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

Good day, ladies and gentlemen. Welcome to the Dhampur Sugar Mills Limited Q3 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Navin Agarwal, Head, Institutional Equities at SKP Securities Limited. And over to you, sir.

Good afternoon, ladies and gentlemen. On behalf of all of us at SKP, it is my great pleasure and privilege to welcome you to this financial results conference call with the leadership team at Dhampur Sugar Mills Limited. We have with us Mr. Gaurav Goel and Mr. Gautam Goel, Managing Directors at Dhampur; along with their colleagues, Mr. Susheel Mehrotra, CFO; Mr. Nalin Gupta, Joint CFO; Mr. Vinit Gupta; and Mr. Akshat Kapoor, both AVP Finance. We will have the opening remarks from Mr. Gautam Goel followed by a question-and-answer session. Over to you, Mr. Goel, for the opening remarks. Thank you.

Thank you, Navin. This is Gautam Goel here. Good afternoon, and a very warm welcome to all at Dhampur's Q3 FY '21 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, Susheel Mehrotra will take you through the operational and financial highlights of the company for the Q3 FY '21. For the sugar season 2020, 2021, we estimate the sugar production to be around 30.5 million ton in India. The domestic sugar consumption is estimated around 26 million tons. Domestic sugar sales realizations are currently ruling at around INR 32 per kg ex mill. The state advised price or SAP for the sugar season '20, '21 has not yet been announced. A fair and remunerative price, the FRP, for the season 2020, '21 is kept at INR 285 per quintal, linked to a basic recovery rate of 10%, providing a premium of INR 2.85 per quintal for every 0.1% increase in the recovery above that level. Overall, we are glad to report a stable performance. Average sugar realization for Q3 FY '21 stood at INR 22.64 per kg as against INR 32.82 per kg in Q3 FY '20. Sugar sales for Q3 FY '21 stood at 2.45 lakh tons as against 1.83 lakh tons in Q3 FY '20. In terms of inventories, the total inventory as of December 31, 2020, stands at 1.87 lakh tons of sugar valued at an average cost of INR 31.58 per kg. The company sold 319.72 lakh bulk liters of ethanol/RS, including 216.20 lakh BL of ethanol derived from B-Heavy molasses, at an average realization of INR 51.21 per liter during Q3 FY '21 as compared to 187.64 lakh per bulk liters of ethanol/RS, including 61.91 lakh BL of ethanol derived from B-Heavy molasses at an average realization of INR 44.32 during Q3 FY '20. The company during Q3 FY '21 sold 70.82 lakh kg of chemicals at an average realization of INR 65.81 per kg as against 54.56 lakh kgs of chemicals at an average realization of INR 56.86 per kg during the same quarter last year. During the quarter ended December 31, 2020, Dhampur in its power segment generated 23.12 crore units of power as against 20.45 crore units in the same quarter last year. The export of power stood at 11.75 crore units at an average realization for Q3 FY '21 at INR 3.22 per unit as compared to 10.54 crore units at an average realization of INR 3.14 per unit in the same quarter last year. I would now like to introduce our CFO, Susheel Mehrotra, to take you through the financial performance of the company. Thank you.

Thank you, sir. Good afternoon. 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 ended December 31, 2020. Our revenues from operations in the quarter were INR 1,108.82 crores compared to INR 820.47 crores in the previous year same quarter. EBITDA was INR 112.30 crores versus INR 92.84 crores in the last year same quarter, and PBT was INR 77.65 crores versus INR 53.61 crores in the same quarter last year. The profit after tax stood at INR 54.56 crores in Q3 FY '21 as against INR 51.02 crores in the same quarter last year. Our interest cost stood at INR 12.88 crores during this quarter as compared to INR 20.44 crores in the same quarter last year. Now let me take you through the business-wise performance. For the quarter ended December 31, 2020, the Sugar division reported revenues of INR 949.68 crores, contributing to 71.47% of the total revenues as compared to 69.05% at INR 733.87 crores in the same quarter last year. EBIT in this segment stood at INR 13.46 crores as compared to profit of INR 27.02 crores in the corresponding quarter last year. Revenues from ethanol and chemical business for the quarter were INR 233.65 crores as against INR 145.25 crores in the corresponding quarter of the previous year. EBIT for this quarter stood at INR 62.27 crores against INR 15.34 crores in Q3 of previous year. During this quarter, Power revenues are INR 112.74 crores with a profit of INR 30.60 crores as against revenue of INR 144.28 crores with a profit of INR 47.84 crores in the previous year in the same quarter. The company has made repayment of long-term debt of INR 26.5 crores during this quarter. The long-term loans as of December 31, 2020, stood at INR 423.9 crores. These are our broad level financial numbers. Thank you once again for joining us on this conference call. We'll be happy to answer any queries that you may have. Thank you.

