Dhampur Sugar Mills Limited (500119) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to the Dhampur Sugar Q3 FY '20 Earnings Conference Call hosted by Prabhudas Lilladher Private Limited. Before we begin, I would like to mention that certain statements in this call could be forward-looking in nature and are subject to risk and uncertainties, which could cause actual results to differ materially from those anticipated. Such statements are based on management's belief as well as assumptions made by information currently available to the management. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Prashant Biyani from Prabhudas Lilladher. Thank you, and over to you.

Hello, everyone. On behalf of Prabhudas Lilladher Private Limited, I welcome you all to 3Q FY '20 earnings call of Dhampur Sugar. I would like to thank the management of Dhampur Sugar for taking out time for today's con call. From the management side, we have Mr. Gaurav Goel, the Managing Director; Mr. Nalin Gupta, the CFO; Mr. Vinit Gupta, Chief GM Finance; and Mr. Akshat Kapoor, GM Finance. I would request the management to discuss about company's results and key industry highlights for third quarter, and then we can start with Q&A. Thank you, and over to you, sir.

Thank you. Good afternoon, ladies and gentlemen. A very warm welcome to all at Dhampur's Q3 FY '20 Earnings Conference Call. I would like to begin by sharing my perspective on the sugar sector while discussing the company's operational performance, following which, we will take you through the financial highlights of the company for quarter 3 FY '20. The state-advised price for sugarcane for the season 2019/'20 has been kept unchanged at INR 315 per quintal for general variety of sugarcanes from last season in UP. Overall, we are glad to report a stable performance. Sugar realization for Q3 FY '20 stood at INR 32.82 per kg as against INR 31.72 per kg in Q3 FY '19. Sugar realization for 9 months FY '20 stood at INR 32.74 per kg as against INR 30.42 per kg in the same period last year. Sugar sales for Q3 FY '20 stood at 1.83 lac tons, including raw sugar sale of 0.28 lac tons as against 1.76 lac tons, including raw sugar sale of 0.21 lac tons in Q3 FY '19. Sugar sales for 9 months FY '20 stood at 5.61, including raw sugar sale of 0.87 lac tons as against 4.7 lac tons, including raw sugar sale of 0.21 lac tons in the same period last year. In the terms of inventory, the total inventory as on 31st December 2019 stands at 3.41 lac tons of sugar valued at an average cost of INR 30.50 per kg. The company sold 187.6 more lac BL of ethanol, including 61.9 lac BL of ethanol derived from B-Heavy, at an average realization of INR 44.32 per BL during the Q3 FY '20. The company during the Q3 FY '20 sold 54.56 lakh kg of chemical at an average realization of INR 56.86 per kg. The company sold 742.45 lac BL of ethanol, including 192.59 lac BL of ethanol derived from B-Heavy molasses in 9 months FY '20 as against 470.91 lac BL of ethanol, including 47.6 lac BL of ethanol derived from B-Heavy molasses during the same period last year. During the quarter ended 31st December 2019, Dhampur and its Power segment generated 20.45 crore units of power against 20.22 crore units in the same quarter last year and exported 10.54 crore units as against 11.33 crore units in the same quarter last year. We would now request for Mr. Vinit Gupta to take you through the financial performance of the company. Thank you.

Afternoon, and thank you once again for joining us on the call. I would now like to take you through the financial highlights of the company for the half year ended September -- for September -- for the quarter ended December 2019. Our total revenues, EBITDA, PBT for the Q3 FY '20 stood at INR 820.44 crores, INR 92.62 crores, INR 53.26 crores as compared to revenue of INR 798.51 crores, EBITDA of INR 120.52 crores, PBIT of INR 89.01 crores in Q3 FY '19, respectively. Our interest cost stood at INR 20.48 crores during Q3 FY '20 as compared to INR 15.01 crores (sic) [ INR 15.02 crores ] in Q3 FY '19. Profit after tax stood at INR 51.02 crores in Q3 FY '20 against INR 82.04 crores in the same quarter last year. Let me now take you through the business-wise performance. For the quarter ended December 31, 2019, Sugar division reported revenues of INR 733.87 crores, contributing 69.05% of the total revenues as compared to 65.65% at INR 663.75 crores in the same quarter last year. PBIT in this segment stood at INR 27.03 crores as compared to PBIT of INR 19.77 crores in the corresponding quarter last year. Revenue from ethanol chemical business for the quarter stood at INR 145.25 crores against INR 103.09 crores in the corresponding quarter last year. EBIT for Q3 FY '20 stood at INR 15.34 crores against INR 35.98 crores in Q3 FY '19. Decline in margin in Distillery segment is due to higher input cost. During the period under review, Power revenues stood at INR 144.28 crores with a profit of INR 47.85 crores as against revenue of INR 166.70 crores and profit of INR 67.19 crores in Q3 FY '19. Power realization stood at 3.14 per unit against 5.16 per unit in corresponding quarter last year. The company has made repayment of long-term loans of INR 39.28 crores during the Q3 FY '20 and INR 132.90 crores during the period ended 31st December '19. Long-term loans as on December 31, 2019, stood at INR 577.53 crores. These are, on a broad level, are our financial numbers. Now I would like to invite questions.

[Operator Instructions] The first question is from the line of [ Shivesh Kapoor ] from [ Kapoor Company ].

