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

Ladies and gentlemen, good day, and welcome to the Q2 FY '23 Earnings Conference Call of Dhampur Sugar Mills Limited, hosted by SKP Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nikhil Saboo of SKP Securities Limited. Thank you, and over to you, sir.

Good afternoon, ladies and gentlemen. It is 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 colleagues, Mr. Anant Pande, CEO; and Mr. Susheel Mehrotra, CFO; and Mr. Akshat Kapoor, EVP Finance. We will have the opening remarks from Mr. Goel, followed by Q&A session. Thank you, and over to you, Mr. Goel.

Thank you so much, Nikhil. Good afternoon, and this is Anant Pande. Good afternoon, and a very warm welcome to everyone at the Q2 FY '23 Earnings Conference Call of Dhampur Sugar Mills. First of all, let me share briefly the industry scenario. The estimated sugar production potential during sugar season '22, '23 is 40 million tons, which is marginally higher than the last year. Out of this production, about 4.5 million tons is expected to be diverted to ethanol. The domestic consumption is estimated around 27.5 million tons, which is more or less equal to the last year, maintaining the closing inventory at 6 million tons. This would leave us sugar surplus of about 8 million tons, which will be available for exports. The Industry Association has requested the government to announce the export policy considering the same so that the industry can enable to initiate necessary action towards sugar exports. I would now like to ask our CFO, Susheel Mehrotra, to take you through the financial performance of the company. Susheel, over to you.

Thank you. Good afternoon, once again, and a very warm welcome to the earnings call for Q2 FY '23. Now coming to the performance of the company. Our Board of Directors has approved the results for Q2 FY '23 yesterday, that is 20th of October, and I'm sure you have had the opportunity to glance through the same. Our sugar sales during the quarter have been 0.97 lakh tons and against 0.6 lakh tons in the corresponding quarter last year. And the average sugar realization in this quarter has been better at INR 35,434 per ton as against INR 33,867 in the corresponding quarter of last year. The inventory valuation rate as of now is INR 31,500 proximity as against INR 28,100 last year. And the increase is mainly on account of the higher ASP by INR 25 per quintal during the season '21, '22. The closing inventory as of 30th September '22 is 0.42 lakh tons as against 0.82 lakh tons as of 30th September 21. Now coming to ethanol. During the quarter under consideration, we have sold 157.10 lakh liters of ethanol, which includes 2.93 lakh liters from syrup. In the corresponding quarter last year, ethanol fuel was 191.34 lakh liters. Our consolidated revenue from operations during the quarter stood at INR 650.8 crores. EBITDA was INR 37.5 crores. Profit before tax, INR 16.7 crores and profit after tax at INR 11.5 crores. On a stand-alone basis, the company had a revenue of INR 615.5 crores, EBITDA at INR 36.7 crores, profit before tax at INR 15.9 crores and profit after tax at INR 10.7 crores. Now let me take you briefly through the business-wise performance. Our revenue from sugar business is INR 377.7 crores as against INR 258.4 crores in the corresponding quarter of last year. Revenue from small business is INR 100.9 crores versus INR 114.2 crores in the corresponding quarter. The revenue from chemicals business is INR 54.9 crores versus INR 65.5 crores and revenue from Potable Spirits is INR 115.1 crores versus INR 61.74 crores in the corresponding quarter of last year. Our profit from sugar business is INR 10 crores versus INR 10.4 crores in the corresponding quarter. And from ethanol, it is INR 27.1 crores versus INR 41.7 crores last year. The company has made repayment of long-term loans of INR 35.8 crores in Q2 FY '23, and the long-term debt as of 30th September stands at INR 250.8 crores. Our current ratio is 1.35x, which has improved from 1.12x as of 31st March '22. And the long-term debt to equity is 0.32x, which has improved from 0.35x as on 31st March 2022. Now these are our financial numbers on a broad level. We thank you once again for joining on this call. We'll be happy to answer any questions that you may have. Thank you.

[Operator Instructions] The first question is from the line of Nimish Sheth from GT Advisory.