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

I have just 2 questions. One is that... [Technical Difficulty]

Sorry to interrupt, Mr. Manyal. Sir, your voice is breaking up.

Hello? Can you hear me now?

Yes, we can.

Yes, sir. So just a few questions I have. One, specifically on the distillery side that your volumes have been much better for the quarter compared to corresponding quarter. So what is the distillery volume we can expect for the full year FY '21?

So out here, Sanjay, as you know, what we also spoke the last time, our total contracts with the OMCs for this year is 10.5 crore liters that we will have done. And apart from that, we do plan to make about 2 to 2.5 crore liters of ENA. So our volume for sure, we expect it to be better for the next 4 months.

Right, sir. Right, sir. And as we are hearing that recoveries have been lower in UP this season, what is our total estimate of what kind of sugarcane yield? Or what kind of impression will do for the full season? And what is the impact for us in terms of recovery?

So as of 31/12/2020, our total -- we were down by about 0.68, vis-à-vis last year. But since January, we have started seeing it to improve. So we believe that anything from 0.25 to 0.3 is what we will be lower than last year as of now. As far as cane yield go, even that, we will have seeing it to be marginally lower in Western part of UP, where we all are. So we believe that our cane crush should be almost similar to last year. The plant cane has just started to come. But seeing what we all have done and what we expect to do, we should be almost close to same as last year.

Okay, okay. So which means that yields probably are better compared to the Eastern side of this UP or there's other parts of UP, which Is -- can we assume something like this?

Yes. So for sure, what we've been hearing, the Eastern side is seeming to be slightly lower than what has happened in the Western side where our 5 plants are. So yes, our yields are slightly lower. So the increased cane size that we had expected, perhaps that won't happen. That is why we're expecting our crush to be almost same as what we did last year.

Right, sir. Right, sir. And one last thing, specifically on the export. You have like -- as you mentioned, you have already contracted an entire quantity of export. At what price you have contracted these quantities? And if I just may ask, do you see any possibility that probably, if the domestic quota remain pretty decent that we had same as last year than probably exhaust your inventory even before the next start of season?

So you're right on that, that we had an exporter of MAEQ of 1.55 lakh tons that we have already done the -- we have already finalized all our contracts. Our average price for that is about INR 25.1 to INR 25.2 per kg. As far as the inventory that we have got left over, I mean, it's very early days to say as to when it will be overweight. It is extremely dependent on what is the sort of demand that India will see over the next 10 months. But for surely, I think that by 2021, hopefully, we should be able to sell all of our old stock.

Right, sir. Right, sir. So sir, before today, I just want to ask last in con call, you discussed about the new CapEx, sir. So if you can just give some details about it, when it is likely to be commissioned. And how is the progress on that?

Yes. So as you know, that in the small plant of ours, which is at 150 KLPD as of now, we are taking it up to 250 by -- I would say that by start of next season, our plant will be up and running. So I would say that 30/11/2021 is where we expect our 250 KL plant to start.

The next question is from the line of Madhav Marda from Fidelity Investments.

I just had a couple of questions. The first one was, could you help me understand why the sugar profitability came down so much. Maybe I'm missing something very basic, but if you could just help me understand, that would be really helpful.

So the Sugar segment came down mainly because we would have made more B-Heavy this year, vis-à-vis last year. If you see our total B-Heavy stock that we have as of date is -- sorry, I'm just taking...

So our B-Heavy stock, let's say, so B-Heavy stock as on December 30 stands at 0.89 lakh tons, against 156 lakh tons. We consumed 10.58 lakh quintals B-Heavy during this quarter, which is around 30% -- 30%, 35% higher than last year.

Okay, okay. So that impacted us, the growth profitability at this point.

No. That also, and plus we have to -- so that was a major impact that we have started to divert more B-Heavy in -- out of -- from sugar to make ethanol. So that is the main reason where you're seeing that impact happening. So the profits have moved from one segment to the other one.

Other segment. Okay, okay. Got it. Sir, maybe like going ahead for sugar -- for the sugar industry [ as a whole ], would it start making more sense to look at sugar and ethanol profitability combined because this sort of movement will happen, right, as more and more divergence keeps happening towards ethanol over the years?

Madhav, you are totally right. That is how you'll have to start to see it because with the amount of B-Heavy and sugarcane juice in the future, that is going to happen. I think that you'll have to see both of them combined and not see one vis-à-vis the other.

Understood. But there was no one-offs or any cost guidance over this time. It's all primarily driven by the diversion.