Yes, sir. Sir, firstly, sir, if you could articulate, sir, the UP government policy towards the sugar industry. I mean, how are things shaping up burden because it is -- it -- our sector is totally the government dependent and depending upon the outcomes of the policies on the outcome and the results will be fluctuating. So just an understanding, sir, since you have already told that the sugarcane prices have been kept unchanged, other than that, sir, any other policy changes that has been implement -- that has -- that would be in effect going forward, sir, with pertaining to molasses or -- and which you would like to share, sir?

Yes. So basically, apart from cane price, which has been kept unchanged. The 2 very major differences which have happened from last year to this year. One is on Power, where the tariffs, as you all are aware, have been brought down drastically on which the association has gone to court, saying that the prices and the terms that they have assumed in that are not correct. So the case -- so the matter is as of now in the high court. So we will wait for the next -- in the next couple of months, we are hopeful to get some sort of a favorable judgment on that. On the side of molasses, yes, again out there, they have made a change. The molasses, which has to be sold to liquor manufacturers, earlier, the levy on that was 12%, which has now been increased to 18%. But from Dhampur's perspective, we'll have also started manufacturing of our own country liquor. So we plan to use our levy that has increased and also the old one in -- to sell our own CL. So we have already started with 4 brands. We are going to create 2 more brands in the next 2 months, and we plan to use all of our levy for our own uses itself and not to sell to any third party. So these are the 2 major changes which have happened from last year to now.

So you mean to say that out of -- earlier it was 12% reserved for the liquor, now it is 18%?

Correct.

Okay, sir. And sir, one more point about ethanol manufacturing from direct sugarcane juice. And we were talking to an engineering company, which goes -- which set up ethanol plants, and they were saying that the yields can improve significantly. I mean, they were saying 5x to 6x it can improve if ethanol can be manufactured directly from the sugarcane juice itself. So what is the take on that? And sir, I mean, how are we going to take advantage of this policy change?

So on sugarcane juice, even we have applied for a small quantity to OMCs. We will be making ethanol out of sugarcane juice at our Dhampur plant starting in the first week of March, and we will run that for about 20 days. That we are just doing as a trial for next year to see what are the sort of yields and what will be the net price of sugar if we were to divert our sugarcane juice. So the trials of that are starting in March for 20 days at Dhampur.

Sir, I didn't get you, sir. Come again, sir. I mean, what exactly are we doing? We are getting sugarcane -- we already have sugarcane juice, I mean, what are you -- I could not get your point, sir.

We all are making ethanol out of sugarcane juice in the month of March. We are doing a 20-day trial at our Dhampur plant in March basically to understand what are the sort of yields because, as you said, we have got varied amount of news that the yield can be 600. It can be 700. It can be 800. So that is why we are doing our own trials next month.

Okay, sir. So then this obligation of the levy molasses will not come into play, I mean, if we divert the entire sugarcane juice?

No, no, no. Levy molasses stays, whether you do juice, whether you do B-Heavy, or you do C, 18% of -- you have to give for levy, whether you do juice or not.

Sir, but if you go through the juice route, then molasses [Foreign Language]?

[Foreign Language].

out of your total production, 18% in there, if you could clear my point out, sir of what I'm trying to understand is if suppose, sir, you make up sugarcane juice [Foreign Language], in that case, the molasses -- in the flow chart, molasses will not fall into place. So how is the process?

Have to manufacture. So you cannot choose 100% cane juice. You have to make 18% -- you have to make CL levy molasses. You don't have a choice on that.

Sir, [Foreign Language].

[Foreign Language] You cannot tell in that you have not made any because you have used total juice. So you don't have that option.

Okay, sir. Because this was not the view when we spoke to another management. I'm not naming them, but they are also of conglomerate, having both sugar and chemicals. They told that, in that case, there will be no requirement for molasses. So that was the quantitative point I was trying to make. So molasses has to be there in the system, whether you go for sugarcane juice or through this process because sugarcane juice, molasses are not going to -- it will not arise itself in the system?

Sir, my friend, there is no company in India as on date who has ethanol manufacturing capacity which can use 100% juice. So that is not even possible. Even if -- I mean, like for us, itself, and only if I talk about my 1 unit at Dhampur, if I go to use 100% cane juice, my distillery capacity has to be about 1,400 KLPD, which as of date is 250.

Right. Right. So this liquor business particularly is going to thrive as been articulated over the years. The support which the government is providing to the liquor manufacturer, that is going to stay. That is the short point.

Yes, it will.

Sir, now coming to the molasses, the -- under the chemical segment, sir, we write chemical/ethanol. So what does other chemical constitute? Is it the molasses sales only that comes under chemicals or what else, sir?

No, we also manufacture ethyl acetate as a chemical. So that is why.

Okay. Any mix, sir, if we can take out of the INR 15 crores -- sorry, out of the INR 145 crores revenue for the quarter?

Yes. So our chemical sale will be approximately about INR 30-odd crores, and balance is all to the OMCs.

Didn't get you, sir. Come again?

INR 30 crores is our chemical sale out of the...

Okay. Okay. And sir, what should be the reason, sir? Last year, in December, we posted chemical ethanol segment sales of INR 103 crores, and the profitability was significantly higher at INR 36 crores. This time, although the revenue is up from INR 145 crores, the profitability is down to INR 15 crores?

No. So that is what we also said in the opening remarks that the input cost, which is the cost of molasses, last year, at this point of time, was INR 200 per tonne, which as on date, is INR 4,000 per tonne.

