. That's helpful. Sir, secondly, on the display, you said that during the season, we'll be doing mostly juice and off-season we will be doing B-heavy. So sir, if you could just give a broad split in percentage of how much quantity will come from B-heavy and how much from juice?
Roughly 6 crores plus liters will come from juice out of 11 crore liters. The balance will come from B-heavy.
11 crore liters is for this year, right? 11 crore liters?
Is what -- I'm not talking about financial here I'm talking about the season or even the ethanol here, as you may call it ethanol season here. This fiscal, we should be doing anything between 8 crores to 8.5 crore liters FY '23. FY '24, again, of course, we'll do 11 crore liters and I mean from the commencement of this season '22, '23 to recomplete our -- until we begin our next season, '23,'24. We'll do 11 crores liters.
[Operator Instructions] The next question is from the line of Shailesh Kanani from Centrum Broking.
Sir, I just wanted to understand, we have been hearing about the use of increasing SAP prices. So can you just highlight what is the status and what is our expectation?
Well, it is not politically correct for me to say anything about it. But yes, we don't think anything like that is going to happen. So whatever statements you hear, according to me, that is a political statement.
Okay. And normally, what is the timeline by which the government has announced. Are they on time? Or there is a delay?
More than -- nearly 50% of the season is over yet it is yet not announced. It should have been -- normally, if you have followed the pattern, they announce it sometime in -- at least before the end of November, it's announced. So we are already -- in January is also over and yet it is not announced.
Okay. So it's fair to assume that it has to be quantity of last trade, right? That is [ INR 350 crores ], which was sold earlier last year.
Yes, yes, yes. Sure. I don't. [indiscernible] differ on that.
Because it would create a little practical problem as well, like because as you rightly said, 2 months are already -- 2, 2.5 months we are already into the season. And if it's a retrospective change the payment structure and everything would be...
Highly unlikely. Highly unlikely.
Highly unlikely. Okay, fair enough sir. Sir, can you -- on gross level basis, can you share the percentage before on like-to-like year-on-year, what are the recovery levels of Dwarikesh and also for the industry percent or UP state for see if we can...
This quarter. No, I wouldn't -- off-hand have the numbers for UP or for the country as such. But in this quarter on a gross recovery basis, our recoveries are lower by 0.19% up to 31st of December, but there has been little improvement thereafter. And still a long way to go. I'm sure we'll make up for whatever is lost for now.
So what would be that absolute number. 0.19% is less than last year. So what is the number? Gross recovery?
One moment, sir. Let me -- if I can help you with the number. It's different for all our plants -- in 1 plant, it was -- to 31st December, it was 11.67% if you see over the last year, you see the recovery gets better as the season advances. So these months are typically of lower recovery. These are all low recovery months. I can share you the detail subsequently.
Sure. Okay, sir. Sir, my second question was with respect to a transfer pricing -- what is -- has there any change in the transfer pricing of molasses from the sugar division to distribution?
See, this quarter, there has been no use of B-heavy molasses. So it really doesn't matter. In this quarter, we -- all we have used this sugar juice and this was the first time that we used sugarcane juice.
Okay. Okay. Fair enough. And sir, on CapEx or growth plans, last time you had mentioned that probably by third quarter end, you will be doing some announcement about the future CapEx plans.
Yes. UP, we are doing 2 things, which will improve our capacity not substantially, but some capacity increase will be there as we step on the -- as we enter the next crushing season, small increases in our capacities. And then number two, the efficiency enhancement, CapEx are all incurred on a regular basis so that we are going to do. And we are very actively evaluating the refinery proposal.
Okay. So as of now, nothing on the distillery front until the time we have additional capacity lined up for the sugar...
There is no distillery CapEx in the near horizon.
Right, right. And that's until we increase our capacity as quantity of crush increase -- crushing. Right?
And with the distillery capacity that we have, we can go up to 12 crores liter with as little. So for that -- impediment is cane crushing and cane availability. And our sugar capacity, basically that sugar capacity.
Okay. Fair enough. Sir, the last question from my side is that we have been also hearing that since many of the industry players have been getting less domestic quota because of the higher diversion towards ethanol or for that matter, exports. So there is some talk of change in formula of allocation of domestic quota. So can you shed some light on that? Is there any...
Domestic quotas get better if you do export than if you do there is -- I think some time ago month or month and a half ago, there was a set formula which the government had come out -- weightage is given for diversion of ethanol or diversion of B-heavy and for exports also. So new weightage is given, so there is no reduction on the contrary -- on a comparative basis, we stand to gain when we do ethanol from cane juice.
So this was a change because we had lower quota as ...
They may actually announce a formula very clearly so that there is no ambiguity. This was the pattern even earlier also. So the announcement has been done only to ensure that there is no ambiguity whatsoever so as to ensure total transparency.
[Operator Instructions] The next question is from the line of [ Krisha Kansara ] from Molecule Ventures PMS.
