Dwarikesh Sugar Industries Limited (532610) Earnings Call Transcript & Summary

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

Thank you, Janice. Hello, everyone. On behalf of Prabhudas Lilladher Private Limited, I welcome you all to Q3 FY '20 results earnings call of Dwarikesh Sugar Industries. We have Mr. Vijay Banka, the Managing Director. I would like to thank Mr. Banka for taking out time for today's con call. Mr. Banka, I would just request you to -- before discussing the company's results, if you can discuss the key industry highlights for third quarter, and then we can start with Q&A?

Sure. Very good morning. I welcome you all to the Q3 FY 2020 conference -- earnings call. And you all have our results before you. Let me quickly update you all with the results, and thereafter and I'll talk a little bit about the industry scenario. During the quarter, we posted a profit of INR 4.53 crores, profit after tax of INR 4.53 crores. This is as compared to INR 23.9 crores of profit after tax posted in the corresponding quarter last year. Well, the sugar industry has -- is now witnessing a paradigm shift, the way the entire industry scenario has undergone a major change in the last few years. Of course, it all augurs well for the future. We have seen the comment regulation and positive interventions from the government side. The MSP is kept at INR 3,100; the monthly release mechanism has been reintroduced. Sugarcane price, is a very welcome development. The state government has not announced any increase in the statutory SAP price of sugarcane. So international market seems pretty good. We have seen an immediate surge in the prices of raw sugar as well as the white sugar in the international market. And the non-blending program in India has gathered momentum, although we will see some major capacities coming in the coming years. I mean, whatever was expected most of the companies have added capacities, but there are -- I mean, the capacity addition is not as per the government's expectation, as per the government desire. So we should see some more capacities coming up. We are going to see some sugar sacrifices happening because of B-heavy molasses being adopted by sugar companies. Well, major thrust to this program will come once the sugar companies start using the sugarcane juice directly for making ethanol, but that's some distance away. But all in all, we see positive changes happening in the industry. The structure of the industry is undergoing change. Country's production, well, it's my sticking to its estimate of 26 million tonnes for the current ongoing season. Although there are some reports that the production could be a little higher than 26 million tonnes. And then we have -- I mean, more clarity will come only even after a month or so. This is all from my side. Now I invite you to please ask me questions. Thank you very much.

[Operator Instructions] We take the first question from the line of Rajesh Majumdar from B&K Securities.

I had a couple of questions. Basically, if you look at your distillery realization, that is showing us 12.7 per KL. On what calculation is this based, number one? And number two is that we've been hearing a lot about this ethanol story and the sugar diversion to ethanol. But if you look at it on the ground, reality is barring a few companies, very few out of the 250 applications have actually gone ahead and started really ethanol plants. So this big scale diversion that we're looking at, is it going to happen? Or when is it going to happen? Do we have a time frame? Because the prices are so lucrative, there should have been private entrepreneurship in this by now, which is not really happening? And -- yes?

Sure, please go ahead.

And my last question is that given the fact that the ethanol division may not be more than 1 million tonnes next year, if the sugar crop is going to be bumper given the late range, is it going to be a challenge for the industry in FY '21?

Yes. Well, insofar as our distillery operations for the current quarter and for 9 months during the ongoing financial year, well, we have -- it's not been impressive because we have had some planned disturbance because of the ongoing expansion project. So we have been successful in completing our expansion project. The commercial production started on the 23rd of December 2019 and, well, I must say that the plant operation thereafter has been good. There were some initial hiccups. So from 100 KLPD plant in the month of January, we produced about 29 lakh liters of ethanol, so which means about 90 -- more than 90,000 milliliters average. And in February, of course, as we are going ahead, the plant aberrations are more stabilized and in the ongoing months, we have been producing ethanol at the rate of -- more than 100 KLPD per day. So...

So what is the transfer pricing of molasses that you used for this calculation?

Well, different companies use different transfer prices. So we use for C-heavy molasses a price of INR 300 a quintal and for B-heavy, of course, this is based on the output of C-heavy molasses corresponding to output of B-heavy molasses. So if we equate them both for our B-heavy molasses, our transfer price is INR 425 a quintal. So this is the transfer price. So we expect some -- in the ongoing quarter, we should be seeing our full results of the distillery operations being translated into real numbers. Well, your second question was about -- yes, not many -- not significant capacities have got added. Yes, it's a problem in the sense that there are very few companies whose financial numbers are robust, whose balance sheet evokes confidence. And they are the ones who are able to get financial support from the banking sector. There are many companies whose -- who really are in no position to mobilize funds from the bank. So which is the reason why more capacities are not come up. Now government is working on a few schemes, like, so as to encourage the banks also to lend money for all companies, so that this ethanol blending program gathers momentum. Yes, during the ongoing season, yes, we expect a sacrifice of 1 million tonne in favor of ethanol -- sacrifice of 1 million tonne of sugar in favor of ethanol. But this number has to go up. Well, we will see increased sacrifice in the coming season. But the number to be really large and to be really -- the number to be really large and to restore the balance -- sugar balance, yes, that -- I mean, that number can only be 2.5 million or 3 million tonnes maximum in the next season. And with -- the next season is going to be a bumper season, but there is a -- I must also add that the window of export will -- I'm sure the government will keep the window open for export in the next year as well. Yes. And what was your third question?