The cost of molasses?

Yes.

Okay. And the levy price, how is the -- what is the difference between the levy price and the market high?

So the levy price is about INR 1,250 per tonne.

And last year, it was -- yes, yes, just allow me, sir, to complete. Last year, sir, it was how much, sir?

Last year was INR 750.

Okay. From INR 750 to INR 1,250 is what the liquor manufacturer has to pay?

Yes.

Okay. And there will be an improved quantity because of the percentage increase of 50%?

Yes, from 12% to 18%, yes.

The next question is from the line of Sanjay Manyal from ICICIdirect.

Just few question specifically on -- from the crushing perspective. What are our like-to-like recoveries, say, from the C-Heavy molasses? Is it improved this season?

Can you just ask -- are you talking about sugar or B-Heavy?

No, sir. If I exclude the B-Heavy, have the recovery rates improved this season? Or are they down this season?

No. So as of now, for Dhampur, as a group, it's almost the same. We are all about 0.08 higher than last year. What happened was that, in the starting, we were higher by about 0.2 to 0.25. But for the last about 6 weeks, they've seen very heavy rainfall in western part of UP. So that basically has got it down, but we are hoping that now with the weather clearing up, we should again start to go up in the month of February and March. So right now, we are 0.08 higher than last year.

Okay, okay. And are -- so we have -- what I understand have contracted for large B-Heavy ethanol with the OMCs so -- but if I just see the number of ethanol, the 9 months number for ethanol, Distillery segment, basically, you have done somewhere around 7 crore liters, if I'm not wrong. And -- but our capacities are somewhere around 12 to 13 crore liters, if I calculate 400 into 320 sales. So will we be able to do that number? Or what's the reason for this lower number?

Yes. So the -- basically, the sales to OMCs are lower because of what I -- what I had said earlier was because of the levy. So now we have to also manufacture ENA. So earlier, we also sold ENA to liquor manufacturers and also, we have -- we all are doing our own country liquor now. So that is why, because we want to use all of our levy ourselves. So that is why the supplies to OMCs became lower.

Okay. So if I include the liquor part because I don't have the operational number of liquor, so will -- in putting together, will that number be somewhere around 12 crores?

Yes. If you all -- so that is a target for the whole year is that, once we put that also, we want to do at least 11.5 crores is what we want to manufacture.

And how are the realizations, say, for the country liquor, sir? Is it equivalent to C-Heavy ethanol or better than that?

No, it is slightly lower. So the [ CAVA ] it's ethanol, we -- the price is INR 43.80. On country liquor, we are -- we all will get an average price of anything from 30 -- INR 36 to INR 38 seeing on ENA, but out there, because our volumes as of now are lower and we plan to increase the volume over the next 3 to 6 months, then we should get about INR 36 to INR 38 will be the value of ENA in that.

Okay, okay. Sir, one thing on the inventory perspective. What I understand, your inventory, by the end of December, is somewhere around 3.4 lac tons. And though it has increased on a year-on-year basis, so despite your doing a good amount of B-Heavy, will by the March end, will the inventory levels look down year-on-year basis. Or it [indiscernible]?

No, I mean, like I don't see them to be down. I see them to be up, but they will be -- March will be marginally up if we all see the average of India, then vis-a-vis that, we will have far, far lower because of our B-Heavy and because of our exports. We have also applied for further exports. So we are waiting -- in the next about 10 days, we should get couple more quality for exports. But overall, if we see India average, our increase will be far, far lower.

Okay. So just from production perspective only, FY '19 was 8 lac tons for us in terms of production. Now we are doing B-Heavy this season. So despite the sacrifice, you think that our production figure will be up this year? Or...

No, we all believe it should be almost same as of last year. Because even last year, we had done B-Heavy at our Dhampur plant. Only this year, we are doing it in 3 of our plants but seeing a slightly higher gain on that. We all believe that we should make almost the same amount of sugar or slightly lower than last year.

Okay. So this comes to one specific question that what we basically understand that UP -- entire UP as a state will be producing more or less same sugar as last year. But most of the bigger mills probably will be producing higher number. So is it that the smaller mill's sugarcane has been sort of transferred to the bigger mills? And because you have the financial strength and you have the decent cash flows, you probably are buying higher sugarcane compared to last year?

So, I mean, not because of that, I mean, I don't think that is correct. Basically, most of the larger groups are doing more of B-Heavy this year vis-à-vis last year. So that is why their number, you may see of total cane to total sugar with that, they will make to be the same to being slightly lower because last year, only a very, very few had done B-Heavy. This year, a lot of the large groups have gone to B-Heavy. So that much of sugar has got diverted. But there is no diversion of cane as such from the smaller mills to the bigger mills. That is not correct.

Okay, okay. And sir, we have, from last 2 months, we're getting somewhere around 60,000 tonnes of quota specifically, if I'm not wrong, Jan and Feb. So will this -- I mean, this probably is a bit higher than previous quarter. Will this -- this trend will -- should continue till, say, September, means, we should be getting a higher quota because Maharashtra and Karnataka is producing a lower number this season?

Correct. You are, like, totally right on that.

Okay, okay, okay. And do you see prices then moving up because Maharashtra probably will halt production by month end?

