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

Ladies and gentlemen, good day, and welcome to the Dwarikesh Sugar Industries Limited Q4 FY '20 Earnings Conference Call hosted by Dolat Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Archit Joshi from Dolat Capital. Thank you, and over to you, sir.

Thanks, Steve. Good afternoon, everyone. On behalf of Dolat Capital, I welcome you all to the Q4 and FY '20 conference call of Dwarikesh Sugar Industries Limited. I thank the management for giving us the opportunity of hosting this call. We have with us today Mr. Vijay S. Banka, Managing Director of Dwarikesh Sugar Industries Limited. Without further ado, I would like to hand over the floor to Mr. Banka for his opening remarks, after which we'll have the floor open for the Q&A. Over to you, sir.

Very good afternoon, and a very warm and hearty welcome to the Q4 FY '20 Earnings call conference. You -- our results have already been announced. And I'm sure you must have gone through that. But before I touch upon the financials and the numbers, let me quickly tell you what has been happening in the industry, in India, in the state of Uttar Pradesh, in India, and then globally, what is happening. So we had this unfortunate outbreak of COVID pandemic, which has really grown louder everywhere. It has resulted -- but we were -- we in Uttar Pradesh, we were fortunate because the government supported us and they ensured that we carried on with our crushing on operations uninterruptedly, so that the farmers are not -- farmers don't have to face any hardship and their standing cane is totally harvested. So that was one welcome development. Initially, we did have some problem in sourcing the intermediate inputs such as lime, sulfur, well packing bags, et cetera. But these were slowly overcome, thanks to the support of the government, state government, we were able to overcome all these impediments. But well, on the demand side, there has been definitely demand disruption, which some industry estimates put anything between 1 million to 1.5 million tonnes. So April was particularly a difficult month, May again was slightly better, and we expect things will get better in the month of June and here onwards. So it's been a -- I mean, very -- it's been a month of -- it's been a quarter -- I mean, these last few months have been months of uncertainty and fear has gripped up the entire mankind. So we only hope and pray that some solution is found to this pandemic. Internationally, sugar prices have rallied, the sugar prices, which are on the -- which because of the crude prices tumbling had touched low of $0.10 per pound, they have rallied and the international raw prices are at around $0.12 per pound now. The white sugar prices are attractive. They are at -- the refined white sugar prices are at USD 395 per metric tonne. So this rally partly could be because of the clogging of the ports at -- well, ports all over the world are facing problems, the Brazilian ports are also facing problems, so are the Indian ports. In fact, the speed at which we expected India to export its sugar also received a setback but then things are getting back to normal, and we hope things will get better from here on. And sugar prices -- when the government is continuing -- the central government is continuing with its support for the industry. We -- there has been some discussion on the increase in the MSP, which is presently at INR 3,100. So we expect this MSP could be increased by INR 2 or so, although our request is for a larger interim, but then let's wait and see how it pans out. And buffer stock subsidy scheme, which was in operation and which will be there till July end that is also coming in -- coming to an end. So we expect the government to continue with the buffer stock scheme. One big challenge for all the sugar mills, particularly in UP is that we are all sitting on good stocks of sugar. So we expect speedier announcement of the export policy for 2020/'21 season, so that we are able to take the benefit of recently prevailing higher prices. We don't know how long these prices will last. So we just expect that the government announces this quickly. And we think -- we are cautiously optimistic. We hope some things should get better on from here onwards. And coming to the results in this quarter, we clocked the sales of INR 463.21 crores and for full year, we clocked sales of INR 1,341.53 crores. Our profit after tax was INR 44.27 crores vis-à-vis INR 32.35 crores in the corresponding quarter last year. Our full year PAT was INR 73.45 crores vis-à-vis INR 95.11 crores for full year 2018-'19. So it's been a reasonably okay kind of a quarter for us. And we have had -- we've sold about -- in the quarter, we sold 12.28 lakh quintals of sugar at an average realization of INR 2,905. I must clarify here that the realization appears lower because the subsidy on the sugar exported, which has been accounted by us, gets accounted as other operating income. So if we factor for that subsidy and add it to the sale -- selling price, our realization is about INR 3,190 per quintal approximately. Similarly, for full year basis, 38.78 lakh quintals of sugar we sold, which included 9.61 lakh quintals of sort of raw sugar. So here again, the realization is INR 2,968, but if we factor for the subsidy, then the realization is INR 3,130 a quintal. Like I said, we are sitting on a huge stock. On March 31 stock was about 29.58 lakh quintals. We expect -- we do expect that there is faster liquidation of the stock. The distillery project has been successfully commissioned. It's under stabilization. One big setback that we received at the beginning of the year that is the reduction in the power tariff, which was reduced from almost about INR 5 a unit to nearly INR 2.95 a unit. As a result, we suffered a setback for this particular quarter of about INR 17.55 crores when we -- corresponding to the last quarter of last year. And on a full year basis, the impact was INR 33.77 crores. And our loan position is reasonable, all our long-term loans are at a subsidized rate of interest. And we have been rated reasonably well. Our long-term rating is A+, and our rating for commercial paper program is A1+, which is the highest rating. And we have made a modest beginning in our efforts to manufacture -- produce sanitizer. Basically, it started off as a CSR initiative. But going forward, we see this emerging as a reasonably good business opportunity. Although it's too early to be very sure about it because there's going to be a lot of competition, as it is we see there is lot of competition. So this in nutshell is how the year was for us, the quarter was for us, and the year was for us. I would now request you to please ask me questions. Thank you very much.