Sir, just an added question on the second one. In your opinion, why is the private entrepreneurship not coming in ethanol production? Because, I mean, if the payback period is really as good as what the government...

Like, I've seen, you see the good companies -- the companies whose balance sheets are strong, they have been able to add capacities. The problem is only with those companies, which are not -- who do not have the financial muscle, number one. Number two, you see larger sacrifice has to happen if companies were to -- if sugar mills were to use sugarcane juice directly for making ethanol. Now there are a couple of challenges in this area. Number one, commensurate with the kind of sugarcane juice that will be diverted for making ethanol, one would need large distillation capacities. And plus, the deterioration in the juice quality can be very rapid. So this can only happen during the season, the making of ethanol -- manufacture of ethanol from juice directly. Well, we are all, our industry and as a company, we are in the active dialogue with plant manufacturers of ethanol to see how that could be in gens, which could be -- I mean, injected into the sugarcane juice such that the -- I mean, the shelf life of sugarcane juice increases, and also to see how we can economize on the capacities, et cetera. So that work goes on.

Okay. And my last question is on the demand-supply scenario, given the fact that ethanol diversion is going to be only 1 million tonne next year, and if there's a bumper crop back to 32 million tonnes or so?

No, I don't -- like I was saying earlier, see, this year's diversion is going to be 1 million tonnes. Next year's diversion will be more than 1 million tonnes. And you see there are conflicting reports on the next year's production. We may not see the kind of production that we saw last season, and that's the season of '18, '19, when we produced about 32 million, 33 million tonnes of sugar. Because the rainfall has been more, there are reported instances of water logging. So the number cannot be as large as that, number one. Number two, there will be sacrifice happening in favor of ethanol. And number three, the export window is going to still remain -- hopefully will remain open for the next year as well.

Sir, do you think export prices are sustainable, given the fact that Brazil can easily switch back into more sugar production from ethanol and ramp up their sales as well?

Brazil can always -- Brazilian sugar mills always have that flexibility of switching over to ethanol or to sugar as and when they need. Well, but this year is going to be a big deficit year. This season is going to be a big deficit season, so -- which is one of the reasons why we have seen some surge in the international prices. But presently, the diversion in favor of ethanol is more in Brazil. And I mean, the domestic policy is there as well as under crude prices -- the higher crude prices will, of course, encourage the Brazilian sugar mill owners to divert more sugarcane juice for ethanol.

We take the next question from the line of Sanjay Manyal from ICICIdirect.

Sir, just 2 things. One is on the -- if we have not sold ethanol this quarter, which you have sold very small quantities, I guess, then you must be having a good amount of molasses and at what price has been -- the inventory has been valued? This is my first question, sir.

Well, we've not had -- we don't have a very large inventory of molasses. You see, we commenced our crushing operations sometime in the early November. So yes, from that perspective, yes, 1 month of stock, we would obviously have. So that stock has been valued, like I said, the transfer price, we have assumed is INR 300 for C-heavy molasses and INR 425 of B-heavy molasses. Now we have not kept the stock of B-heavy molasses, because B-heavy molasses, as and when we generate in our sugar mills, that gets diverted to the distillery plant.

Okay. Okay. But sir, do you have that number? What kind of molasses quantities you would be holding as on 30th of December -- 31st of December?

Let me see if I can give you the quantity, just a moment. I would have -- I would have about -- one moment. Well, off hand, I don't have the number, but as we go ahead, I'll be able to tell you the number.

Sure, sir. Sir, what is the additional export we have asked for?

Well, we've asked for 40,000 metric tonnes. It's likely that the government would take a decision very soon. And we hope and pray that they take a decision very soon because the kind of surge we have seen in the international prices, it would be very appropriate if the government allows export additional quantity so that the company's sugar mills can take advantage of that. My information is, well, the government has to give opportunity to those sugar mills who have done no export, so they would probably give them -- they've already given them one reminder, perhaps the second reminder is on the way. So I'm sure, it's just a matter of time, in about 8, 10 days' time, they should be able to decide on an allocation of the additional quantity to the mills who have offer to export more.

Right, sir. Right, sir. And sir, from the power perspective, I believe, as you have mentioned earlier also, and earlier calls also that the millers will prefer to sell bagasse now. What would be the quantities of bagasse you have sold? And on an amount, if you can just give that number?