That's right.

Okay. And my second question was given the sugar production is expected to be in the sugar inventory levels that the country is carrying, would you be more positive for sugar prices in the coming year? Do you think it can sort of naturally move up to INR 33, INR 34 or that may seem to be...

See, again, if you all see what was our closing stock as of 30/9, that was about 10.5 million tons. India is expected to do about 305 million tons. Demand is 26-odd million tons, export of, say, 5, 5.5. So our stock will come down to around 9 million tons. Now obviously, we'll have to also wait and see what is the crop expected in '21, '22, so it's very hard to say. But for surely, I believe the sugar prices should stay stable. My view is now that they will go up very, very much over the next few months. So right now, we are at about INR 32. It can go up to about INR 33. But 1 month up or down in sugar price is anyone's guess. But India has got stock of about 4 months, so I think we are pretty good with our stock. The '21, '22 crop and how much of diversion will happen to B-Heavy and to sugarcane juice will be a big factor as to what the prices that we can see in the Q3 and Q4 of 2021.

The next question is from the line of Kunal Mehta from Vallum Capital.

I just wanted to have a few details. So I actually just saw the number that you mentioned in your opening remarks regarding the export realizations, which you have contracted for this season. So could you please repeat it for me?

Yes. So 1.55 lakh tons was our MAEQ for this year. Our average external price that we will get is around INR 25.1 to INR 25.2 per kg, and we'll get [ 6 box ] from...

Understood. Understood, sir. Understood. And secondly, regarding cost of production, could you repeat the cost of production for this quarter?

Yes, the COP for this -- for 31/12 was INR 31.58.

I'm sorry, INR 31.58.

Yes.

Okay, okay. Got it. And just one more question from my end. So I just wanted to understand, Sir, that when you shipped ethanol -- this is a project fundamental question that we have with clarity on the side. So when you ship ethanol -- when you ship your production, [indiscernible] sugar from C-Heavy to B-Heavy. And so just want to understand, on an ethanol basis, how much does your [indiscernible] sugar go up for every, I would say, 0.1% drop in recovery like when we shift from C to B? So because I can understand that a lot of the cost would be then spread over a lower amount of sugar because you sacrifice sugar. Of course, it will be compensated by higher margin for ethanol, So I just want to understand for [indiscernible] when you ship something to breed and depending on how much you shipped -- how much is the cost of production go up [indiscernible] for sugar?

Out here, the biggest issue, when you shift from B-Heavy to -- from C to B-Heavy, it is the amount of sugar, which you need in -- which you leave in. So as we see, if we all talk about the TRS, which is there is approximately 46% to 47% is the TRS which is there. When you go to B-Heavy, it can range from 55% to 60%. So it becomes very tough for anyone to really mention as to what will be the difference of COP. It will vary from factory to factory. From every plant, it will vary. But what you can just assume is that if you lose 0.1, you will get a higher yield of approximately 0.1. In fact, if I will give you a higher yield by about [ 3% ] -- maybe not [ 0.3 ] because it is 1.45, you get [ 305 ] is 1.45 -- 3.5. Just a minute. I'm just doing the math for you. Just a -- but it's a very general math, okay. It is not specific coming. I mean, like it won't be true for every plant. About 4.5 liters increase you get in the yield of ethanol for every 0.1 that you sacrifice.

Got it, sir. Perfect. Got it. And sir, could you please just help us on the cost of ethanol for this quarter, I mean, for the cost of your both B and C?

So weighted average cost of production for B and C for this quarter stood at INR 32.8 per liter for ethanol -- sorry, INR 30.47.

INR 30.47 is ethanol.

INR 30.47, okay. Okay. Sir, for the present quarter.

Yes, for the present quarter, weighted average cost of production for both B and C.

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

My question is on the follow-up of the previous question. You mentioned about the cost of -- weighted average cost of the ethanol. So how much is the molasses transfer price in this?

So for C-Heavy, our transfer price is INR 400 per quintal and for B-Heavy, it is INR 800.

Okay. It's taken at the market price, right?

Yes. So this is basically the transfer pricing, which has been finalized, so it's been done on that. See, on B-Heavy, there is no price in them. There is no official price, right, because there is no sale which happens to B-Heavy. So the C-Heavy price is as per market. The B-Heavy price is a number which has been sort of finalized, vis-à-vis the tax price, which happens on sugar.

Okay, okay. Got it. And sir, my next question is on the export. We have contacted the entire export, you mentioned around 25.1. But according to [indiscernible], it's coming at around 15-some. So do we not see any further upside to the export global prices and -- that's why we have contracted the whole quantity?

