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

Ladies and gentlemen, good day, and welcome to the Dhampur Sugar Mills Limited Q4 and FY 2022 Earnings Conference Call hosted by SKP Securities Limited. [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. Thank you, and over to you, sir.

Good afternoon, ladies and gentlemen. It's my pleasure to welcome you on behalf of Dhampur Sugar Mills Limited and SKP Securities to this financial results conference call. We have with us Mr. Gaurav Goel, Managing Director; and his colleague, Mr. Susheel Mehrotra, CFO. We will have the opening remarks from Mr. Goel, followed by a Q&A session. Thank you, and over to you, Mr. Goel.

Thank you so much. I'll now hand to CFO to just go over the key points of my FY '22 results.

Thank you, sir. Ladies and gentlemen, welcome once again to our Q4 and FY '22 earnings call. Post the process of demerger, we are holding the call for the first time. So first of all, I would like to -- you to update on the status of the demerger of the company. As you are aware, the scheme of arrangement between the company and Dhampur Bio Organics Limited was approved by the Board on June 7, 2021, and the final hearing was held by Honorable NCLT on April 19, 2022. And the order was reserved, which was finally pronounced on 27th April, and a certified copy of the order was filed by both the companies on May 3, 2022, with the Registrar of Companies Kanpur. And consequently, the scheme became effective from that date. The appointed date of the scheme was April 1, 2021. With the scheme becoming effective, the shareholders of Dhampur Sugar Mills Limited will get shares of Dhampur Bio Organics Limited in the ratio of 1:1. And for this purpose, May 17, 2022, was fixed as the record date. Now I would briefly take you to the rationale of the demerger. The underlying spirit of the rationale -- of the scheme was to create opportunities for independent growth and expansion strategies to unlock the value of each of the manufacturing units to create strong and distinctive platform with more focused management, which will allow greater flexibility in pursuing the long-term objectives and independent business strategies and to create a framework for succession planning. Subsequent to the demerger, the management of both the companies has been segregated. Now coming to perspective on the sugar sector. The sugar production in the current season is expected to be 35 million tons net of estimated sugar sacrifice of about 3.4 million tons in favor of ethanol. Sugar exports that are expected to be 9 million tons have successfully helped to balance the domestic sugar market. As a result, there are no upward or downward spikes in sugar prices. As per ISMA estimates, the total sugarcane production in the season '21-'22 will be record 430.50 million tons, which is higher by 57.04 million tons than the average production of 373.46 million tons. Coming to performance of the company. We had the Board meeting to approve the Q4 and annual results on 29th of May, and I'm sure you would have had the opportunity to go through the results. The company's performance has been stable during the year of demerger. The company has crushed 35.83 lakh tons of sugarcane and produced 3.71 lakh tons of sugar. Our recovery has been 10.37% net of sugar sacrifice for B-heavy and syrup diverted for ethanol production. The gross recovery has been 12.16%. Sugar inventory is presently, as of 31st March, 2.05 lakh tons, valued at about INR 30,300 per ton. Sugar sales have been 3.21 lakh tons this year, and our inventory at 2.05 lakh tons is higher than last year inventory of 1.41 lakh tons. The value thereof will be unlocked in the next quarter. Our average sugar realization in the year has been upward of INR 34,200 per ton. And I'm happy to inform you that our Dhampur plant continues to crush sugarcane till date and have crushed 2.43 million tons of grain till yesterday, which is highest ever crushed by Dhampur unit. This company -- this year, the company commenced to produce ethanol from the sugarcane syrup as well, and 1.04 lakh tons cane has been diverted to ethanol production from syrup. Ethanol produced from syrup was 83.37 lakh liters. The company has embarked upon expansion plan for its distillery capacity. This will be enhanced by 130 KL per day on C molasses and which will have the dual feedstock capacity of 100 KL per day on the grain. So post that expansion, the total distillery capacity will stand at 500 KL approximately on the B-heavy molasses, including 100 KL per day on the grain. The cost of project is expected to be around INR 160 crores, of which the debt financing will be to the tune of about INR 120 crores. And the project will be implemented before the start of its own supply year '22-'23. Currently, the progress of the project is as per plan and very much under track. Now considering the potential of ethanol business and focus on chemical business, we have identified ethanol and chemical separate segments for the purpose of our financials from the rest of the distillery operations. I would now like to take you through the financial highlights of the company for the year. Now overall, we are glad to report a stable performance. As I said, even during the year of demerger, our revenues from the operations during the year stood at INR 2,208.7 crores, EBITDA at INR 304.9 crores, which is higher by 5.5% over the previous year. EBITDA this year is 13.8% of the revenue versus 12.8% in the previous year. So PVT is INR 204.5 crores, which is higher by 2.9% over the previous year. And PVT to revenue this year is 9.3% versus 8.9% previous year. Profit after tax at INR 146.9 crore is higher by 2.4% over the previous year. Our current ratio stands at 1.12x. Now let me take you through the business-wise performance. Our share of revenue from sugar business is 54.1% this year as against 66.4% last year. From the power business, this is nearly same as last year, that is at 7.9% vis-à-vis 7.8% in FY '21. From ethanol business, 15.9% versus 15.3% last year. And from chemicals, 10.4% versus 6.4%. Potable Spirits is 10.8% versus 3.3% last year. Our share of profit from sugar business is 19.7% versus 18.7% of the total profit. From our power business, it is 28.3% versus 27.2%. From ethanol, it is 45.2% versus 44.9%. And chemicals, it is 6.7%, which is marginally lower compared to last year. Potable spirits have shown improvement by reduction in the segment loss. The company has made repayment of long-term loans of about INR 118 crore during the year. The long-term debt as of 31st March stands at INR 263.9 crores. These are our financial numbers on a broad level. We'll be happy to answer any questions that you may have. We would like once again to thank you all for taking time out for this conference call. If you have any further queries, you may please visit our website, dhampursugar.com. Thank you.