No, I -- this question has been asked to me even earlier by a few. I'm not expecting sugar prices to move up because there is no logic for prices to go up because India has a lot of stock even as on date. Even if we assume that, this year, India will only produce 26 million or 26.5 million tonnes, but we had a opening stock of 14.5 million tonnes. So this whole logic that sugar prices should go up, see, 1 or 2 -- INR 1 during the summer months, it's always goes up, but that is it. But I'm not expecting prices to be INR 35, INR 36.

Okay. Okay, perfect, sir. And we have -- have we exported our entire quota? Physically exported our entire quota, say, in January and...

No. So we have done our total contracts. Our total quota was 1.55 lac tons. That whole contract has been done, and our contracts are till May -- till April. So April is our last shipment. So that's why exports are happening every month. So by April, our total exports will be done.

And majority will be done, say, in Q4, majority would be done -- would have been done by...

By -- yes, by March.

The next question is from the line of [ Shridhar Pramika ].

Yes. I have a couple of questions. So this year, we have done about 0.28 lac tons of your exports, and the overall understanding was 1.5 lakh. So why this much? And when are we expected to kind of complete? That is number one. And question number two is -- let me put out all the questions so it's easier for other participants also. Question number two is C-Heavy and B-Heavy. What is the transfer price for the molasses? Yes, number two. And number three, overall, where do we see our inventory because you are still talking about 3.4 lakh, which is roughly about approximately 900,000 crore of inventory which is still there. So when do we expect -- given the fact that overall reduction is happening, would we see a reduction in inventory?

So I will go by your first point. So our total -- as I said, our total export size was 1.55 lac tons. In this quarter, we have done 25,000 tonnes out of that. We will be doing approximately 75 -- about 80,000 more in -- from Jan to March. And the balance of 40,000, we will do in April. So that is on the export side. On the transfer pricing, on C-Heavy our transfer pricing is INR 491 per quintal. And on B-Heavy, it is INR 800 per quintal.

And -- sorry. And one thing I want to understand, I understand that Power -- because of the drop in [ inventory ], we had an impact which is close to 120 crores. But otherwise, our sugar overall production has increased. And I thought somebody got compensated for -- it looks like our sugar plus ethanol is really looking together, again, it has stopped. Do we see any improvement? Or is it going to be this way?

See, I personally feel that all the profits as of now are stuck in stocks. So as soon as we start the sale, I mean, as soon as you will see, and your third point was on sugar inventory, for surely, by the year-end, we all do believe that our inventory will be lower than last year because, as we know that India stock -- India's overall stock is expected to come down. So same way, even our stock will be lower than last year. But in March, it won't be as much different. But for surely, then going forward in Q1, Q2 of FY '21, where we believe our stock will come down.

If we really look at it, what we are talking about is from a 14 lakh tonne opening inventory, we're talking about close to a 8 million to 9 million tonne inventory. So we are talking about almost 20%, 30% reduction in the inventory levels as a country, right? Do we see a similar reduction in them because that is all cash which is getting stuck [indiscernible] the profit is also getting stuck there. So when will we see that?

See, this, as I said, you will start seeing it from Q1 of next year. So post-April, so our mills will all shut by May. That is when you see overall inventory for Dhampur coming down because maximum sale as what we are expecting or the quota that we will get will be higher for UP because UP has the maximum amount of sugar. So you will see UP will -- so our total overall stock will be lower. Now whether India's closing stock at the end of FY '20 will be 8, 9 or 10, that is anyone's guess right now. But yes, so that much of inventory even for us will come down.

Because if you really look at that, that is a substantial reduction, right, like what is it, it could be anyone's guess between 8 to 10 but still, compared to 14, we're almost talking about close to 30% to 35% reduction in inventory. That's all we're talking about a INR 300 crores cash being released from the system, right? And that also has an impact on profitability. So this is something we have been kind of continuously keep on watching as to what will happen. See the other thing is, would there be -- so you're saying because UP will make more, they will continue to get more release quota because the issue is it should not be released where Maharashtra is still getting its quota, therefore, you're stuck with the inventory while Maharashtra reduces the inventory. It should not be the case, right?

I don't think so, I mean, see, they all are doing it professionally, the quotas are being taken out, where they also see how much of sugar you have produced and how much stocks you have and how much of B-Heavy that you are doing. So that is why I do believe that the quota for UP will be higher month-on-month.

Okay. So but effectively, you are saying that we will see some light by possibly Q1 of next year?

Yes, Q1/Q2.

And one other point sir, given the fact that the global prices somehow surprisingly is strong right now, the last quarter to this quarter, we have really seen almost 25% increase in the global prices, now you guys can actually take a hedge or you can take position based on your stock, or you do not do this?

No, see, basically, again, you will only export if you get the subsidy from the government because even at the price that we are right now at say 14.8 cents the x-mill price of that comes to only about INR 22. So that is without the 10 lakhs from government, you will not export more than your own quota. So that is why you don't hedge. So that is why Indian mills don't hedge on because there is -- because they are not -- because they are not going to export.

So on your outlook on sugar prices, it will possibly at best will remain the same as global sugar.

See, again, I'm not -- as of now, the prices are hovering in the range of INR 32.50 to INR 33. I'm saying at maximum, they can go up to INR 33.50 to INR 34, but I don't see any higher than that.

And there were during the presentation being made on increasing the sugar price also, given the fact that the procurement is happening at a certain price, there was also this representation to increase the sugar price also, right, the minimum support price kind of a thing, anything happening on that front?

