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

Ladies and gentlemen, good day, and welcome to the Dhampur Sugar Mills Q2 FY '21 Earnings Conference Call, hosted by PhillipCapital (India) Private Limited. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on the date of this call. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] I now hand the conference over to Vikram Suryavanshi from PhillipCapital (India) Private Limited. Thank you, and over to you, sir.

Yes. Thank you, Karuna. Good afternoon, and very warm welcome to everyone. Thank you for being on the call of Dhampur Sugar Mills Limited. We are happy to have management with us here today for question-and-answer session with investment community. Management is represented by Mr. Gaurav Goel, Managing Director; Mr. Nalin K. Gupta, Chief Financial Officer; Mr. Vinit Gupta, Assistant Vice President, Finance; and Mr. Akshat Kapoor, Assistant Vice President, Finance. Before we start with the question-and-answer session, we'll have some opening remarks from the management. I will hand over the call to Mr. Gaurav Goel for opening comments. Over to you, sir.

Thank you so much. A very warm welcome to all at Dhampur's Q2 and H1 FY '21 conference call. I would like to start by sharing my perspective on the sugar sector and then speaking about the operations and the financials of the company for Q2 and H1 FY '21. For the sugar season '20/'21, India is expected to produce 31 million to 31.5 million tonnes. Domestic demand is expected to be around 26 million tonnes for '20/'21. Indian sugar sales price, as of now, ruling around INR 32.5 to INR 33 per kg ex mill. As you are already aware, FRP for the year '20/'21 has been increased by INR 10 per quintal to INR 285, linked to a basic rate of 10%. All our sugar plants have started, and we don't see any impact of COVID on our plants. I would now like to hand over to Vinit to take you through the financials of the company.

Thank you, sir. Overall, we are glad to report a stable performance. Average sugar realization for Q2 FY '21 stood at INR 33.25 per kg as against INR 33.12 per kg in Q2 FY '20. Average sugar realization for half year FY '21 stood at INR 32.77 per kg as against INR 32.51 per kg in half year FY '20. Sugar sales for Q2 FY '21 stood at 2.17 lakh tonnes as against 1.51 lakh tonnes in Q2 FY '20. Sugar sales for half year FY '20 (sic) [ FY '21 ] stood at 4.90 lakh tonnes, including raw sugar sale of 0.92 lakh tonnes as against 3.78 lakh tonnes, including raw sugar sale of 0.59 lakh tonnes in half year FY '20. In terms of inventories, the total inventory as on September 30, 2020, stand at 1.98 lakh tonnes of sugar, valued at an average cost of INR 29.33 per kg. The company sold 293.02 lakh bulk liter of ethanol at average realization of INR 50.47 per liter during the Q2 FY '21 as against 238.70 lakh bulk liter of ethanol at an average realization of INR 40.69 during Q2 FY '20. The second quarter also sold 62.18 lakh kg of chemical at an average realization of INR 57.58 per kg against 56.48 lakh kg of chemical at an average realization of INR 54.74 per kg during the same period last year. The company sold 515.12 lakh bulk liter of ethanol, including 436.69 lakh bulk liter of ethanol derived from B-Heavy molasses during half year ended September '20, as against 554.80 lakh bulk liter of ethanol, including 130.68 lakh bulk liter of ethanol derived from B-Heavy molasses during the same period last year. In the quarter ended September 30, 2020, Dhampur, in its Power segment, generated 1.63 crore unit of power against 1.41 crore units in the same quarter last year, whereas Power segment generated 18.84 crore units in FY -- half year FY '21 as compared to 16.61 crore units in half year FY '20. I would now like Akshat Kapoor to take you through the financial performance of the company. Thank you.