[Operator Instructions] The first question is from the line of Aman Kr Sonthalia, an individual investor.

Sir, First of all, congratulations for the new company. I think after the demerger, I think both the companies will grow higher and higher. Sir, what was the closing inventory and what was the valuation?

So the closing inventory as of 31st March was 2.05 lakh tons at a value of INR 30.8 per kg.

Okay, sir. And what it was last year?

Last year, our closing inventory was 1.41 lakh tons, which had 1.03 lakh tons of white sugar, which was valued at INR 29.5. And our raw sugar, which was [ 37 ], was valued at INR 29.5 also.

Okay. And what is the gross recovery, sir, this year and last year?

So as of 31st March, our loss is 12.16%, which is our -- as of 31st March, our gross was 12.16%, which was almost the same as last year.

And for the season, sir, sugar season?

For the season, as of now, Dhampur plant is still running. The Dhampur plant should shut by tomorrow. We should be, on an average, about 0.03 lower than last year.

Okay, sir. And what was the last year gross recovery?

Last year, for the whole year, if I see for Dhampur and Rajpura, it was about 12.1%. This year, it will be about 12.07% is how [indiscernible] will close.

12.07%.

Yes.

Okay, sir.

So if you will see that in UP, an average drop has been anything from 0.25 to 0.4, while Dhampur has been able to manage with the same as what it was last year.

And sir, what is the scope of liquor business? Whether it will grow from here or it will be more profitable or it will be very much like the same?

See, if I talk about our liquor business, that was basically done to take care of the levy that we had to give to the liquor manufacturers, which was at a very, very cheap rate. So we all said that why don't we also enter into it. But we do believe that volumes and margins should grow in the year '22, '23. But again, the margins there will be limited because of the transfer pricing that we do of ENA. So out there, you will see a growth in volumes, but as far as the margins go, they will be almost flattish.

Almost flattish. And sir, what about this distillery with the grains, how profitable it will be?

See, as of now, when -- again, it is all dependent on the price of grain and of DDGS. DDGS is basically the raw material -- is the byproduct, which is used for cattle feed. But as of now, the numbers that we have done, if we get grain at the right price, even though grain prices, we all know, have gone up slightly over the last 2 or 3 months. But see, grain for us will always be an option. As to seeing the price of grain and of DDGS, how much of sugar we want to divert and put into grain. So that will be a great option that Dhampur will have. But as of now, seeing the present price of grain and of DDGS, it does make sense for us to run our green plant also, at least for the year '22-'23.