So again, when you say pricing is slightly wrong because in this, you have to cut. When you say -- I mean, I was talking about ex mill price. So the ex mill price is basically after we cut the cost of the transport and the fobbing, which happens at the port. Otherwise, the average cost is about $0.16 per pound. But that is -- again, that is at the port, right? So you have to take out the -- about 2,300, 2,400 per ton is the cost, which you take to transfer the raw sugar from your factory to the port. So when you see New York price, that's all FOB. It is not ex mill. I gave you ex mill price.

Okay, sir. Got it. So do we not see anything further? Like if there's a shortage to sustain in the global market, do we see international prices going up above $0.18 or $0.19?

Sure. That's always been the stock, right? So when we did our own contracts at that point of time, we were told that this is the highest which can happen. I mean that's anyone can -- that's right. I mean, from our perspective, you all saw that the price for export for us is good, and that's why we did our contracts. But if I'm not the expert on global market, so for me to really say whether New York will go up to $0.18 or will come down to $0.14, I have no clue at all.

Okay, sir. Okay, sir. And then last question on the CapEx that we have 100 KLPD as you are putting. So that's going to be about -- based on cane use and B-Heavy? Or is it having any grain base also?

No. So this is only on juice and on B-Heavy. Maybe we are not planning on grain as of now.

The next question is from the line of [ Simran Bagaria ] from SKP Securities.

Sir, I have a question regarding the..

Sorry to interrupt, Simran. There's a lot of disturbance from your line. It's much better.

Sir, what is the payback period for the CapEx of 100 KLPD that you have announced?

So the payback that we all have done as of now is about 2.5 years.

2.5, okay. And sir, with more diversion towards ethanol, what could be the reduction in sugar production going forward?

Again, Simran, it's a very futuristic question. We have to see what sort of cane planting that we all are seeing next year. But we do believe that vis-à-vis our plants that we will have got and with our cane area that we will have got, we do believe that our cane -- that sugar that will come down even next year should only be very, very low. It should be anything from 5% to 10% is the maximum sugar lower is what we expect, vis-à-vis this year. Even if we divert in our Dhampur and Asmoli plant, we do plan to divert about 80 to 100 lakh quintals of cane for sugarcane juice. Even after that, we do believe we have certain amount of cane which will go up. So it will be anything from 5% to 10% is what we believe will be the sugar that we'll produce lower next year.

[Operator Instructions] The next question is from the line of [ Zaki Nasir], an investor.

And congratulations on a wonderful set of numbers for the third quarter. Sir, my question would be, see, if you see the very sugar per se, in the domestic market, the way it has been sold, especially in modern case, I think Dhampur also has started making the efforts to brand sugar. And the realization for this is, I think, pretty decent. So I would like to know what your efforts should be towards making the company more brand-centric and -- which would lead to a larger realization. Of course, I think it will take a lot of time. But a lot of commodities have gone that way. So I would like to have your opinion on that.

Zaki, as you know, that within India, perhaps Dhampur was one of the first ones to come into branded sugar, that we are talking almost about 18 -- about 18 to 20 years back is when the Dhampur brand was launched. We all do believe it's a market which can grow. It's a good one, but the growth is extremely small even as on date. But I do believe that the amount of supermarts, which are being opened up, everybody trying to buy more food stuff online, I do believe that this is a great segment. But we have to also realize that 70% of all sugar that is sold in India is for fusions. Only 30% goes into retail. So from that perspective, it is a market which is going to grow, but at what pace will be still a question as to how many of the -- how many of us will actually go and pay a premium for branded. I think the same thing which happened in salt. When we spoke about salt, almost about 10 years back it was always a mess. So I fully -- I'm with you on this that branded will for surely do better on the -- in the future, and we are for surely working on that. We have taken out new product lines to try and expand our share and to get new products out for branded. So I agree with you, but it will take some time. Anything from, I would say, a 3- to 5-year period is what we see where the branded will actually have an impact on the bottom line of the company.

And sir, a little bit of your opinion on the chemicals related to molasses and stuff like that, which Dhampur is making an effort for.

Yes. So ethyl is doing really well right now. Our ethyl plant that we have at Dhampur has done really well for this quarter also, and we do plan to see as to how to expand that area also. So chemical is also one side that we are seeing as to which are areas to grow in, in certain specialized, but all that is still in study as of now. Hopefully, in the next 6 to 9 months, we'll have sort of a clarity on the chemical side as to where we want to go in the future.

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

Sir, what was our country liquor size this time [indiscernible].