Thank you, sir. Good afternoon, ladies and gentlemen, 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 quarter and the half year ended September 30, 2020. Our revenues from operations, EBITDA and PBT for the Q2 FY '21 stood at INR 955.89 crores, INR 74.21 crores and INR 37.07 crores, respectively, as compared to revenue of INR 693.32 crores, EBITDA of INR 44.60 crores and PBT of INR 5.49 crores in Q2 FY '20. Our revenues from operations, EBITDA and PBT for H1 FY '21 stood at INR 2,054.56 crores, INR 192.01 crores and INR 109.01 crores, respectively, as compared to revenue of INR 1,617.80 crores, EBITDA of INR 176.09 crores and PBT of INR 85.38 crores during H1 FY '20. Our interest costs stood at INR 21.07 crores during Q2 FY '21 as compared to INR 20.91 crores in Q2 FY '20, whereas interest cost for H1 FY '21 stood at INR 47.08 crores, as against INR 54.71 crores in H1 FY '20. Profit after tax stood at INR 28.15 crores in Q2 FY '20 against INR 2.05 crores in the same quarter last year, whereas PAT stood at INR 82.96 crores in H1 FY '21 as compared to INR 60.52 crores in the same period last year. Now let me take you through business-wise performance. For the quarter ended 30th September, 2020, the Sugar division reported revenues of INR 789.65 crores, which contributes 76.4% of total revenues as compared to 70.2% at INR 531.08 crores in the same quarter last year. PBIT in this segment stood at INR 34.28 crores, as compared to profit of INR 27.72 crores in the corresponding quarter of the last year. For the H1 FY '21, Sugar division reported revenues of INR 1,797.51 crores, contributing 76.9% of the total revenues, as compared to 70% at INR 1,313.73 crores in the same period last year. PBIT in this segment during H1 FY '21 stood at INR 69.51 crores, as compared to the profit of INR 49.31 crores in the corresponding period last year. Revenues from ethanol and chemical business for the quarter stood at INR 213.22 crores against INR 148.51 crores in the corresponding quarter last year. PBIT for Q2 FY '21 stood at INR 39.82 crores, as against INR 15.68 crores in the Q2 FY '20. Revenues from ethanol and chemical business for the H1 FY '21 stood at INR 386.77 crores against INR 305.47 crores in the corresponding quarter -- corresponding period last year. PBIT for H1 FY '21 stood at INR 77.38 crores, as against INR 68.53 crores in the H1 FY '20. During the Q2 FY '21, Power revenues are stood at INR 4.26 crores, with a loss of INR 4.84 crores, as against the revenues of INR 18.81 crores with a loss of INR 5.42 crores in Q2 FY '20. During the H1 FY '21, Power revenues are stood at INR 104.71 crores with a profit of INR 29.43 crores, as against of INR 149.65 crores with an EBIT (sic) [ PBIT ] of INR 45.96 crores in H1 FY '20. The company has made repayment of long-term loans of INR 61.6 crores during the Q2 FY '21. The long-term loan as on 30th September, 2020, stood at INR 451.1 crores. These are our financial numbers on a broad level. On an overall basis, we are enthused by our performance. We believe that we have built a strong operating platform, making us well placed to deliver sustainable results and our outlook for the future remains optimistic. Thank you once again, for joining us on this conference call. We will be happy to answer any questions that you may have. Thanks.

[Operator Instructions] The first question is from the line of Sanjay Manyal from ICICI Securities.

Just have a few questions. One is on the -- what is the expected crushing in this season. Will it be up or down? On -- and from there see if you can elaborate something about the -- how would be the domestic quota from here onwards because last 2, 3 months, domestic quota has been very good for Dhampur. But will it go down if the Maharashtra millers will be -- either the crushing will start and the Maharashtra will be producing higher or will it remain the same?

So I will answer your first question on the cane crush. We all expect it to be slightly higher than what we had last year. But I mean, as you know, that the plants have just started only last week. The yields are seeming to be fine as of now of the ratoon cane. We will have to see the yield of the plant cane. But overall, we don't believe that our cane crush would be lower than last year. On your quota front, yes, for surely, with India going up from 27.3 million tonnes to expected 31 million to 31.5 million tonnes, the quota that UP mills got last year for surely will come down, will have to. And so that is what I believe. But overall, I think that the quota for UP mills is low. So I think that we'll be having a -- I mean, okay, 12 months. But yes, UP quota, as such, will be lower in the next 12 months.

Okay. And what is the expectation from the distillery front. What is the kind of volume we can do in this financial year, say, FY '21? Or is there any capacity? Because what I understand your capacity is still 13 crores liter. If it is utilized for 330 days plus, but we produced a bit less. So what would be the utilization levels? Or what is the expectation on the volume front in the distillery segment this year?