Well, it is the fact that given the price, of course, let me split my answer into 2. Number one, although the government -- the UPRC has announced reduction in the tariff effective 1st April, 2019, we -- our association is contesting the same. And we hope that it might be remanded back to the UPRC. The matter is with the High Court of Allahabad and we hope that the -- sorry, not Allahabad, Lucknow. So it might be remanded back to the UPRC. So that's the one way of -- one way how we are trying to tackle the problem. And the second is, yes, we are doing only most of the sugar companies. I'm not very sure about the others, but we are doing only incidental cogeneration. So which means we are trying to save on bagasse and the benefit on account of sale of bagasse is -- at the given price of power is more. So we've been able to sell bagasse worth about INR 5 crores, INR 6 crores in this quarter. In the coming quarter when the plant will be operational in full swing, we will have more quantity of bagasse to be sold.

Fine, sir. And if you can just give that molasses number whenever?

Yes. Yes. Sure, I will.

We take the next question from the line of Vijay Sarda from Crescita Investment.

Sir, just my question pertains to 2 things. One is, in this quarter, our sugar realization seems to be lower, which is around 29.5 where the realization average is at 33. So how much is the export we have done? And export incentive, when will we book and how much is that amount? Secondly, on the distillery front also, if I look at the sales for this quarter compared to so, have we not sold or the tender is yet to come? So how much is the quantum of inventory that we are sitting on in distillery -- on the distillery side of the ethanol?

Well, we have sold about 250 -- 25,500 metric tonnes of raw sugar in this quarter. So the realization on sale of raw sugar is INR 2,100 plus, okay. So which is why you see a lower realization -- lower average realization on sale of sugar. All right? So now I'll give you the exact number. So our average realization on sale of white sugar is INR 3,265 a quintal. And on sale of white sugar -- raw sugar is INR 2,100. We have accounted for the subsidy of this, but that would -- that has got accounted as other operating income. It is not a part of the sale. So that's one thing.

So that has already been booked in this quarter? Or it is yet not shown?

In this current quarter, yes. Okay. Number two, you asked about our distillery operations. Well, the distillery operations remained disrupted during the quarter because of the ongoing expansion project, because we had to synchronize few utilities here and there. So which is why there was much -- no significant production, no significant sales of ethanol during this quarter. And we have commenced our operations on 23rd of December. So we sold a little quantity in December quarter also. But now the sales of ethanol is brisk and in the coming months, so whatever we produce, we will be able to sell it immediately as we have.

Okay. And sir, the third thing in terms of the export, how much is the export, which isn't done until date? And how much is the quota left over, which the alignment with that which you are seeking for? And is there also an additional quota possible from the government in addition to the leftover?

Yes. We have -- our original quota was 78,654 metric tonnes or so, something like that. So it's 78,700 tonnes approximately. So we have contracted to sell the entire quantity, okay? And we have transported our -- 'til date, we have transported our entire quantity to the port. Now, nearly 3,40,000 -- 34,000 metric tonnes has been given to -- given by a way of deemed export and 44,000 tonnes is contracted to be shipped outside the country. So out of 44,000 metric tonnes, our endeavor is to see that the entire quantity shipped out of -- shipped out before 31st March. But my own gut is that we may have -- because the contract that we have done is for delivery up to 30th of April, so we will have some spillover in the month of the subsequent quarter.

Will the rate be the same for INR 2,100 or rates are differ, the…

It's around INR 2,100 only, around INR 2,100.

Okay. Okay. INR 21 plus INR 10 in subsidies, INR 31 will be the realization for us?

Absolutely. And of course, there will be transportation costs that we have incurred from plant to the port.

From plant to the port, okay.

We have asked for -- like I said, we have asked for 40,000 metric tonnes of additional quota. Now it will all depend what formula the government devises when -- it's expected that they should take a decision in about a week to 10 days' time. But what formula they will adopt, how would they allot, how much quantity...

Additional sugarcane to anyone. Okay.

Yes. It's not that -- I am sure there will be some relationship to the earlier quota which the government has given, so something positive we expect to see in about 8 to 10 days' time on this front.

Okay. And sir, additional -- apart from the unutilized quota, are we seeing some additional quota to be released for the export, looking at the price lucrativeness?

Yes. Yes. We have asked for, that's what I said. See, our -- originally, allotted quantity, we have done the contract for the entire quantity. Nothing remains unsold as of now, okay? It's just that the execution of the transaction is pending. However, we've asked for additional quota, so that if we get additional quota, we'll manufacture raw sugar. And presently, the prices are lucrative, so there should be -- if the government is able to decide it fast, all should stand -- all those who opted for additional quota should stand...

Should benefit it, okay. Sir, just last thing in terms of the production, how is the production like data on -- in the state of UP 'til date? Are we better on from compared to last year? And what percentage is there? And in terms of recovery also, is that recovery compared to last year been lower or higher?