Just a couple of queries. First is on ethanol. I'm seeing your presentation, I see that overall production actually is down from 210 lakh BL to 151 lakh BL. There is no production from syrup during the quarter if you start looking. Now the second observation is that at the end of the first quarter, I'm talking of FY '23, you had 1.35 lakh tons of white sugar valued at around INR 31. And what you have told us is you've sold a little over 90,000 tons, a valuation of INR 35.4. So you made a clean spread of about INR 4.5. Despite that, your sugar EBIT is flat. And it's 10 versus 10. And if you see Q versus Q, it's 10 versus 30. Could you just run us through why the sugar segment profitability is down despite having such a lease spread?

Sure. So thank you for those 2 questions. On the ethanol side, you are right that in this Q2 FY '23, we all produced from 210 lakh BL only to 151 lakh BL. That was mainly because for about 2 weeks, we had an issue with our [indiscernible] which fired boiler, due to which the plant was shut during Q2. And that is the only reason why we have seen the lower production, which happened in Q2. But I'm happy to now say that since then, our plant has been running very, very stably. So we have no issues now on forward. But yes, Q2, we had an issue for about 2 weeks. On the sugar segment side, again, your question is absolutely right. The 2 reasons for the lower EBIT that you are seeing is: one, there was the government of UP announced a wage board revision from previous years, which for us had an impact of INR 6 crores. Since 2016, they have revised their sugar wage board and INR 6 crores was the impact of that, which came on the sugar side. So we basically took that full areas that have to be done for earlier years in Q2. Secondly, the taxes levy that we had to give to the government of UP to the steel manufacturers was at 18% which in August 24 was increased from 18% to 20%. The impact of that was INR 2.8 crores. So this is why that 8 -- that almost about INR 8.5 crores went into both these areas, and that is why the sugar EBIT that you are seeing is lower than what it would have been otherwise vis-a-vis last year.

The next question is from the line of Nitin Awasthi from InCred Equities.

Sir, I would like to understand your current capacities on the ethanol front, what are your capacities on what -- in which route? And how are you planning to expand them? And when will the expansion come on stream?

So as of now, our capacity is 220 KL on C-Heavy and 286 KL on B or syrup. We have taken up 130 KL expansion, which is expected to start in Q1 or in Q4 of FY '23. So from January to March of '23, we all do believe that our expansion of 130 KL will start. So our total...

Which route is that 130 KL, on which route?

So we will have all options. We've got options of C, B, syrup and we are also putting up 100 KL grain based. So at that point of time, we will have all options as to what we want to do but the plan as of now is to start from syrup next month itself and to run syrup throughout the whole year, till about May, till the time the sugar mill will run. And then after that, we will move to B-Heavy, and then we'll also see the opportunity of grain that we'll have as an option, whether to do B-Heavy or to do syrup with 400 KL out of the 380 KL.

Okay. So your first plant is of 220 KL, which is through the C route. Then you have a 280 KL which is through the syrup and the B route. Correct?

No, no, there is just one plant.

I mean the plant is just one. So you basically -- the plant as of now, the 220 KL that you have on C, you can run 220 KL on C or 286 KL on B or on syrup. So the plant is the same. It is just as the feedstock can change. We run syrup. So we will run syrup until the end of the season, which is still around middle of May.

Okay. So you get a 40 KL extra if you move from C to syrup and B, you're saying?

Correct. You will have a 66 KL extra that you get if you move to B or to syrup.

Okay, sir. Noted. Yes, 66 KL is more. So why would you run it on C? Why would you not run it on syrup and B?

No, we are not planning to run on C at all. We will run only on B or on syrup. We don't plan to run on C at all.

Okay. Okay. So that's understood. Now the next plan that you have is 130 KL in which you can do 100 KL of grain and 130 KL on either syrup or B.

So our total is 130 KL. Out of that, we have the option of doing 100 KL from grain also. So that is just an option that we have kept. If we get the grains at a better price than what I can get from my sugar, then I can bring down my B-Heavy and make more of sugar and then use 100 KL for grain also.

Okay. And this starts in the next quarter itself?

Yes.

Okay. Any expansion plans post that into the next financial year FY'24?

So as of now we still working on that when we will meet when like we will have our call in January, by that time, we would have finalized our CapEx plans for the year FY, for the '23, '24.

Okay. So right now, around -- as of now, you are around 416 KL capacity overall?

On B-Heavy, yes.