So yes, you are right that this year, we all do believe that we will produce more than what we did last year. That was mainly due to the lockdown, which happened in April and May, the offtake from the OMCs was low for these 2 months, and that is why we had to bring our capacity down last year. We have already tendered for 10.5 crore liters to the OMCs this year and the balance, 2 crores, 2.5 crores we will give for ENA and for chemical plant.

Right. Right, sir. And is there anything you heard on the export front? Or if suppose it comes, then what is the quantities you're expecting for export in the sense we are at this point very comfortable on the inventory front. So will we -- I mean if the exports come, would we utilize the entire quota as given? Or we may give up something on that or something like that?

No. If the export does happen, we will export our full quota. Again, it's very early days for us to see as to what sort of quota that we all will get. It will be totally dependent on whether the export happens at 5 million or 6 million tonnes. But again, because UP produced more last year than any other state, so the UP mills will get a higher quota for exports this year. And we will for surely export all of our quota.

Right, right. And any status update on the export front what is happening. Is it -- what would be the subsidy amount? And any update on that?

No, like idea at all as of now. Lot of news is flying. But as of now, we don't have any idea as to when it will come and what will be the sort of amount that we will have for exports. So no idea at all right now.

Okay. Okay. And just last, if there is any status bid on the MSP? That's the last question.

Again, no idea on that also. We only got no clue by when that will happen. So absolutely no like idea at all on that also right now.

[Operator Instructions] The next question is from the line of Anupam Goswami from B&K Securities.

Congratulations on the good set of numbers. Sir my first question is on the -- what is our conversion cost in the ethanol side, excluding the molasses price? And where we can find the guidance for the full year EBIT margins in the distillery segment?

So as such, without the molasses price, our cost varies at about around INR 7 to INR 8 per liter is our cost as of now. The EBIT margins for next year, we will believe, can go up from where we are this year, mainly because of the higher price which has been set for the B-Heavy ethanol and for seeds. So we do believe that margins will improve next year.

Okay. Okay, sir. And another thing, sir, what happened in the Power segment, the losses turned into more than 100%. So we did not sell power this time to UP, but did we recover our fixed cost? Or is there some discrepancy on that, if you can throw some light on that?

No. So you are right on that. And so last year, when the power tariffs were revised, we haven't sold anything to the UP grid. This is only the power that we sold for the running of our chemical and ethanol plants. And the loss is mainly due to the fixed costs, which are there in Q2. So the repair cost, depreciation, that is why the loss will always be there on the Power side for Q2. It was -- it'll be the same for as many years.

[Operator Instructions] Now Vikram Suryavanshi from PhillipCapital.

Sir, out of overall crushing, how much cane is getting diverted? Or what is the proportion of B-Heavy, basically, if you can share? And how much we can divert further going ahead?

So as of now, in 3 of our plants, we will be doing the whole season on B-Heavy. These 3 plants basically do 75% of our total cane crush. So that is, for these 3 plants, we will be doing B-Heavy and in the other 2 plants, we will be running on C itself.

Okay. And basically, we have seen strong, if you look at over the last couple of years, improvement in recovery rate. So for our company, what is the recovery rate? And per B-Heavy version, how much is it a fall in to recover it? And what is the outlook on recovery for coming season, if you can share on that front as well?

So last year, for the group, we were 11.96% and we diverted 0.88% to B-Heavy. So our net was 11.08%. As of now, this year, the plants have just started only about 4, 5 -- about 8, 9 days back. The trends are seeming to be okay. But as of now, the first round of trend is showing about 0.1 to 0.15 lower than last year.

Okay. And what was the landed cost of cane last year?

Landed cost of cane was INR 31.

Okay. So I think there is no clarity on cane costs so far from state government, is that right?

Yes. That is right. There is no clarity as of now what will be the cane price for '20/'21 right now.

Okay. And how would be the outlook on export or surplus, how to manage surplus sugar because what we have seen is that some of the big -- other sugar companies are planning to convert a lot of their cane directly to ethanol going ahead, so that they can manage surplus sugar situation in the country. So how we are looking structurally going ahead industry as a 3- or 5-year down the line? Are we also thinking on similar lines? So if you can give some outlook on how to manage surplus situation in India, either through export or through ethanol side? And what are your views on that?