Sir, it will be profitable. Not very much, but it will be profitable.

No, the profit as of now on grain is almost the same as that we have on the side of B-heavy or on syrup. So yes, grain is a profit as on date. But obviously, seeing the amount of grain plants, which are coming up in UP and in India, we all do believe that over a period of 2 to 3 years, the grain prices will go up. And then we'll have to sort of assess as to how much of diversion we want to do to our grain plant. But for us, it is an option, whether I run the 480, 500 KL only on syrup and on B-heavy or out of that I run on grain also, so that will be an option that Dhampur will have.

And sir, one last question, whether we are going for any capacity expansion in the sugar crushing capacity, and whether we are seeing any increase in the cane planting also in our area?

Yes. So basically, '22-'23, there is no expansion planned on the sugar side. The Rajpura plant of ours, there, the land area is a lot. And that is one area that we need to sort of explore and to exploit to grow more cane. As soon as the cane growth in Rajpura plant goes up, which was solely as expected, then Rajpura plant will be the one which we'll go in for expansion, hopefully, in the year '23-'24.

Okay, sir. Okay. And what about the cane next year, is there really scope for cane growth, we can trust more the same capacity?

Yes, for surely. So basically, we all have to be -- at least in Dhampur also, we are expecting slightly higher cane, but it's still early days. Perhaps in the call of July, I'll be able to answer that better once the survey is done in June as to what is the sort of cane availability that we expect in both the plants. But for surely, planting has been healthy in both the plants.

[Operator Instructions] The next question is from the line of [ Devesh from Omkara ].

Yes. Sir, just wanted to know what is the plan in the chemicals business with the new MD coming in and you're also divesting in the chemicals business separately?

So basically, as you all are aware, we have informed the stock exchange that we have hired a new CEO who is coming from a company which is into specialized chemicals.

Mr. [ Omkara ], can you hear us, sir? Mr. [ Devesh ]?

Yes, I can hear you.

Yes, sorry. [ Devesh ], now the next area of growth that we all are seeing is apart from ethanol, which surely will stay as a growth area for Dhampur. But I for surely believe that going into some other forms of chemicals is where we all are going to go next. Exactly, we have not made our plans, as I was just saying, is that we have hired a CEO who comes -- his background is from a specialized chemicals company, is to try and see as to what we can do over the next 18 months in that sector.

Okay. And sir, what is the ENA and ethanol volume do you expect for the coming years? [indiscernible]?

Yes. So basically, our ethanol expansion that we just spoke about, that's from 250 KLPD plant that we have. This year it will go up to 380. So we will get a partial impact of that in the financial year '22-'23 and the full impact in the year '23-'24.

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

I have a few questions, firstly, regarding the sugar sales. So in current year, what would be the export volume out of the total sales we have done, which is almost 3.2 lakh tons?

So we had done a contract of 25,000 tons pre 31st March, and we have done one more contract of 35,000, which has gone in the month of May. But that will be the total export that Dhampur will do for this sugar year. 60,000 tons will be the total draw export that Dhampur has done for the sugar here. Out of that, 25,000 went prior to March 31st and 35,000 has gone in May of 2022.

Okay. And if I heard, you were talking about the closing inventories, and it's 2.05 lakh tons at the rate of 30.8. Am I right on that number?

Yes. Yes, you are.

Okay. And just on the distillery part, the CapEx you are taking, so you mentioned about the 500 KL actually on the B-heavy and [indiscernible] on the C-heavy side. Would it be right to assume that you'll be doing between 11 crore to 12 crore liters?

Yes. So that is the plan for next year, is about 12 crore liters is what we plan to send to OMCs, and the balance will go for ENA and chemicals.

And this is FY '23 or this will be the sugar year?

It will be sugar year. So it will be partly as the expansion will come on stream as of 10/31. So we'll be able to send a part of it in FY '23 and the full in FY '24.