Yes. In UP, you see, we started early as compared to last year. So UP sugar production, as on date is higher than what we produced last year on the same date. The recovery trends initially were very good. But the winter months towards the end of December and up 'til the 7th of -- middle of January, I mean, the UP had extremely harsh and cold winter conditions. So which is when the recovery suffered a little dent. But now the recoveries are back, now that the sunshine is back, the recoveries are getting better. Now the recoveries, one will not have a very clear idea because a lot of sugar mills are doing diversion of B-heavy molasses. Now the loss in recovery on a kind of diversion of B-heavy molasses ranges from mill to mill. For some, it could be 1.4%, for some it could be 1.6%, 1.7%. But on an average, one could consider about 1.5%. Now coming back to the question of how much the total production of UP is going to be, it could be anything between 11.5 million to 12 million tonnes.

Next question is from the line of Vipul Sanghvi from Systematix Shares.

Sir, 1 question, sir, this total export target has been about 5 million tonnes from the country?

6 million tonnes, sir.

6 million tonnes. So you think, sir, by end of the season, we'll be able to cross, say, 5 million tonne mark in the present...

Sure, sir. I'm pretty confident we'll be able to do that.

Okay. Okay. And the global price is supportive. Do you think with the increase in quota that the industry is asking for, with that increase in quota, the 5 million number will be exceeded? Or will just about reach 5 million?

No, we should be -- I think it will get exceeded because there is -- the response has been very enthusiastic. I mean, in the very first phase, as you have seen, contracts for 3 million tonnes of export have already happened, which was when the international prices were not so good. But now, of course, the government is keen that the entire quantity of 6 million tonnes is shipped out, which is why they have collected data on mills who have not been able to contract any quantity. And there are also sort expression of interest from mills who want to do more export. So given the international price scenario and given government's inclination to ensure everything we shipped out, I'm sure, 5 million -- it will export -- quantity will definitely surpass 5 million tonnes.

That's good news, sir. And sir, at the current level of $0.15 of raw sugar, our realization will be what including subsidy, about 33, 38, 33.5?

32 to 33, sir, 33, yes.

Okay. Okay. And this subsidy amount is irrespective of the global price, right, that continues at 10.5?

Absolutely. It's irrespective of the global price here.

Right. Right. And sir, any thoughts on global deficit because we keep reading about various reports about this year could be about...

8 million to 10 million tonnes is what the numbers are, but more clarity will come only when India's numbers are finalized. We've going to see some reduced production from Thailand as well. So we will have more clarity in the days to come, but 8 million to 10 million tonnes seems like the deficit number.

Okay. Okay. And at that level, I think $0.15, or about the prices can sustain for some time, right?

Yes. Yes. But one must also appreciate the fact that, sir, there is -- globally also there is stock. Like in India, we are carrying huge stocks, so globally, also, there is some stock. But as most of the global stock is carried by India only, 14 million tonnes was the stock as at the beginning of the season.

And sir, what is your thought on the global stock number?

Sir, I wouldn't have the number exactly. But there is -- I mean, there has been surplus production in the earlier years. So I'm sure there must be some stock in the system. But considering the fact India itself had about 14.5 million tonnes of stock at the beginning of the season, I'm sure most of it is in India only.

Next question is from the line of Aadil Khan from ICICI Securities.

Yes, this is Chirag Shah here. My question is more on the exports side. There have been media articles stating that millers from Maharashtra are not exporting, despite the prices being so remunerative. Given if I just do the basic math, the export FOB price lands somewhere round INR 33 to INR 34 a kilo versus INR 32 to INR 33, which is prevailing back in the domestic market. So what is stopping the millers in Maharashtra from exporting?

Sir, Maharashtra mills, the problem is they are not able to produce sugar. Because of the drought, the sugar production quantity itself is very less. So there are many mills who have not been able to start crushing operation. There are some who had very truncated crushing season. So which is why -- I mean, it's just logical that because they are not able to crush and because they are not able to produce sugar, therefore, they are not able to export.

Okay. Also, there is a fear that in anticipation of lower production this season, probably once this season closes, then in March and April, there may be some shoot up in domestic price and probably they can do -- yield better results out there by selling and not exporting?

So that's a matter of conjecture, actually. But there cannot be runaway increase in the price of domestic sugar because the stock levels are comfortable. I mean, we -- for example, we commenced the season with a stock of 14.5 million tonnes, okay? Now we -- our production is going to be 26 million or 26.5 million tonnes. And that kind of consumption, with 5 million to 6 million tonnes going out, we still will have about 9 million to 9.5 million tonnes -- 9 million tonnes of sugar stock at the end of the season, which is not a small quantity. So I don't think there is any great scope for runaway increase in the sugar prices in the domestic market. And of course, government is making us carry the buffer stock for which they are reimbursing the cost. So -- and it will all depend. The government can think of continuing with the buffer stock, the prices are different, the government can continue, can think of unwinding the buffer stock if the prices are better.