Including the expansion that comes in?

Yes. It will be around 480 KL.

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

Sir my first question is on the next -- that is a current season that has started. How is the recovery looking so far? Or are any -- weather has played any adverse role? And where do you see any improvement from last year?

So Anupam, still a bit early because Dhampur plant is starting on the 28th of -- so just in about a week's time and the Rajpura plant will start first week of next month. We had some late rains, as you all would have know and read about that, and that is why our delay got started by about a week to 10 days. But as of now, the reports that we have from the ground is that the cane seems to be very healthy, and we don't expect any sort of drop in sucrose as of now. So that is a sort of reports that we have got as of now that the cane is healthy in both of our plants.

Okay, sir. So basically, we will see at least 70 to 80 basis points in recovery from last year because last year was little impacted?

No, no. Last year also, we did quite well. So if you see even last year, we all had improved from the previous year if you see for the whole season. But if we see -- we all do believe that about 0.1% to 0.2% can be an increase that we can see vis-a-vis last year. I mean, we were all like -- I mean if we see that Dhampur is at the highest end of UP, if you all see in all our plants so that's why we don't see a very high jump, but about 0.1% to 0.2% jump is what we do believe that we can get right now.

Okay, sir. And sir, I met the first point. UP government has also revised a wage earlier. Is that what you have mentioned?

Yes. Yes. So from 2016, they have announced sugar wage board. So most of the employees that are there are under the Wage Board Act of UP. So that they have increased retrospectively on -- and that just came in last month.

Sir, what is the impact of this? .

INR 5.9 crores.

Okay. So basically, the wage has been increased by what percent?

It's not actually a percentage. They have done slab-wise. There are multiples slabs and for sugar, it is with effect from 2018 September and for October, for 1st October. And for chemicals, it is from 1st September 2016. So this is the cumulative impact we're talking about for both.

Okay. Okay. So basically wage -- from now on, the wage will increase going forward by at least 10% to 12%. Is that correct?

Yes, obviously. But these are the areas of previous years. So obviously, it's like a slight bit of wage will for surely go up, but it won't be very, very large. So it has been not a very large impact because this impact was for 4 years, that's why this impact all came at once. Otherwise, if you see on a year-on-year, it is then back to -- there for about [ 1.5 year ].

Okay. Got it. And sir, look, now that we are looking into syrup for ethanol, and there has been a -- there has been [indiscernible] government level that they are [ planning ] to increase the syrup prices. And I believe that kind of with the current margins, the syrup is a little lower -- on the lower side compared to other grades and to curb the sugar supply, we have to increase the sugar syrup. So is that why we are also focusing on that -- hoping that the government will increase the margin and realization for it.

Yes. See for surely, everybody apart from just being margins will also have to see a sort of a macro picture. I mean, if most of the sugar mills do not do syrup and B-Heavy, we will have so much of surplus sugar and then your local sugar prices would fall down. So we all have to do syrup. And I'm very sure that the government is fully aware of the fact that syrup prices are slightly on the lower side. So we are expecting a hike in syrup prices for -- tender for '22, '23.

So my last question on the industry level. On the whole ethanol industry in India, how much is -- would be -- what percentage are they doing B-Heavy? And what percentage would be C or syrup?

So see, as of now, if you all see that almost close to out of the tender that happened of about 470 liters, a large part of that was from B-Heavy, syrup and partly from and like a very small part was from grain or from C. So the maximum of that went from B-Heavy and from syrup only last year. And this will only go up even more in the years to come.

Until it is fully commissioned and only C would be done for the levy molasses?

Yes, I think that is exactly how people will try to balance that out, but no one will want to make it ethanol out -- I mean, out of C as of now, especially in UP.

UP, some new trends have affected. Is it more on the Eastern and Central side?

No, those were the late trends which happened about 4 weeks back. They were all over UP. But with that, what just happened is and thankfully, there were no heavy winds. So see the impact happens apart from rain, which has just delayed the start by about a week to 10 days. If there are winds, then the sugarcane falls. That is the worst part. But thankfully, there weren't any heavy winds. So the canes are still upright.

[Operator Instructions] The next question is from the line of Aman KR Sonthalia from Mugi Construction Private Limited.