No, I don't think there is any talks engaged to increase the MSP of sugar.

Okay. Sometime back there were some news items which talked about how the production of sugar is resulting in effective price and therefore why it should be higher. And then towards Eastern UP they were talking about can it be a INR 35 kind of a number?

See, again, out here, we have to be slightly practical on this because the higher the Indian sugar price, that will become the difference of -- the parity with exports will go on, on the -- going up. As on date, it is very important for India to export the full 6 million tonne. And if Indian prices go up very, very high vis-à-vis global prices, then exports won't happen. And then you again saddle up with stocks. So we have to always make that very informed call as to what should be the India price and what should be the global -- and what should be our export price. So that's why I mean -- I feel the MSP is fine right now. That is my personal view, then it is up to the government if they want to hike it up even more, but I feel that the most important thing is for India to export sugar and to bring down our total stock all over India.

The next question is from the line of Levin Shah from Valuequest.

So my first question is, have we contracted our entire exports quantity, the price -- we have locked in the price for the entire export quantity?

Yes, we have.

Okay. So now from here on, what government is contemplating is giving the additional quota to the mills who have either contracted their entire quantity, so what kind of additional quota are you expecting that we might get from that?

Very, very tough to say right now because what we have asked the government to do, one is that they ask for information that who have exported and how much have you done your contract for, but a lot of the mills have not then sent in answers, so what we have asked them to do is that those who have not sent their answers, they must assume that they all are not doing exports. And that much of quantity, they must then divide amongst the companies who have done the exports and want to do more exports. So that's why it's very tough at this point in time to say what is the sort of extra export that we all will get, so very, very tough to say right now.

But sir, at the current prices, and let's say that -- like you mentioned that within next 10 days, maybe you will -- government will come out with that list, and at the current international prices, will we be ready and so happy to take more quota, I mean, the additional.

Absolutely, Absolutely. We have already written that we would like to get as much as we can. We are -- at these prices, I'm more than happy to export as much as we'll get.

Okay, got it. Sir, and if you were to look at our 9 months number, I mean, combine both sugar and distillery, the profitability is down. So I understand that because of the molasses prices, there would be transfer pricing. There is some hit in the profitability in the distillery, but if you look at the combined numbers of both the segments, they -- still we find that there is a drop into the profitability.

Yes. So that is basically due to high stocks. So all the -- as of now, all the profit of our sugar is stuck in stock. So only when these stocks will get sold, you will see that coming into the P&L. That is the only reason why you are not seeing them both matching right now because of the higher stock that we are holding.

Okay. So does that mean that because the production cost is divided over the quantity produced, and we are not able to sell everything, that is why our price -- cost is higher?

Our cost is lower than the actual selling price, and that is the reason that much of money is stuck in stocks.

Okay. Right, right. And sir, what is our cost of production currently?

So our stock valuation as of now, as on 31st value is INR 30.5.

Okay. Sir, and one more thing on this. So country liquor, so what is the kind of market or the opportunity in U.P. that we are looking to target? And what kind of market share we'll be targeting? And even if you can throw some light on the profitability overall of the country liquor, where does it stand? And what are our targets for those?

So on CL, we want to use our total [indiscernible] that we all have got. We all want to use it totally for country liquor, our target as on date -- our target is to sell approximately 3 lakh cases per month of CL. As on date, we are doing about 50,000, which we plan to increase to 1 lakh by April because out here, our country liquor is a brand game. Apart from it being a mass market, but out here, it is again a brand. So that is why we all have developed 4 of our brands, which now is -- which has been now selling for last about 3 months in the market. It has been well absorbed, but it will just take time for us to increase our total sales of it, but we want to reach 3 lakh cases by June of 2020.

Okay. And that would be what kind of market share? So what -- how big would be the market?

So the total market is about 48 lakh cases per month is the average of UP. So in fact, we'll want to be 3 lakhs.

Okay. So we are targeting somewhere around 6%, 7% market share.

Yes.

Sir, in terms of profitability, how profitable would be the country liquor business?

It is -- out here, what we have to not see it only by way of sales. What we have to see is that increase that will sell our molasses in heavy where we have to sell at INR 125 per quintal. While if we make country liquor, the molasses pie that I will be able to get for myself will be almost INR 450. We have to see it from that angle.

Right. So -- but just then -- so will it be safe to assume that, with this molasses pricing, we'll be able to make like 20%, 25% margin in the country liquor business?

See again [indiscernible] price of INR 125, or you take the price of INR 450. If the sugar at -- the molasses that I will be transferring from sugar to there, maybe it will be priced at INR 125, so there, the margins are close to about 35% to 40% is the margin on country liquor.

Okay. Okay. And this will be excluding all your marketing and all the other expenses, distribution and marketing expenses?

Yes, yes.

The next question is from the line of [ Aja Patel ] from India SME Investment.

My first question is regarding Sugar segment. What would be our EBITDA breakeven cost for sugar per unit?

Cost of production is around INR 30.11.

INR 30.11.

INR 30.11. Okay. And sir, current situation of sugar arrears pan India?

Excuse me?

Sugar arrears current situation, what are the sugar arrears, pan India?

You mean the cane arrears?

Sugarcane arrears.

Yes, yes, yes.

Oh, the cane arrears. So the cane arrears as on UP, well, that I saw last was about 6,500.

For UP, right?

Yes, for UP. I don't have all the India numbers; 6,500 is for UP.