Okay. And sir, there's one question on ethanol side, mostly on the sugarcane juice-based ethanol, there are some mills in UP, which are doing some trial runs for manufacturing this sugarcane juice-based ethanol?

Yes, yes, definitely.

Just to see how the results are. So what would trigger mills to convert their capacity or to convert their product mix in favor of sugarcane juice? It's just the prices or the yields or the government policy out here?

Sir, I've interacted with a few who are doing ethanol directly from sugarcane juice, although this has not been attempted by us so far. Their experience has been good. They are -- only thing is one will need very large distillation capacity. So the real problem here will be the large capital expenditure that will be required for foraying into the use of the juice for making ethanol. So one important fact is, there are 2 challenges here. Number one, companies should be willing to foray, I mean, get into -- get involved in such huge capital expenditure for setting up large distillery capacities. And number two, there has to be a kind of an assurance from the government on the ethanol pricing policies for the times to come. Presently, the ethanol prices are good. But what we have been requesting, what we've been asking the government is to have an ethanol pricing policy. We don't expect the government to announce the ethanol prices for the next 4 or 5 years, but we want a policy statement to be made that, okay, this is going to be linked to crude, this is how the prices will be decided in future. So representations have been made to the government.

Okay. But sir, if I look at government target of 10% blending, and given the kind of capacities that we need from the ethanol side to achieve that target, we are still nowhere near that particular target?

Yes. Absolutely. Absolutely, and...

So how are we going to achieve this target from a government perspective? They have to come out with some policy maybe now or maybe a year down the line?

Absolutely. You're right, they have to. I mean, like I said, and of course, the third thing, like I said, on the technical front, also, we will have to find ways and means of utilizing the juice, increasing its shelf life and making it more and more technically viable. Because as of now, those who are using sugarcane juice are using it only during the season. Because the possibility of storing sugarcane juice in off-season is simply not there. So these are a few things, and I'm sure government will come out with some initiatives to see -- ensure that there is more and more diversion. I mean, then, of course, sugar mills have to be -- have to have -- will have the adaptability they can use sugarcane juice, they can do B-heavy molasses, they can produce more sugar if the domestic prices of sugar are good, whichever way.

And sir, my final question is, what is the max amount of B-heavy proportion that we can do in our distillery?

We can do -- we have 3 units. So in the next crushing season, we will target to do 50% of our ethanol production from B-heavy and 50% from C-heavy.

Okay. Because in earlier calls, you had mentioned that max that you can go is to 20% to 30% on the B-heavy side?

Yes. See, there is a requirement to give about 18% of molasses that we produce for country liquor purposes. So having set aside that, then I think we can easily do 50-50 kind of ratio for B-heavy and for C-heavy. We can increase B-heavy also, there is -- I don't see any constraint in doing so.

And sir, any plans of getting into country liquor basis because most of our competitors have done that in the last 1 year?

Yes, 2 things. Number one, our first logical foray would be for setting up a ENA plant. We don't have an ENA plant as of now, okay? So the first logical step would be to set up a ENA plant because the value addition there would be substantial. I mean, the rate at which the ENA is given for country liquor manufacturer is better than the rate at which molasses -- I mean, the value addition will be more there as compared to what we realize on given for country liquor purposes. So that is one. That is going to be the first logical step for us. And number two, of course, one can always get into manufacturing and -- I mean, bottling the country liquor. But there, I mean, that I understand is a little competitive space. So we will work out the economics, but definitely, we will be getting into making ENA.

And sir, my final question is, since given this year and next year, you will generate a decent amount of cash flows. So any thought process of the promoter or management in sharing this cash flow in terms of higher dividends or payouts, given dividends will be taxed now in the hands of promoters? So can we resort to buybacks and...

We will see -- as we go ahead, we will see that. As of now, we have declared 100% interim dividend. So I'm sure, definitely as we go ahead, if there is cash in the system, we will definitely use it for buyback or for dividend payout.

No because the last year, even in case of nongeneration of cash flows, we had given a INR 1 dividend.

Correct.

And this year, we are very better placed than last year. So probably, in that case, logically, the payouts should increase. So that is where I was coming from.

No, I mean, we will have more clarity as the quarter comes to a close. Because I must tell you one thing, number one, we are selling -- what sugar is being sold is all the old sugar -- sugar manufactured during the season '18, '19 of the last season. So far, whatever we have sold, we've been getting huge inventory. So we will have to assess the situation, what kind of cash flow is available to us and what kind of profits we have. Only then we will be able to take a call on that, sir.

We take the next question from the line of [ SN Rajan ], individual investor.