See for this year, exports have to happen. Otherwise, India will have a huge issue of stock when we reach next year. As far as we ourselves go, we all are studying our expansion plan for Dhampur. We will be putting it up to the Board in the next 2 to 3 weeks as to how much is the expansion, where it will happen and how much of cane use can be diverted for the same, but we'll be taking a call on that in the next 2 to 3 weeks.

Okay. And how would be -- basically, some of the mills are also going for this biogas projects out of press mud or some other route. Are there opportunities for us also in the biogas from press mud or something?

Yes. So we're also starting that also. So biogas/CNG. So that project is also under study right now.

Okay. And last question from my side. Basically, structurally, obviously, we have seen sharp cut in power purchase by state government. So are we as a industry trying to renegotiate for the price increase? Or can we think of some sustainable alternate route going ahead, either using gas for some other use or something like that or we'll wait for clarity on that?

So as you know, that on the power tariff, the matter is in court right now, but because of COVID, the hearings haven't really happened. So we will wait to see what happens in -- to those hearings because we all believe that we have a very strong case for the power tariffs to be higher than what has been said. So we'll just wait for these hearings to sort of start, which we are hoping that will start very, very soon. And after that, we will take a call as to what we want to do with the surplus gas that we have.

The next question is from the line of Anupam Goswami from B&K Securities.

Sir our inventory valued at INR 29.33. So if we take that as the cost of production, so what would be your guidance on the cost of production for the full FY '21?

Well, COP right now is at INR 29.33 and that is at what we valued our stock.

For the full year FY '21, what level we can expect?

So it will be around the same range.

Okay, sir, the expansion plan that you mentioned, it will come in the Distillery side?

Yes, that's right.

The next question is from the line of Shivani Mittal from Dalmia Securities.

Sir, I had 2 questions. Number one, can you just tell me the molasses prices for the B-Heavy and C-Heavy vis-a-vis last year? And question number two is, do you have any plants where ethanol manufacturing via grains? And I'm asking this question since one of our peers has announced a CapEx in that respect.

Yes. So on the transfer pricing of B-Heavy was done at an average of about...

INR 800.

At about INR 800 -- was INR 800, was our average price for B-Heavy transfer. And for C-heavy, it was...

INR 400.

INR 400. And on your other question on grain. As of now, we are studying more from the side of juice. Juice and B-Heavy is what we are studying. Grain has been something that we have been thinking about for the last 12 months. But this expansion that we are planning is mainly from cane juice and to divert more B-Heavy. So we are not thinking of grain right now, but there can be because, again, to put up grain, it isn't that much of a different sort of a process. It's just you have to put one thing to just process the grain. So that will always be an option that we have. But presently, we're only seeing for sugarcane juice and for further B-Heavy.

Right, right. So sir, the distilleries that we currently have, so is that integrated to produce ethanol from cane juice as well?

Yes. So our plants right now can do all 3; cane juice, B-Heavy and the sugarcane and C is obviously there. But as of now, with our presence and capacity, we all do not have the option of doing cane juice, but I will left with surplus molasses, that's why we aren't doing sugarcane juice, and that is why the expansion plan is being put off.

Okay. Okay. Sir, what proportion are we looking for B-Heavy to C-Heavy, like 70-30, 90-10?

Yes. So this year, out of our capacity of 13 crore liters, 10 crores is what we all are doing for B-Heavy, 10 crores.

Next question is from the line of Anupam Goswami from B&K Securities.

Sir, this project that your -- expansion project, will we be taking more leverage for that? Or we can take it from our internal accruals?

No, we will be taking leverage for the same. That is basically because of the fact that, as you know, that the government of India has a scheme where they will subvent certain part of your cost of interest. So because of that, we will be taking advantage of that scheme, and we'll be boarding money for this expansion.

[Operator Instructions] As there are no further questions in the queue, I now hand the conference over to Mr. Vikram Suryavanshi for his closing comments. Over to you, sir.

Yes. Thank you. We thank the management of Dhampur Sugar Mills Limited for giving us an opportunity to host the call and taking time out for interacting with the stakeholders. Thank you all for being on the call. Thank you, sir.

Thank you, everybody. Thank you all.

Thank you very much, sir. Ladies and gentlemen, on behalf of PhillipCapital (India) Private Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.