Sir, how is this [ red drought ] problem we are facing or the industry is facing, sir?

So thankfully for us, Aman, we have no issue in both of our plants -- where of [ red drought ] as of now. So we have no issues at all. We all heard about some stories which happened in various -- in certain pockets, but they still were very small. I think only East was impacted 2 years back, but I think that even they've been able to solve it to a larger extent. But Western part of India is -- sort of generally, I think it like is safe as of now. And especially for both our plants, we all haven't seen anything at all.

Okay, sir. And sir, how is the price outlook internationally and domestically, sugar price?

All depends on the exports that happened. As we know that we are already asking government to allow us to export about 8 million tons. We are hoping for the export order to be out very, very soon. It can be -- I would believe it can be next week, it will be out. So we do need to export about 7 to 8 million tons and with that version that I expect pace will go up from about INR 30, INR 32. That happened to about INR 45 to INR 48. Next year, I believe that Indian sugar prices should be stable.

It is very much like what is right now -- price around INR 35, INR 36 [indiscernible]?

I don't expect the prices to go -- I mean I don't expect prices will rise. Let's see what the exact crop is. But either way, during season time, that is a price that I'm seeing right now, INR 35 to INR 36.

Okay. And sir, what about this country-made liquor whether we are making any money in that business?

No, we are not making any money. That is just to save on levy, that is not for sell or I will have to sell. So it is a sort of I'm making a slightly better margins than like if I don't make CL. So it's just that. So I'm just trying to use as much of my levy into CL.

And sir, what about the cane this -- how much increase in production we can expect this season?

So see Dhampur last year, we crushed 244 lakh quintals of cane. This year, we are expecting to be around 248 lakh. Last year, Rajpura did 122 lakh. We're expecting at around 128 lakh to 132 lakh.

Around 7% to 8% increase in total product points?

Yes.

The next question is from the line of Sanjeev Kumar Damani from SKD Consulting.

Sir, my respect for the congress of this company and the management. And for the [indiscernible] sir noted the prices of ethanol made from waste and FCI rise. So is this a new policy of government announced or it was announced years back?

[Foreign Language]. It is now for the last year. If you buy the damage grain from FCI, then the rate was higher. So it was there from last year also.

Okay. I mean if you at all so you can guide on this, whether it is through tender route that FCI sales all the products or it is for the one who gives a higher price and can buy it from them?

[Foreign Language] FCI comes out with a tender also from time to time, and you can also approach FCI on your own to -- I mean, to buy the grain. So both options are there.

Okay, sir. Secondly, sir, you have written in the presentation that the retailing of ethanol is requested to the government. So is it feasible sir to sell in the open market directly?

So see, this is just a plan for the future. So when we are talking about flexi fuel happening, [indiscernible] 20 happening. So what we also want to now try and do is if we can create some green fuel pumps, which only do that. So this is just a sort of a 5-year plan that we're already working with government to start that process because either way, it won't happen overnight. So this is just a sort of a plan that is -- and government is also very, very keen that people start to sell on their own without IOC, HPCL directly. So as soon as the flexi fuel comes in, as you would have just read just a few weeks back, [indiscernible] launched the first FAP. So the same thing. So now FAP is the future that we have seen also in other parts of the world. So same thing [Foreign Language] FAP, then we can also have separate petrol pumps which can directly give for these cars. But it is a slightly long term. So this is just a plan, which is now in action.

Okay. I mean can you kindly confirm from you whether which vehicle 100% ethanol-based vehicle can also be manufactured and run on the road? Or only [indiscernible]?

[Foreign Language]. Like, it is happening in other parts of the world. So India is also going through the same part.

Last question, sir. The local prices of ENA has gone so much high, but I mean, industry would prefer to supply only if the prices are in range. Otherwise, industry may sell it in the open market. So that is why we are requesting government to raise the prices? Or I mean it is not correct that the local prices are not higher. I'm willing to understand that the ENA price in north is INR 60 for C grade in the open market.

ENA prices have for surely gone up in the last few weeks, in the last 6 weeks. But see, this always happens during this time. But if we won't have a long-term see ENA prices won't stay at [Foreign Language]. So I would still say it is beneficial for everyone to tie up their contract with the OMCs because this you will only get for a few weeks or in 1 or 2 months in the whole year. So you should not plan your business plan [Foreign Language].