And sir, do you feel the MSP would be applied for the next marketing year as well?

Yes. I'm not seeing any reason for MSP to be taken out. MSP has been well established. It has done very, very well. Government is also very happy because of that. That is the only reason why you have seen cane price arrears coming down. If MSP wasn't there, the cane price arrears would have been huge right now.

I agree. So the MSPs could basically provide the floor price to the Sugar segment. And it could slightly or maybe structurally change the nature of the cycle?

True. Very, very true.

Okay. And sir, are you expecting the increase in export quota because as per recent reports, the global deficit targets are increased from 6 million tonnes to 11 million tonnes. So there is a strong place for us to fulfill?

Totally. So that is why, as I said earlier also is that we all would love to do more exports. We have already written to government saying that in case they want to give us extra quota, we are more than happy to take that.

Fair enough. But even after government subsidizing our export rate would be marginally lower than the current market rate, right?

See, again, even if you see current market rate, even if it is lower by INR 1 or INR 2 that much you will save by way of cost of interest.

Yes, yes, exactly, I agree. And sir, regarding ethanol distillery segment, I wanted to understand that with current capacity of 400 KLPD, at full capacity, how much ethanol can we manufacture?

So again, as I said, that we have to keep now 1/5 of our produce, we have to keep aside for ENA/country liquor. So if you have seen -- so we will have assumed that we can make about 12 crore liters -- 12 crore to 12.5 crore liters assuming 300 days. So 12 crore liters is our capacity that we can make, and the ethanol contract that we have done as of now are 7.7 crore liters, and we may apply for about 80 lakhs more.

Okay, okay. So I wanted to understand how much sugar manufacturing sacrificed. So when we are currently able to -- on India level, we are able to meet the targets of 6% blending rate. So how much sugar -- actual sugar are we sacrificing to achieve those targets?

Are you talking about B-Heavy, right?

Yes, yes, yes.

So on B-Heavy, I mean, as I said, that we are doing it from 3 of our plants. So our total sugar sacrifice that we all are seeing for ourselves will be about...

7 lakhs.

About approximately 7 lakh quintals of sugar is what we will sacrifice for B-Heavy.

Okay. Okay. And sir, what is the rough duration to set up a distillery and crushing facility?

Excuse me?

Rough duration to set up a distillery and crushing facility?

You should assume it to be about 18 months.

18 months. Okay. And one more thing, sir, I wanted to understand, so we expanded our capital by 100 KLPD at say around INR 60 crores cost. So at the same time, Dwarikesh expanded 100 KLPD at INR 145 crores cost. So what would be the use -- like there is a difference of almost double, 100%?

Yes. So the difference is on the power plant. So basically, we already had boilers and turbines. So you basically have to now put a spent [ plus ] fired boiler, so we already had them at Dhampur. So that is why in that we didn't have to spend any money.

Okay, sir. So roughly, what benchmark could -- should be taken for distillery CapEx cost, for example, say 100 KLPD.

That should cost about INR 130 to INR 150.

So that would be including the boilers and turbines, everything?

Correct.

Okay, okay. And sir, as government is focusing more and more on ethanol blending and is giving aggressive targets. So do you see like bunch of other manufacturers planning greenfield capacities who are not into sugar manufacturing yet, but they will buy molasses from market. And then they'll make ethanol, and then they'll sell. Is it possible?

It is, but it is very, very tough because to source such a larger quantity is very, very tough. So I mean, I frankly do not expect anyone to put up a greenfield without a sugar mill, the expansion which can come is on grain base. So now they've also allowed ethanol to be made from grain. So on that, there can be some players who can come in but not out of sugar.

Ethanol made from, what you said? I missed it.

Grain. Grain.

Grain, Okay.

Grain. Food grains.

[Operator Instructions] The next question is from the line of [ Saket Kapoor ] from Kapoor Company.

Sir, if we take the price difference between B-Heavy molasses and the C, what is the price difference?

So the C price is INR 43.8 per liter, and the B-Heavy price is INR 54 per liter.

B-Heavy is INR 54 per liter, but it is from C that sugar cannot be made. And it is the residual one.

Yes, so C is the last. And B you leave more sugar in that. That makes it B.

Right. Sir, you were talking about the liquor part. Currently sir, in the other segment, are we doing any liquor business as of now? Or it is the first foray that we are contemplating?

No. So we have -- we all have done even in the last quarter, the volume was slightly lower now. Now, the volumes will start to go up, starting from Q4 and in Q1 and Q2 of next year.

Right. And you said if the market is -- just a point sir, yes, sir was answer.

But for any follow-up, request you to rejoin the queue please. The next question is from the line of [ Puneet Saro], an individual investor.

Sir, you were stressing for the provisions of partial sugarcane juice conversion into sugar in Q4 last year, right, even Q1 of this financial year. [indiscernible] about approximately INR 60 per lakh liter. But we are still only doing high molasses. Can you share some of your thoughts about it?

Yes. So as I said earlier is that, in next month, we all are doing trials for 20 days at our Dhampur plant with sugarcane juice basically to see what sort of yields we'll get out of that. Then, once we know what is the exact data on that and what will be the -- what will be the price of sugar that we can get out of that, then next year, we will make a call as to whether we do how much from sugarcane juice and how much from B-Heavy. So we will being our trials next month for 20 days.