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

I just had some broad questions in the industry. So if you could clarify my doubts on that. So I know that the total demand this year is likely to be 25.5 -- around 25 million tonnes, and we will have an opening inventory of somewhere around what 8 million tonnes from last year or more?

So we began the year with an inventory of 14 million tonnes. We should end up with an inventory of about 11 million tonnes. We thought the closing inventory would be about 9 million tonnes. But there has been a demand disruption, which is one reason why our inventory is expected to be higher. And secondly, the export also -- export initiative also received a bit of a setback. So -- which is the reason why we expect closing inventory to be about 11 million tonnes.

Okay. Great. So 11 million tonnes. And this year, probably you're going to have some higher production compared to last year because last year, disruption in Maharashtra. So maybe about 30 million or 31 million tonnes. So we're looking at 42 million tonnes, minus -- yes. So like -- so what do you expect? I mean, one thing is the MSP or -- and the other thing is the export, do you think the export subsidy will have to be enhanced further or there'll be more measures? So exactly I want to know your thoughts on that?

No. Export subsidy, we -- see, the way we have seen the export subsidies, the government takes a decision on the export subsidy considering the domestic prices and there is, of course, new weightage given to the MSP and also the international prices. So they work it out and they try and see that exports also are viable, maybe not as viable as it would be if one where to sell it domestically, but the domestic market is very limited. So we expect -- you see, the quantum of subsidy will depend when the policy is framed and what the international and domestic price parity is, but insofar as the quantity of export is concerned, we do expect that there is enhancement in the quality.

Okay. Last year, the quota was about 5 million tonnes, but we did -- how much did we do finally in terms of exports? And what was Dwarikesh's share in that?

Yes. Quota was 6 million tonnes. And already, the contracts have been executed. Physical exports is perhaps underway. So they say, it's about 4.2 million tonnes. The government's expectation and the market expectation is that we may end up with 5 million tonnes of export. Now you see, the problem here is there are 2 kind of company sugar mills. So one are those who are performing and those -- then there are second set of sugar mills which are nonperforming. So there are some sugar mills, which have not been able to export their obligation. So the government has already done 2 redistribution. The first redistribution was done quite early. And the secondary distribution was also done some time ago. And we expect the third redistribution to happen in the first week of July. So our original quota was about 79,000 metric tonnes. Our -- in the first redistribution, we got additional quota of about 29,000 metric tonnes. And in the second redistribution, we got a quota of 12,000 metric tonnes. So we -- our total export quota that we got was about 120,000 metric tonnes, approximately. So we have the first original quota, the first redistribution, we have already completed export obligation. We have received all the payments also. And the second redistribution, which happened 12,000 metric tonnes, so exports are underway, and we will complete all our exports before end of June.

Okay. So normally, these export subsidies are decided at the end of the fiscal year, right? Not -- it's not going to be now. The export subsidies are decided after the whole year, the government looks at the inventory position, et cetera?

No, no, no. That is decided -- sorry, sorry to interrupt you, export subsidies are decided upfront. Upfront.

And so when the normal sugar policy comes and the normal, your -- like other years, it's been August, like the ethanol policy, all the MSP's et cetera are decided. This year, I think the market is expecting it to be earlier, I don't know.

Yes. So export quota, whenever they announce -- when they announced 6 million tonnes of quota, they announced the incentive amount also, okay? Otherwise, we wouldn't know how much incentive we will get and how much we should export and whether it is worthwhile exporting or not. So the quota announcement and the subsidy amount is announced together. So there is -- so then one can always -- no sooner the quota is announced, no sooner the subsidy is announced, the companies can make their internal calculations and quickly go on to strike export deals.

So you're expecting all this to be announced before last year's time, is it? Like normally, it's in August, if I'm not mistaken. So you...

Yes, yes. It should be around -- we are already in June. I don't think it will be announced before July or August. We are requesting the government to announce it quickly so that we can take the advantage of -- the market always presents an opportunity. Sometimes when the quotas are announced, the market is not favorable, but then there comes a time when market moves up and down depending upon the crude prices, like, for example, now the crude prices have gotten a little bit better, so the market has moved upwards. So there's always an opportunity to cash on such opportunities.