Sir, globally, sugar prices are at a 6-year's high, close to around $0.22, but domestic prices are around INR [34,500] and are only marginally higher than our cost of production. So why is there a diversion in domestic prices, the extent of diversion is -- looks like very -- not a ordinary event? And given the production output announcements and anticipated reduction in the production going ahead into the season, should the domestic prices inch up much higher than the current market prices?
I fully agree with you, sir. There is no reason why the domestic prices should prevail at these levels. See, Internationally, prices are high, and they will continue to be high also. Only, of course, there may be some moderation happening when the Brazilian production comes into the market. But one must also understand that over a period of time, the costs have gone up in all the economies, in all the geographies, which are producing sugar. So the prices have to settle at a higher level. It's very intriguing that the domestic prices are not going up. In fact, the quotas on all India basis that which the government has announced are also comparatively lower than what they had announced during the month -- during corresponding months in the last year. So I definitely see the price correction of INR 2,000 a metric ton to happen in the near future.
Sure, sure. And sir, another question was that given the production cut announcements, there is also export quota increase expected by the industry. So how do you take it? Do you think that we would get another 2 million, 3 million incremental quota to export? Or do you think that is ruled out given the production cut announcements.
As of now, I don't think there is any possibility of further exports being allowed because I'd explain the statistics. So we've begun the season with opening stack of 5 to 5.5 million tons and expected production of about 34 million tons and you deduct from that the exports, which the government has already announced and which will definitely happen, that is the 6 million tons. So you are left again with the under consumption of about 27.5 million to 28 million tons, what you are left with only about 5.5 million to 6 million tons of closing inventory, which is similar to what it was last season. So I don't think -- as of now, there are no indications to state that the production number could be higher. In fact in Maharashtra, sugar mills have started shutting down on for further premium.
Okay. And this is very recently?
Yes. Some mills -- I mean the number is very small, maybe 2 or 3 have stopped crushing, but well -- in February, we will see a seasonal operations concluding in many other sugar mills in Maharashtra.
Sure. Sure. So there then for the sugar -- our sugar segmental mix to be more profitable now, can we expect that given the incremental quotas won't be provided for the exports. So can we assume that global increase in any global sugar prices are not directly beneficial to us given that we have already contracted for 5 million tons.
Yes, yes. As of now, they are not as any benefit to us.
[Operator Instructions] The next question is from the line of Jaspreet Singh from BA Capital.
Sir, any effort to increase the crush this season or next season?
Sir, effort is always there. See our plant has capabilities of produce -- crushing at least 400 lakh quintal. That is never a problem. What dampened our crushing estimate was the fact that there were unseasonal rains in the month of October, so which resulted in lodging of the crop, which resulted in lower-than-normal yields, water logging in many areas. So this is the reason why the crushing numbers in spite of these hostile weather conditions. We think we will have similar crushing numbers this season as well. And when the effort is always there, we are working very hard on changing our varietal mix in one of our units. So where the impact of the red rot is much more. So and consequently yield in that area is also lesser. So once we are successful in our efforts to change the varietal mix there, we should see increased crushing numbers there in that unit.
So do you expect the dominant variety to be replaced by next year?
It's going to be a 3-years program, but efforts will -- I mean, results will be visible from the next year onward.
And sir, secondly, you mentioned about that government is also worried that the price is not rising, would you not think that government would be interested in lowering the price rather than letting it go up?
No, no. So I'm not -- I beg pardon, actually. I mean that's a very informal opinion actually. So the government is normally noncommittal on the prices. But there are always -- because the prices do not rise, it leads to consequently problems at all levels, the sugar prices are not commensurate with the increasing cost et cetera. So there are consequently problems. So in that sense, they are worried. They -- first they would want the sugar to be made available to the common man at the lowest possible price.
Okay. Okay. I mean they can easily control the price by lowering the quota -- monthly quota?
Yes. The quotas are lower, but in spite of that the prices are not risen.
Okay. Okay. And you think government would be okay till a price of what level?
So in '16, 2016, '17, our average realization is to be [ INR 36,000 ], [ INR 36,500 ], INR 38,000 metric ton. And there was no risen price then and if you factor for the inflation from then to now -- But anyways, that's stretching the argument to be too far. But I don't think even INR 37,000 a metric should raise any [indiscernible].
[Operator Instructions] The next question is from the line of Shailesh Kanani from Centrum Broking.
So just wanted to understand production of raw sugar this quarter vis-a-vis last quarter, if you can share those details, it will be helpful.
Sir what we have sold is what is more or less the production actually in the quarter -- so in this quarter, we have sold about 43,400 metric tons of raw sugar. I mean that is what has been dispatched from our sugar mills.
43,000, right? Or is it?
43,400 metric ton.
And vis-a-vis last same period that is third quarter?
I think at about 25,000 metric tons last [ quarter ]. One moment. I think it's already there in our press release if we see. That number is there already.