Okay. Okay. And the crushing capacity, what would be the crushing you would be looking to do in the next season?

So that is, again, what I was saying was -- even to Aman, I answered that, that in the July call, I'll be able to give you all a better number. But for surely, we all believe it will be higher than what we have done in FY '22.

Okay. And if I can get the debt situation, how do debt repayment will take place in next 1 year. The current [indiscernible] repayment would take place in next 1 year? And what is your understanding of the domestic quota we are getting, so inventory liquidation -- means according to the inventory liquidation, what will be the debt position in, say, next 1 year's time?

So on the debt side, I will allow my CFO to answer that. But on the quota side, see, we do believe that India is going to produce 35.5 million tons this year. And assuming an export of 10 million tons, we will be around 25.5 million would be available for Indian sugar, seeing an opening stock of anything from 8 million to 8.5 million tons. As of 05/30, I believe the closing stock should be around 7 million to 7.5 million tons will be the closing stock for India.

On the debt side, as of now, we have a long-term debt of about INR 296 crores, and we would be making a repayment of about INR 40 crores during the year. And we'll raise the fresh debt for the purpose of our distillery expansion. So if I add up the numbers, it will be in the range of about INR 370 crores as the long-term debt. And the working capital, of course, has -- I mean, this will all depend on the liquidation of the inventory cycle.

[Operator Instructions] The next question is from the line of [ Sanjeev Kumar Damani from SKD Consulting ].

Congratulations for excellent set of numbers. Sir, I have been fan of Dhampur since many years because your presentations are all very clear and very, very explanatory. So no question remains as such. But I have a few questions, which will be in the form of yes or no. So kindly advise me whether we are fully covered as to information up to 500 KL per day? Are we fully covered with information because without that, pollution issues can come up. So that is why I'm asking this.

Yes, we are fully covered on that. We have ordered a new boiler of 55 tons, which will also come up by 09/30. So we are fully covered on burning our spend for the 500 KL.

Okay. Sir, what is the current price we are selling, and this on 31st May? And from 1st June, are we raising the sugar prices in domestic market?

See, as of now, the prices have been ranging between INR 34.5 to INR 35.5 per kg is the price as of now. Even in June, I believe the prices to be almost the same. I don't believe there will be too much of tweaking of prices even in the month of June. The prices are healthy and they have been stable. So INR 34.5 to INR 35.5 is the price which I see even for the month of June.

And one more question, sir. As to how much -- in this season, we have already crushed up to date or something like that? Can we get some figures?

Yes. So as on date.

In both the units.

Yes. So Rajpura plant shut in the second week of April. There we crushed 123 lakh quintals of cane. Dhampur as on date has crushed about 243 lakh quintals of cane. And it will also shut in a day or 2. So there, we will touch about 244 lakh quintals of cane.

And one more question, sir. One fact that you are heading for 500 KL refinery, and you just now confirmed that either you can use grains or molasses that is alternatively can be used or fully can be used with molasses. Before, it can be used with grain. Am I right, sir? My understanding is correct?

Yes. So we have the option of 100 KL that we can divert from sugar to grain. So that is the option that we have.

Okay. Okay. Only 100 KL is option, not entire 500 KL which will come up in the days to come. So now my next question is that you have crushing capacity of 23,500 metric tons per day. So now when you start the next season, for how many days you can run the syrup straight away to the ethanol making? Can we quantify it?

So as of now, the plan is, is to run on syrup for about 180 days. So that is the plan as of now. But for surely, as I said, that seeing what is the price of grain that we get at that point of time, that number might come down. But it will be about 180 days is the plan to run on syrup next year.

Sir, so 180 day syrup -- I mean to say that directly from juice, we are going to make ethanol without making any sugar?

No, no, no. Only a part. So basically again, only a part of the total crushing of Dhampur would get diverted into syrup. So if we were to crush 13,000 tons of sugarcane per day, about 6,500 would get diverted to syrup. With the balance, I'll still make sugar.

Okay. And since we do not have facility at Rajpura, so all Rajpura material needs to be -- all molasses from Rajpura being transferred to, I mean, Dhampur. So I mean, is there no plan to set up any facility at Rajpura?