Sir, 2, 3 quick questions. One is on the power, which the association has basically challenged. So what is the basis for the challenge? Basically, like, was there a PPA, which was supposed to be continued for a particular period on which the government has released or whatever it is, number one? Number two, is your -- as I think you already answered in a previous question, you're accounting for the export subsidy is basically, like if you have exported today at INR 21, and you have also accounted for the INR 10 in this quarter itself. If I understood right?

Correct, sir. Correct. Sir. Correct.

And number three, again, quick question was since your earlier export was at lower levels, let's say, as you said, raw sugar at say roughly INR 21.5 and if we're going to be getting about INR 10.48 to INR 10.5 from the government. So that is a realization of INR 31. Current sugar export prices being in the vicinity of INR 30, you may correct me if I'm wrong, does it mean that you will end up with INR 40 realization? Because it's not a difference between your domestic realization, it's an exact amount of INR 10.50 or something which the government has done. So if you do today at INR 30, does it mean that you will get INR 30 plus INR 10?

Sir, firstly, let me correct you, sir. The export realization today cannot be INR 30. We've seen the international prices of $0.15 plus. So couple of investors, couple of analysts had told that under current price -- at the current international price level, the realization, including the subsidy, could be INR 33 to INR 34. So it will not be INR 30 plus INR 10, it will be INR 23, INR 24 plus INR 10. So that's number one. Number two, well, we have challenged this reduction in the power tariff in the high court on -- firstly, tariff is due for revision every 5 years, and it is not that it was not due for revision on the 1st of April, 2019. It was definitely due for revision on that day. So we have challenged it because the government has -- that UPRC has unilaterally decided to reduce the bagasse cost from INR 2,000 earlier to INR 1,000 now. Now they have gone on the concept of equating the calorific value of coal with that of bagasse. Fair enough. But what they have done is they have considered the -- they have equated -- considered the pitted cost of the coal. So whereas anybody using coal, I mean, in determination of tariff, it has to be ultimately the landed cost of coal. So which is the reason it was based on a flawed hypothesis that the bagasse cost, which was earlier taken at INR 2,000, cannot be reduced to INR 1,000 a metric tonne. So this is the main ground on which the reduction in tariff has been challenged. So we do expect some kind of -- I think the matter is posted on the 17th, and so we do expect to hear something on the 17th of this month.

Okay. Probably, it's got to do something to do with the spot prices of power also, which is below INR 3. That could also be...

Power corporations are entitled to, of course, run their corporations.

Yes. Yes, I've understood. It's like, I'm okay with the power what you said there. And the export that you are talking about, we have got INR 21.5 for something which you exported 3 months down the line. But then prices certainly became...

However the round prices were around INR 12.5 or so, INR 12.5 to INR 13, INR 13.5.

Yes. But INR 12.5 to INR 15, it cannot be from INR 21.5 to INR 24, right? It should be INR 25 -- in excess of INR 25.

I'll give you a simple calculation, sir, it's like this. Whatever is the international prices, plus there is a polarization premium of 4.2%, multiplied by the factor is INR 22.0462 that is cents to metric tonne conversion factor, okay? And so -- and then, of course, whatever is the dollar price. So I -- immediately, I don't have how much it would be, but I'm sure it cannot be more than INR 34 or something like that.

I don't know whether I'm taking a wrong figure. If I look at yesterday's prices in London of around $20 a pound of white sugar.

Correct.

So that comes to almost INR 31 or so then?

Yes. Yes. White sugar, sir, there are problems -- I mean, number one, the white sugar, which the international market demands, number one, it is a sugar with less than 45 Icumsa, not many people in India make sugar of less than 45 Icumsa.

Yes. Sir, sorry. Should I take a 20% discount or something, I mean, a rough rule of -- as for a raw sugar compared to the London white sugar?

No. Sir, these 2 things are altogether they're different. White sugar is sold at -- yes, the price has been around USD 440 per metric tonne. So number one, what they want is the raw sugar of Icumsa less 45, whereas we all are used to making sugar of Icumsa 100. Number two, most of our plants are designed to make M Grade sugar, which is a medium grain sugar. Whereas they internationally, what the requirement is of very fine sugar. Whereas a smaller grain sugar. So not many people can take advantage of this higher white sugar price internationally.

So what discount factors should I apply to this rate, if I had to do a rough calculation for our quality of sugar vis-à-vis?

For our quality of sugar, there is not much of a market, sir, there is not much of market.

Next question is from the line of [ Utkarsh Somaiya ], individual investor.

Just wanted to ask you sir, if sugar margins are lower because of higher sale of raw sugar? Or is there any other reason?

Sorry?

Your sugar margins are low this quarter only due to higher sale of raw sugar? Or is there any other?

Yes. Yes, it's because of the higher raw sugar price plus we have -- if you've seen our EBIT of power sector is better than that of sugar sector because we did some recalibration and reallocation of our transfer pricing so as to make it more rationalistic, which is the reason why the margin from sugar segment appears lower.