Liquor is still very, very low right now. Our total cases that we sold only about 1 lakh order cases is what we sold in these 3 months. We are still a very new entrant in the market. It is -- again, when we started, we didn't realize it was still a very, very branded even though the pricing is all the same. So we are trying to grow in that market. We are hoping that 30,000, 35,000 sale that we are doing every month to take it up to at least 1.5 lakhs by June of 2021.

Okay, okay. Sir, do we make any good margin on that?

As of now, no. As of now, costs are higher than what we are earning. But again, as I said that we have just started it, but our costs are only in -- so it is not a huge amount of loss that we are doing. It's only in lakhs. It isn't in crores. But it is a market that we need to develop. It's a very tough one to enter into. There are very good players who are there, who have been there for the last 18, 20 years. So yes, but that is one area that we want to -- sorry, but CL is an area that we want to for surely put our efforts into. We all believe it's a market which can grow for Dhampur.

Okay, sir. Okay, sir. And sir, even though it's a small segment like branded sugar, how much the sales we have done? Or in a branded basis, how much we are doing in a year? And is there any higher costs associated to it?

So we have sold around 50,000 quintals in this quarter, and we are getting around INR 1.5 higher than the usual sugar market in the branded sugar segment.

Is cost associated also higher on this?

Yes. It is incremental over and above the packaging and the labor costs, which we incur in the branded sugar.

Some advertisement also associated from this.

Sorry. Come again?

Any advertisement cost also associated in this?

Yes, minimal. It is minimal.

So all the ads which have been done are all on social media as of now, so that's why the cost is very, very low on your ads, everything else. So we're only going through social media as of now because, as of now, our branded sale is mainly in Northern part. So then if we are to advertise all over India, it becomes very expensive. Even though now we've started going to the Western part of India also with our brand, but the sales there are very small. So as we said that we keep our cost in check to start off with. But if we see some sort of momentum, which is coming up, people surely have no problems at all in making our cost slightly higher and making a profit slightly lower. But as of now, everything is done only through social media.

[Operator Instructions] The next question is from the line of from [ Simran Bagaria ] from SKP Securities.

Sir, one more question. Sir, with such strong cash flows, what kind of level that we are looking for FY '21 and FY '22? And what would be the average cost of borrowings or interest obligations for the current year?

So that's absolutely true, but you have to also rely that a debt level is mainly because of working capital. Long-term debt, as was already said in the call, is only about INR 420-odd crores. We do plan to take extra debt of about 96 for our expansion that we are doing, but that's also because of the soft loan that we'll get or the interest -- pension that we'll get from government of India for our expansion of 100 KL. So our long-term debt will be around INR 500 crores. But if you see our working capital as of 31/12 was only INR 203 crores, vis-à-vis INR 935 crores last year. So we have to see our total debt vis-à-vis long term and short term, not just one-off. So all the extra cash flow that we will get, we will use it for our own working capital.

Okay. And sir, what would be the average cost of borrowings?

About -- you can see about 7.2%.

[Operator Instructions] The next question is from the line of Anurag Patil from Roha Group.

So I have some basic questions about ethanol segments. So just to understand the profitability perspective, what are the key items that affect your overall ethanol segment?

See, the overall impact is what is the sugar price that you expect over the next 12 months is the main aspect that we have to take into account when we say that we want to divert more sugar, either for B-Heavy or for juice. So that is the key thing that we all, as a group, have to think about and then take a call on that as to how much of the sugar stock that we expect, which is there in India, how much is the quota or the demand, which we expect over the next 12 months and on that basis, how much of sugar we want to divert. So these are the key things that have to be thought about when you take a call about B-Heavy or of juice. Anurag, are you there?

Mr. Anurag Patil? We have lost the lines of Mr. Anurag Patil. [Operator Instructions] The next question is from the line of Sanjay Manyal from ICICI Securities.

Sir, just one thing. As the previous participants also asked about the working capital debt, so by the time we'll go to the peak season, say, by March, what would be our working -- what is the estimate of what the working capital debt?

Again, it will be very -- it will be also on what sort of quotas that we will get on our sugar sales, but I do believe it should be around 600. Right now, we have about 200. It should be around 600 is what we are thinking will happen till March 31.

Okay. So 600 plus 500 over the long-term. So in total, like that.

Yes. No. Our long term, as of March 31 will still be at only about 400. The 100, we will only draw after April of 2021.

[Operator Instructions] As there are no further questions, I now hand the conference over to Mr. Gaurav Goel for his closing comments.

Thank you so much. On behalf of Dhampur, we would like to thank you all for taking your time out for this call. If you have any further questions, please feel free to contact us either by phone or by e-mail. You can also visit our website, dhampur.com, and post any queries that you may have, and we will get back to you as soon as we can. Thank you again to all.

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