See, as of now, with the current capacity and with the expansion that we all are doing, there is no need for us to put up a new plant in Rajpura as of now. We need to grow the cane in Rajpura. So that is the next big target is how do we take up the cane crush in Rajpura from the 123 lakh quintals that we have done to 200 lakh quintals. As soon as we touch about 160 lakhs, that will be the time for us to think of a new plant there.

Gaurav sir, I have a very personal question. I mean if you are kind enough, you can reply. Now what more working hands are we going to get from the family of Gaurav Goel family?

No. So the whole group itself is a family. So as of now, as I just said, is that we've hired a CEO. So the CEO is going to join us at the end of June. So he will be joining us. So that will be a change...

Sir, what I only meant to say was -- what I only meant was that, I mean, your [ friends ], have they joined us, they are likely to join in coming days?

My daughter has joined the business about 3 years back, and my son is still young. He's only 21. He will finish college.

Okay. Okay. My whole idea was to get the strength of the management. This is the one, which I look at as a very important part of the management that...

So as of now, the plan is that my son graduates next year, and then he likely will also join Dhampur. I mean as of now, that is the plan.

Sir, I'm obliged. Very kind of you, sir, you replied to me very nicely, sir.

[Operator Instructions] The next question is from the line of [ Udit Gupta, ] an individual investor.

Sir, my question is, sir, after the expansion is complete, sir, how many liters are we expected to produce in ethanol, sir?

So basically, seeing that we'll do about 400 KL to 500 KL a day, it's ethanol contract that we want to do for FY '22-'23. Ethanol here will be about 12 crore liters.

Okay. And sir, FY '24?

It'll be -- so see, I'm talking about -- this is not FY, this is I'm talking about the tender year. Yes.

Ethanol year. Okay. So like post completion, it's about 12 crore liters. And sir, right now, we are doing about 8 crore?

Yes, as of now, we're doing it.

Okay. And sir, this ethyl acetate, sir, I just saw your presentation. Sir, it seems a very low margin business in your numbers. Sir, could you elaborate a little bit on that?

Yes. So this has been a plant which has been with us for the last 25 years. Earlier, if you recall -- I mean this is a long time back where we used to also make acid. And from acid, we used to make ethyl. But now what we do is that we import the asset, and we blend it with LPS to make ethyl acetate. So it's more of a tolling business, but it is making money for us, and we have the plant, so that is why it like is there.

Okay. Sir, these are not the chemicals that you're looking at, like when you told us that you're looking at the new CEO is joining and...

No. These are all basic chemicals. We all want to go out of basic and get into specialized. And that is the next 18, 24 months' plan.

Okay. And sir, the input for that would be ethanol kind of products?

No idea as of now, [ Udit ]. Very, very early days. We are still on the drawing board. Lots of options are there. So I'll be able to answer that to you perhaps in about 6 months once we have sort of finalized our plans. But our drawing board is very sort of full with lots of options. So I really can't say as to what will be the feedstock in that.

Okay. And sir, this potable spirits business, sir, like you just said, it's a very low-margin business and everything. Sir, is it more remunerative than giving away the molasses?

Yes, yes, it is.

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

The first thing, sir, regarding this excise duty, if I'm not mistaken, there is some sharp difference in the previous year and current year one? Is there any reason for that, sir?

Yes. So the excise duty is levied only on the sale of country liquor, because our volumes in that went up in the year FY '22. So that is why the excise duty was higher. On any other product, there is only GST. So that is why that amount is higher.

Okay. And the second question is regarding this -- for our existing capital structure, are we planning a huge diversification? Or is there any plan for buyback or -- because the company is still undervalued. For getting the true valuation, is there any buyback plan or diversification into high-growth segments, sir?

So as of now, [ Hari ], there is no plan for buyback because, as I just said, that we have lots of plans in hand. So we will see exactly what sort of numbers we have in FY '23, and then seeing whether to give a dividend or to do a buyback, we will for surely see over the next 6 months. As was said earlier, we have an expansion right now of the ethanol plant. So we will see as to whether we want to do a buyback or we believe that we can create more shareholder value by doing certain new things.