Right, right. Sir like a conversion of 4 to 5 million tonnes of sugar into ethanol, you need more conversion through sugarcane juice into ethanol. Are we like in some kind of discussion with the government to push more sugarcane juice conversion into ethanol, how to like possibly make it financial [indiscernible] from the company point of view? Like how do it in a long-term version point of view?

See out here like in sugarcane juice, what we need to do is that we need to increase our capacity as of -- I mean, as on date, India, we all can do more B-Heavy. We can -- we all can do cane juice, but we don't have inherent capacity as on date. So till the time the capacities won't go up, the amount of B-Heavy or sugarcane juice will always be limited.

The next question is from the line of [ Rahul Sangvi ] an individual investor.

So my question is about the recent developments in the budget. So the government has come out with this -- I mean, removed the DDT. So what's your overall take on that? And what would be your strategy going forward because given that next year you'll be generating strong cash flows. So is it, I mean, feasible to understand that you'll be increasing dividend by at least 20%, or maybe is there any other plans in your mind like CapEx or anything else, if you can share?

No, we will have no major CapEx plans this year. It will only be to balance out our factories. So, no major CapEx plan. On the side of dividend or buyback, I mean, very, very early days to say as to what the board will think and finalize. But yes, all the options are open as on date. DDT is out, so that much of extra cash is with the company. And so whether we give it out as dividend or we hold it as reserves, I really cannot comment as on date. I will leave that to our Board to finalize.

Okay, okay. And recently -- I mean, what sort of the export quantity you signed for? So can you share the price, what is the overall -- at what price you're signing the export contracts?

Yes. So our average for the whole export that we will have -- we all have done, we will get approximately INR 10.45 from government. We will get approximately INR 30.50 per kg on raw sugar.

The next question is from the line of [ Margo ] from Fidelity.

My question is a little bit more longer term. I was just reading a couple of articles last 2, 3 weeks where they said Maharashtra production could double in the next year given that water availability is so good. I know it's very early days, but just your sense on how it could proceed going into the next season with rich availability of water this year in the reservoir.

Yes. So for surely, the water availability in the western part of India has gone up. People are speaking about an increase. But again, as you said, very, very rightly, very, very early days. So that is why we are keeping ourselves fully in the option of doing sugarcane juice, B-Heavy and exports. That is the only way as Dhampur we will be able to control the amount of inventory that we hold at the end of FY '21. But still early days as to how much India will do next year.

Got it. And just on the diversion of the sugarcane sent into ethanol, how much could we do in FY '21 as a country? Any broad indication as to how much could get diverted, the excess inventory in the system?

See, I mean, if you see, this year, last year, we had done approximately 4.5 lac tons of sugar was diverted. This year, the quantity has gone up to about 1.5 million tonnes. Next year, because March -- because I believe that the western and southern part of India didn't at all come out with B-Heavy this year, but if their sugarcane goes up, this can go up next year to about 2.5 million tonnes.

2.5 million. Okay. And then do we have enough distillery capacity for that diversion to sort of go up more in the next years or the new capacity announced with the government policy is hitting our peak now for next year.

See, again, the capacities which are coming up and which we have maximum that I am seeing as on date that we can go up to with present and whatsoever are the future expansions or greenfields that are being set up. I don't see the capacity to be more than 3 million tonnes as of now.

So 3 million tonnes can be diverted basically every year now, into ethanol.

Yes. Yes.

The next question is from the line of [ Anurag Goel ] from [ Anderson ] Capital.

Sir, just -- I missed this part. What is your latest estimate of sugar production for the country this year?

About 26 million to 26.5 million tonnes.

Okay. So because till end of January, already 14 million tonnes done, and in the month of January itself it was some 6 million tonnes. So the season production is going to extend until middle of April or not?

Yes. But see, that is only for North India. If we see South and West, the plants will start to shut from next month. I mean, from now itself, I mean, like in the next 2 to 3 weeks, you will see plants closing down, which last year ran till April. So it is only North India where we will run till April end, and a few plants will also go into May. But that isn't true for the whole of India.

And do you think we'll be able to meet or exceed our exports target?

See again, the 6 million tonne target can only be met if export is given to the mills who want to export because even we know even last year, out of the 5 million tonne export target, only 3.8 million was done. So mills who had quotas of 1.2 million had not exported. If we see the same rationale, we all would like further exports to go to mills who want to export more. And that is the only way that we'll be able to meet the 6 million tonne target.

The next question is from the line of Keshav Lahoti from Angel Broking.

Congrats sir, on the great set of numbers. Just a repeat question, as the earlier participant asked the question, when I look at the combined profit of sugar and ethanol for the 9 months compared to last year, this year profit is down. You gave an explanation, but I am still not able to understand it. Can you please explain it again?

It is basically -- see because of the higher sugar stocks that we are holding, that much of profit which would have come has gone into the stocks. So if we all see that our stocks are higher from 2.9 -- so from 2.9 lac tons, it is now 3.4 lac tons. So that we put that extra to our sugar stocks [Foreign Language] that has all gone there. So your profit of that has gone there.

Okay. Do you buy molasses from outside market? Or is it fully internally?

So till last year, we will have bought from outside. But this year, our plan is that, and that is why we all have done B-Heavy in 3 of our plants. This year, we don't have to buy anything from outside or even if we have to buy it, will be a very, very small quantum. So that is why we all did B-Heavy in 3 of our plants vis-à-vis, last year, we had only done it in one -- in one plant. So we're hoping not to buy anything from outside.