Okay. And the list persist going forward?

No. No. I mean, you should get -- you see, when we did this, we did it for the entire 9 months, so everything gets reflected in this quarter.

Okay, fine. So it will get normalized going forward.

Yes. Yes.

And sir, also for your ethanol distillery margins, is that also only due to the expansion of your plant that led to disruption in production?

Absolutely. Absolutely, sir. Absolutely.

Sir, because I'm asking because even other sugar companies have seen similar drop in margin.

Yes. Yes. Let me correct myself. You see, the last year, the distillery margins appeared very impressive because the transfer price of molasses to distillery was virtually nothing. So now we have to take a realistic market price of bagasse for -- sorry, molasses for transfer pricing, which is why the margins appeared lower.

Okay. And what is the view going forward?

Having said that, it's -- transfer price is all internal. So if the distillery segment is shown, for example, a lower profit, it should get reflected in the profit of the Sugar Division.

Okay, understood. And so you may not have expected this question, but can you once clear the concept of transfer pricing? I mean, there's certain doubt in my head. Can you just explain to me how transfer pricing works and how it affects your margin? And how that changes from quarter-to-quarter?

No. See, what happens is, for bagasse and molasses, bagasse is the feedstock for the cogeneration -- for the power segment, whereas molasses is the feedstock for the distillery segment. So when molasses, last year molasses -- there was, I mean, production was -- production numbers were huge. Therefore, molasses availability was substantial. So virtually we gave away molasses free. In fact, we had to give transport rebate, et cetera, also to the buyers of molasses. So which means that there was absolutely no cost on transfer of molasses. So most of the mills would have taken a very low transfer price of molasses, okay? But now, since this year is a bit of a higher production, and this year, because many sugar mills have gotten into using B-heavy molasses and I mean, they have increased their distillation capacity, the molasses in the open market is sold at a higher price. So one has to take cognizance of that and accordingly, do the adjustment in the transfer price. So as to make it more realistic.

Okay. And sir, you not only use molasses for ethanol, but you also sell molasses separately in the open market. Is that correct?

No, we will now not be in a position to -- yes, we sell only limited molasses because we are under obligation by the state government to sell 18% or more of molasses produced on a presumptive molasses production of 4.6% -- 4.65% of the cane quantity crushed. So we have to give this quantity for country liquor manufacturing, so this is the only molasses that we sell. The rest of it is captively consumed.

Okay. And all your molasses comes from within, like, from sugar?

Within. We are not buying any molasses from outside.

Okay, we are not. Okay, fine. And sir, just another question was, sir, the recent government rule of allowing use of B-heavy molasses for ethanol, so how does that affect the prospects? And what is the difference between production of ethanol from juice, B-heavy and C-heavy, like, how does that affect?

See, B-heavy molasses is the conventional molasses. That means we extract sugar until the last mile, okay? And B-heavy is we don't go until the last mile, and we stop the process before that, okay? So what happens is the sugar content, the fermentable sugar content in B-heavy molasses is more than the fermentable sugar content in C-heavy molasses. Number one, the quantity of B-heavy molasses will be more in terms of production because we will be cutting short our processing there. And plus, since the sugar content in that B-heavy molasses is higher, our ethanol yield will be better. So for example, if we -- typically, from C-heavy molasses, we get about 22 liters from 1 quintal of molasses. Whereas in B-heavy molasses we get about 30 liters plus from 1 quintal of molasses, so this is the difference. And in case of sugarcane juice, well, yields are substantially better for making ethanol.

Okay. And it's better for -- it's the best for when you make it from juice that's from juice directly?

Yes. So we didn't do from B-heavy molasses, we sacrifice on sugar production because we have not extracted the last-mile sugar until the last process. So the recovery -- what we earn out of molasses and what we have sacrificed sugar, it equates to about INR 33 of sugar sale value -- INR 33 of sugar sale value.

Right. And like-to-like realization from B-heavy molasses is, I guess, INR 40 something, right, INR 44?

No, I told about B-heavy, B-heavy. See, C-heavy conventionally no attempt was made to see -- because C-heavy, there is no equation with the sugar sales price, so it's only in case of B-heavy I told that what sugar sacrifice we have made and what extra ethanol that we have made. So what we earn-out of that extra ethanol is equal to what we would earned from sale of sugar at INR 32 or so.

Next question is from the line of [ Aniket Desai ], individual investor.

Sir, I just want to ask you...

Sir, I'm sorry to interrupt the question, would you please speak a bit louder, sir?

Am I audible now?

Yes. Yes, certainly.

I just want to ask you related to the income from operations from the sugar. So most of your competitor like Balrampur Chini and Dhampur Sugar are able to make a profit on the sugar segment. And due to the transfer pricing of molasses as well as bagasses, so they're making a little earning in the cogeneration and distillery business. So can -- I just want to ask you that I'm very curious about understand that why the sugar segment is not making...