Okay. And another question, sir, regarding this power price, is there any plan for renegotiation with the state government to sell in the open market? Is there any option for that?

No. So UP, there is no option on that. You have to give everything to the grid. There is -- under our PPA, there is no option that we can sell it under the open access sales route.

Okay. Okay. And the last one, sir, is the export more profitable or the domestic price for sugarcane, sir, sugar?

See, for sugar, I think that, as you already know that government last week banned any further export out of India. So we have done a fair bit of export, and we do believe that north needs the most amount of sugar. So we exported what we thought was right, and the balance we plan to sell as of now in India itself. But exports have been great because if India had not exported the 10 million tons, India would have been in a very -- we would have had so much of sugar in India, it would have been tough to keep anywhere. So I think that the export policy and the export program for the year FY '22-'23 (sic) [ FY '21-'22 ] is now almost over. And now we will see what happens in '22-'23 year.

[Operator Instructions] The next question is from the line of [ Sanjeev Kumar Damani from SKD Consulting ].

Sir, actually, I wanted to ask about the electricity only and more possibility that are we going into making of any IMFL in days to come since we are already in country liquor. So are we thinking of getting into those businesses?

No. As of now, no plans whatsoever to get into the IMFL side. We did study that about 2.5 years back. We also tried to launch our own brands, but we didn't really do too well on that. It is just a game to distribute and to market. It's a very, very tough market. There are all leaders, which are there, like USL, Wallace, Khaitan. So we all tried it, but we didn't do too well on that. So as of now, there is no plan to get into the IMFL segment.

[Operator Instructions] The next question is from the line of [ Udit Gupta ], an individual investor.

Sir, my question is that, sir, we are already around 10% of blending in ethanol. Sir, so what's like the future, sir? Like as the ethanol keeps increasing, sir, how is the government trying to utilize it?

Ethanol blending has been raised to 11 in the sugar states where there is a surplus. And as you would have just read a few weeks back that the policy of E20 blending, which the PM had made a full plan for 2030, has been preponed to 2025. So on the demand side, I don't see any issue at all. OMCs are all geared up to do more and more blending. So on that side, and 2025, the PM has said that I need blending to be at 20. So I think that we are on the right path. We have 3 years only left to reach 20. So we all have to work hard on that, both on the side of supply and demand. Demand, there is no issue. Supply side is where we have to work on.

[Operator Instructions] The next question is from the line of [indiscernible].

Congratulations, sir, for a good set of numbers. I actually need to ask about the difference between the A-, B- and C-heavy ethanol, because -- is there any qualitative difference? And if it is, then why actually there is a difference between the prices?

Quality is exactly the same, whether you make it out of C-heavy, B-heavy or out of sugarcane juice/syrup. Quality is exactly the same. The whole reasoning why the government made this program and made a price is basically to link it to the price of sugarcane. It's to the amount of sugar that, that have sacrificed. So on B-heavy, on C-heavy, I don't sacrifice any sugar. I make as much sugar out of the juice. In B-heavy, I sacrifice about 1.2% of my sugar into B-heavy, which gives me a higher yield, but I sacrifice sugar in that. And obviously, if I make it out of juice or out of syrup, I don't make any sugar at all. So this is just to sort of take care of the total cost because the cost of ethanol changes with all the 3 products. Now in case we want to go up to E20 blending, which is the plan of government and which is a great plan seeing the oil prices and to get self-sustainable on that, the only way it can be done is in case we divert B-heavy or we divert sugar and not making sugar, but making ethanol out of that. So that is the reason that you are seeing difference of price between C, B and syrup.

Okay. Sir, one thing more I need to ask. After burning the gas, is there something left or is it saleable further -- is it further saleable?

Yes. So for gas itself, it's used for the manufacturing of paper. So if you have surplus of the gas, which you don't need to burn in your boilers, that can be sold to third parties.

Thank you. As there are no further questions, I would now like to hand the conference over to Mr. Gaurav Goel for closing comments.

Thank you so much. I would like to thank you all for taking out your time to join us for this for Dhampur's FY '22 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, dhampursugar.com, and post any queries that you may have. Thank you again for your time.

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