Okay. One last question. As we can see in your Power segment, this time, you have done a profitability of INR 48 crores, but I see that last quarter it was kind of INR 5 crores loss. The government has reduced the power rates from INR 5 to INR 3. What has made you to make such a good profit in this quarter?

No -- see, if you see the last quarter, I don't see it for the reason last -- because in that quarter, there is no real export which happened. It is very small amount of export. If you see 31/12/18, our profit on the Power side was INR 67 crores, which has come down to INR 47.8 crores. That is only due to the price drop. So INR 20 crores profit came down because of the lower price.

The next question is from the line of Levin Shah from Valuequest Investment.

Sir, this exports realization that you mentioned about INR 30.50, this is excluding the transportation cost, right?

Yes, yes, yes.

And what is the actual transportation cost that we might be -- that we have incurred?

It varies from about INR 180 to about INR 120.

Per quintal?

Yes.

Per tonne.

Per tonne?

Per quintal, sorry.

Right, right. Sir, and like you said, that we would be wanting to use our levy quota completely in-house for country liquor. So in terms of our overall capacity, we stand at 12 crores liters roughly. And our 18% levy would be around 2.16 crores. So balance 9.84 crores is what we are targeting for ethanol sales?

No. We will also have some balance levy obligation of last year. That is also about 1.2 crores liters. So if you take that out, our total OMC, what we are doing, target is of about 8.5 crores to OMCs, balance for CL/ENA.

Okay. Got it. And sir, lastly on this. So if you were to look at overall requirement in terms of blending target that the government has kept for itself. And if you look at the industry capacity, there is a big shortfall. But at the same time, post this first round of expansion, we are not seeing lot of mills going ahead and putting up additional capacities or expanding distillery capacity. So what, according to you, is the key hindrance over here?

See the maximum capacity that should be coming up is in west and southern part of India. I would say because of, I think, issues of cash flow that they aren't being able to expand their plants. So they are the ones who should be putting up more greenfield or expanding their present plants. So and that side of India expansion isn't happening, while in North India, I think we have already reached almost to -- close to our capacity. So till the time we all don't see improvement in their cash flow and in cane, this capacity of blending can't be increased.

Okay. So like you said, in the northern part, is that, that whatever crushing capacity we have currently, completely of that is in book for distillery capacity. So there is no more scope for putting up additional distillery?

Marginal. Marginal scope, and now the scope will come, in case we all do more of B-Heavy and sugarcane juice, then we again have -- then we will have the raw material availability for further expansion off of greenfield. But currently, if we just see what is happening, North India is almost up.

Okay, great. Sir and one last thing on this Maharashtra situation. So if you were to look overall, their production right now is down to 50%, and there are talks that they might end the season by this month end. So according to you, is it possible that whatever estimates are that of 5 million, 5.5 million tonnes, they might end below that as well?

No, we're not seeing that to be lower than that. That is why I gave a range of 26 to 26.5. So that 5 lac tons may go here or there, but that's extremely hard to judge right now. See, when like a sugar mill starts to close down, there can also be a period where they run for about 8 days at a lower crush. So that's why it's very, very hard to judge right now as to exactly how they all will do, but 26 to 26.5 looks to be what India will make.

The next question is from the line of [ Saket Kapoor ] from Kapoor Company.

Sir, firstly sir, for the dividend payout, sir, thank you for the liberal dividend payout, sir. Have we quoted in any policy going forward where investors can know where -- what sort of dividend can we expect? It should be I think...

Board has not made -- the Board has not -- we'll have a call, see, but because sugar is very cyclical, sugar has its own movements, that is why the Board in their wisdom said that we should not put any sort of number on that because things change very, very fast in sugar.

Okay. And then coming, sir, now, currently, sir, Morgan Stanley conducted a conference call only on ethanol and its policies in India. So are we also looking for any -- hosting anything like Balrampur Chini hosted a few days ago. So were we also approached for any discussion on ethanol blending policies and ethanol manufacturing?

So we have not thought about it, but we, for surely can think about it.

Because Morgan Stanley has done for one player, so we can also get some insight if we participate. And last point about this liquor part, sir, 48 lakh cases is what you said is the market currently. And we are eyeing 6% of that, sir, by June.

Yes, we are eyeing about 3 lakh cases post-June.

Post-June. Sir, currently, who are the dominant players, sir, in this segment? Any other sugar manufacturers in it?

No. In this, there are no sugar manufacturers. They're only Indian guys.

Radico and sir -- and their label also falls under...

Yes.

But these are the 2 major players, sir?

Yes. And then there are about 5, 6 others who are not listed.

5, 6 players. But is it only this levy gain that is contemplating you to move into this segment, sir, other people are also expanding, sir. Contrary to this, sir, Radico is moving its feedstock from molasses to malt with other things. So from their side, the demand of molasses might fall as being said by management, if I'm not wrong. So sir, is this only the levy part that has given you the juice to go in the segment?

Yes.

Ladies and gentlemen, due to time constraint, that was the last question. I now hand the conference over to the management for closing comments. Thank you.

On behalf of Dhampur, we would like to thank all of you for taking out your time to be on this call. If you have any further questions, please feel free to contact us either by phone or by e-mail, and we will get back to you as soon as we can. Thank you, again, everyone.

Thank you. Ladies and gentlemen, on behalf of Prabhudas Lilladher Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.