Yes, I explained a little while ago because we did recalibrate and rationalize our transfer price. So -- which has been done for transfer of bagasse as well as molasses. And this has been effective 1st of -- from the beginning of the year. So you're seeing that impact in the current quarter.

[Operator Instructions] Next question is from the line of [ Mittal Jain ] from [ Street Standing Investment ].

Thank you for the dividend. I think that is good on that front. I think the companies showing lots of confidence that coming forward, there will be lots of companies in the position to do something. So my question is that are you looking to expand again in ethanol? Because the year 2020, '21 production is again looking to be higher than the year '20?

Sir, insofar as our distillery expansion is concerned, we have added a 100 KLPD plant. And we already have about 30 KLPD plant, so once we are able to get some necessary approvals from the authorities, we will be operating our distillery at 130 KLPD in the times to come. So I don't think there is much of scope in expanding the distillery capacity because we will definitely not like to be in a situation where we have to buy molasses from outside. So -- but of course, we, as a company and the industry does suffer on account of giving molasses for country liquor manufacturing at a reduced price. Whereas the option that is available to the sugar mills is also that they can -- instead of molasses, they can give ENA to the country liquor manufacturers. So we are going to definitely put up a ENA plant so that our obligation of giving molasses for country liquor manufacturing is fulfilled by giving them ENA. So the value addition when we give to them for -- when we sell to -- sell ENA to them is more than what we would -- what it would be if we were to give them molasses only. So we are doing that, number one. Number two, the other way to increase the distillery expansion, I mean, to do additional ethanol manufacturing could be if we have one were to use sugarcane juice directly for ethanol making. Now, that calls for huge distillation capacity. So we're going to watch this space for some time, and then we will take an appropriate call in the future.

Okay, sir. Sir, what is our long-term obligation right now? I believe it is INR 230 crores?

Yes. You see, we have -- thanks to the government, we have INR 230 crores is our term loan obligation. So one is the soft loan, which was given under SEFASU 2018 by the state government, which is at a 5% rate of interest. So in respect of which installments, I mean, repayment has commenced on the first -- in the first week of July 2019. So that is one. So it is at 5% rate of interest. Second is the distillery loan that we have taken for recently expanding our capacity by 100 KLPD. So there, again, on a particular amount, we will be getting interest subvention from the central government. So both of our -- both our long-term loan in a sense are subsidized loans. So the rest of it is working capital loans, which is -- of course, it's commensurate to what stock we are carrying.

And this includes the commercial paper that you have?

Yes, we have so far -- recently, we have not issued any commission papers.

Okay, sir. Sir, on the stock we have around 20 lakh quintals.

19 lakh something, sir. 19 lakh something. I'll tell you the exact number.

Yes. And then how you are looking to finish it off because next year, again, it is looking to -- looking a little dangerous if you see the situation, where we are again going to go back to 30 million tonnes?

Yes, we have 19.91 lakh quintals of sugar stock as on the 31st. So you see what has happened is now since the country's production is lesser, the weightage of sugar stock of -- UP sugar mills vis-à-vis the country's sugar stock is higher. So we should be getting some accelerated releases in the coming months. So that is one. Secondly, we will be exporting all our obligations, so that's another way of liquidating our stock. And thirdly, we are asking for additional export. So these are the ways we think we will be able to keep our stock quantity under control.

Okay, sir. And I think I see that -- and you think that for the next crushing season, we will be left with a similar kind of inventory that we had this year's season to start with? Or it will be more reduced coming to that situation like 2018?

We hope to keep it at that level or lesser than that level.

Okay. And sir, is there any -- there are lots of things that is happening that you can do ethanol with the vegetable wastage and all. Are -- do you think that going forward, that this is the feasibility of doing all these things? Or is something like a food processing unit?

No, we will stick to our core competence. We will do ethanol only from C-heavy molasses, B-heavy molasses and a natural progression can be making molasses -- ethanol out of sugarcane juice. We are not looking at making ethanol out of anything else.

Well, ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to the management for closing comments.

Thank you all for posing confidence in us and continuing to support us. We continue our efforts to be more and more efficient. We've set a higher bar for ourselves. And year after year, we strive to achieve better recoveries, better operating efficiencies and we'll continue to do that. We will -- like I said, we are happy that our ethanol project has gone on stream, and we should be able to see improved performance from the distillery segment. And power, as I explained, of course, the matter is being contested in the appropriate courts. So we will have to wait and see what will happen there. We will -- going forward, we will try and optimize our use of B-heavy molasses and see that we get a -- see that we are -- returns are maximized. We will continue to really keep you updated on whatever developments are there in our working space. Thank you very much.

Thank you. On behalf of Prabhudas Lilladher Private Limited, we conclude today's conference. Thank you for joining. You may now disconnect your lines.

Thank you.