Sir, in terming that case, should it our recovery levels would have been little boosted because the raw sugar [production] also gone up. So any concerning factor you see?
Should have -- recovery should have been better, but raw sugar production does help with the cause of recovery, it is like I explained the rains were very untimely which is the reason why across, you see the recoveries were lower in this particular period.
And same reason can be cited for the drop in yield and recovery for Maharashtra as well? Is it fair to assume the same reason is there?
There also, they say because of the unseasonal rainfall , but agro-climatic conditions of Maharashtra are vastly different from the agro-climatic conditions of UP.
Okay. Because when I see the -- it's my estimates -- the largest fall is in Maharashtra. So I'm a little -- I'm just trying to understand figure out, okay, what is the main reason for that sudden fall.
Basically, agro-climatic conditions. So the 2, 3 factors, one is agroclimatic conditions and secondary, if there is unexpected pest attack, which any particular variety is suscept to. So these are the 2 main reasons, actually.
Okay. And sir, just a last question on my side -- continue on that recovery side. So what gives us the confidence that the recovery levels would improve and recovery will be ending say flattish by in the season end?
So we see the crop conditions at the field that gives us the confidence.
That is the plant crop, which is you are getting right now. That is what you're...
In small measures, we have started getting it, of course, we're going up now. I mean now it's planned across all units.
And the weather conditions are suitable, then there is no negative supply mix from that side.
January, we had extremely cold weather conditions, but now there's bright sunshine in this part of the country.
[Operator Instructions] The next question is from the line of Rajat Gupta from Investor.
Sir, my question is that, sir, we stated that we have a run rate of 10 crores to 11 crores liters in ethanol. And so this quarter, we were less than 2 crore liters. What was the reason?
Sir, this quarter, I told you we operated our plant for the first time with juice, number one. Number two, our ethanol plants for operational only during the in case of our [ DM ] unit from sometime in the first week of November, we started. And our Bareilly unit distillery operations began our season started on the 8th or distillery operations began around 12th or 14th. But in the month of January onwards, we've been getting a run rate of 1 crore liters per month. I mean combined for both units.
Okay. Sir, any reason why we started late for the distillery or was it because of...
No, no, it's sugar production started and then we had to get some approvals in all from the excise department announced. So any distillery -- I mean it was the first time for us and first time for -- I mean typically, there is about 3, 4 days waste of getting the approvals. We are [indiscernible] delay actually.
Talking about the normal run rate of 2.6 crores liters.
In a quarter?
Yes, sir.
In the quarter, we should do about 2.75 crore liters minimum.
And sir, FY '24, how much ethanol are we looking at?
'24, anything between 10.5 crores to 11 crores liters.
So this is [indiscernible] ethanol or does this include the [indiscernible]
Sorry?
Is this [indiscernible] ethanol or [indiscernible]
No, no, no. pure ethanol sir, pure ethanol. Partly made from sugarcane juice and partly made from B-heavy molasses.
And one more [indiscernible]
Mr. Gupta, I'm sorry to interrupt, sir, but we can't hear you clearly.
Hello, sir.
Yes, this is better.
Can you -- yes. In the Triveni call, they were talking about the Ratoon's recovery being lower. So is there any such problem with us? And is it any diseases [indiscernible]?
No, no. This was because of the weather conditions, weather condition. See, Triveni's plants are located across UP, okay? They are there in -- excuse me? So Triveni plants are there across UP but our plants are brittle plants in Bijnor District and one in Bareilli District. So, I mean different areas, the phenomenon different. So Ratoon recovery has been lower for most of the sugar mills.
Sir, but we expect the plant recovery to be better?
Yes, yes, we do expect the recoveries to do better. Yes.
Okay. And sir, no disease problem in our crop side? Any Red Rot?
No, Red Rot problem is there in our Bareilly unit. So considering the fact that our recoveries are always the better -- always better. I mean, we try to improve our recovery from the previous seasons. So this drag in our recoveries, mainly on account of drop in the recovery in our Bareilly unit.
And for that, sir, we are trying to change the varietal mix?
Varietal mix.
Varietal mix. Yes. But you said that will take 4 to 5 years.
No, no, no, 3 years, 3 years.
[Operator Instructions] As there are no further questions, I would now like to hand the conference over to Mr. Banka for closing comments.
Thank you, friends. Thank you all the participants for taking active part in this earnings call conference. We derive confidence from your confidence in us. Thank you very much for reposing confidence in us. But is expected to be a paradigm shift in our model the way we have been operating. So the conventional pattern may or may not follow in -- may or may not be followed in the future. Things are going to be different. There is going to be more focus on ethanol -- moderation of sugar inventory -- sugar production and inventory will happen. So we'll, of course, keep you posted with all the developments from time to time. Thank you very much.
On behalf of Dolat Capital, that concludes this conference. Thank you for joining us. You may now disconnect your lines.