Right, sir. Sir, last time when we were in the....

[Foreign Language].

So in the beginning of the sugar season, the pricing goes down and then they gradual rise towards the end of the season.

Prices go up and down. Also seeing globally [Foreign Language]. So it is not just India because ENA [Foreign Language].

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

Sir, my question is, sir, with the increase in the levy molasses, sir, what was the impact that you just said, like I could not get that figure?

INR 2.8 crores.

So sir, this would be an annual impact because like going forward or...

Again, Udit, we will have no idea as to what will be the excise policy for '22, '23, but it isn't still out, but we are talking to government of UP to sort of make it slightly more rationalized because the amount of levy, if it keeps on going up, they added a lesser amount of contracts I can do with the OMCs. So I think that the government of UP is also sort of aware of the fact. So I'm hoping that this levy is sort of rationalized for the year '22, '23, but I really can't comment on that as of now.

So if you assume that it stays at 20%, sir, so roughly the impact would be this one?

This is the increase impact. This is the impact which has gone up earlier than then gradually goes at...

Yes, yes, it's the 2% impact, I get it.

Yes.

Sir. The other thing was earlier you said that the expansion is expected to be completed in January. Sir, when are we looking at the completion now, sir?

January is still our date. January is still our date where we hope to finish our expansion. But it might go up by about a few weeks as of now. We are having supplies. There are some issues. But we are still in their -- like was also because there was a very heavy impact of rains also. So we had very heavy rains for almost about 3 to 4 weeks. That also impacted our work. But for surely, in Jan, March of 2023, we will be able to finish our full plant, and we may be able to improve on a few weeks, working very, very hard, still trying for Jan-Feb date.

And sir, the other point is after the expansion in terms of liters and with the increase in levy molasses, so how many liters do we expect to produce in a full year?

So what I see our plant will become 380 KL and on C. So we are expecting to produce about 14 crore liters.

So after deducting for the levy molasses and all that?

No, total, total. Yes.

So how much can you supply to the OMC, sir, that's the...

So you basically take out 20-sub percent of that so about say -- about 1.5 crores you take out of it, it's about 12.5 crores we can give to the OMCs and the 1.5 crores will go for ENA.

And sir, how -- the inventory that we are holding in September, sir. So what is the valuation of that inventory?

INR 31,500.

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

Sir, you mentioned about the export and what I understand 8 to 9 million tons we have to export, and we haven't started yet for this season. But now that Brazilian also and Thailand also come into the market, and I think they will hit the market from April. Do we think that we can easily export how we did in the last year?

Yes, Anupam, I think that if this export is out next week. As of now, the shortage is from now till April. As you said rightly that Brazil and Thailand will come in only after April. We still have full 6 months' time as of now to export. And even if we export 1.2 or 1.3 million tons a month, we can reach up to 7 or 8 million tons by April. So I don't expect that to be an issue at all. The world needs Indian sugar as of now. Till March, there is a huge shortage globally. So I'm very sure that India will be able to manage its export during these 6 months.

Okay. And the dollar, it will also be favorable for the exports?

As of now, it is. Yes.

The next question is from the line of Aman KR Sonthalia from Mugi Construction Private Limited.

Sir, whether the government is planning to increase the MSP also?

I haven't heard about it. There have been some talks, but I don't think it is happening as of now.

Okay. And sir, this late rainfall, whether it has impacted the Eastern UP more than the Western UP?

Best way I can that in our plants, there hasn't been any major impact apart from that plant is now going to start about a week late. But East also, when I spoke to everybody, they are also saying that crop is quite healthy there. So even there, I don't see any major impact of these late trains. Even they start may like get late by about a week phase, but that's it. I'm not seeing any other change in the UP.

And then all over UP, there is no major impact?

[Foreign Language]

[Operator Instructions] As there are no further questions, I would now like to hand the conference over to Mr. Goel for closing company.

I'm Susheel Mehrotra. On behalf of Dhampur Sugar Mills Limited, we would like to once again thank all of you for taking your time out for this conference 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, www.dhampursugar.com and post any queries you may have, and we'll get back to you as soon as possible. Thank you.

Thank you, all.

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