Right. And my last question is on the SAP. So there's been no change in the SAP in the last 2 years even prior to elections or whatever. So is there a chance that, that might be revised now for the farmers?

We don't know. Well good senses prevailed with the state government. They have not revised the SAP in the last 2 years. I really don't know whether they'll announce it this year or maybe next year, it is an election year. I mean after that, will be the election in UP. So whether they were going to announce it now or then we don't know. So it will all depend upon how the government perceives and thinks about it. And we -- I mean, one thing is a fact, SAP hike doesn't defeat anybody in election, that's been the past experience. So the governments have increased the SAP and the party in power has lost the election immediately thereafter. That's not how the elections are won or lost, but then -- well, it's government's call.

So according to you sir, this industry will continue to be regulated. There is no move like once upon a time, there was a thought that they might be deregulated and cane prices will move with the sugar prices, MSP and everything, but that is not likely now?

No, not in a hurry. And if you ask me, world over the industry is regulated, not just in India, the world over industry is regulated. You see the bane on this industry has been that in the past sugarcane price was successfully increased with scant respect to the economics of the sugar mill. So as a result, the sugarcane crop became very attractive for the farmers, okay? And simultaneously, the yield also got better because of propagation of improved and early varieties of sugarcane. So the farmer's income has definitely gone up which is the reason why farmer is most -- I mean he's very enthused in growing sugar cane. It offers multiple opportunities to the farmers of multi cropping, there are other benefits also -- many other benefits in growing sugarcane. So they will continue to grow sugarcane. Now the larger question, the bigger question is that how do we address this larger availability of sugarcane and the sugar? If you read some newspaper report sometime ago the -- there was an EPI recommendation that the government should try and bring down the area under sugarcane cultivation. So they were all a little farfetched. So we will have to and -- this government is very rightly doing the right thing by trying to figure out ways of -- figure out alternative uses of sugarcane, like in Brazil. So they -- we need a very ambitious and a big-time plan for ethanol use. For example, I'll give you one statistic. In Brazil last year, last crushing season, 65% of the cane juice was used for making ethanol and only 35% of the juice was mainly used for making sugar. So that is how...

Correct. So Brazil is -- what level of blending is Brazil now, ethanol blending?

See, last year, the total blending is at 48%. Last year -- last season, the blending was at -- as high as 48%, phenomenal.

Yes.

And again, we are only around a little above 5%.

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

Sir, just wanted to understand basically, like you mentioned, just a couple of minutes back that the sector is fairly regulated because right from sugar price, ethanol price, power tariffs, to our import, everything is getting regulated right now by the government. So I mean, I don't know, see, if you just look ahead, to take the excess sugarcane production or the listing which is coming into the market, is ethanol basically the only way out and you think investments could step up faster in that space with cane going up and then how should we think about it?

Yes, the Brazilian example has shown that the ethanol is a very viable option. Like I mentioned a little while ago, the blending is as high as 48% and sugarcane juice -- 65% of the sugarcane juice was used for making ethanol. So we need a program, maybe not of that scale, but at least certainly scale larger than what we are presently having. So the problem in India that we face is -- like I mentioned a little while ago, there are companies -- sugar companies with healthy balance sheet and there are companies with not very healthy balance sheet. So although there is a government program already in place, with states subsidized -- loan at subsidized rate of interest will be made available for those who want to put up ethanol manufacturing unit, the point -- the problem is the banks don't find proposals of such nonhealthy sugar mills to bankable at all. So that is the -- that precisely is the catch-22 situation. So there have been some studies which are being done, instead of trying to figure out that there could be some escrow mechanism so that or a SPV could be formed, some kind of a watertight arrangement be made such that the sugar mills get limited access to the funds and the rest of it is used for making repayment to the bank.

Okay. Okay. And the ethanol pricing that is revised -- will be revised in annual basis, right? So in July-August, will come up with a revised pricing or how much of...

It's normally done effective in November.

And the policy will be announced in August is it, for the effect from November or when we can...

No. It's not so early, but yes, anytime before the next bidding is started -- I mean, before the first bidding start for the season in the month of November before that they announce.

Okay. And the ethanol prices will be fixed on an annual basis, can that be changed? Do you think like based upon how crude is working or do you think government will keep it at that same level? I mean how should we think about ethanol pricing from government for...

No. So you raised a very valid question. So the point is banks also have this question. They say, "Okay, presently, the ethanol price is remunerative. So what is the way forward?" Okay, nobody -- I mean, the repayment will happen over a period of 5, 6, 7 whatever number of years. So they say, is there a long-term policy in place, which is what we have as an industry association have been requesting the government. We are saying you don't announce the price, but you announce the basis of price. Okay? As we have seen, regardless of the fall in the price of crude, the government is very keen to step-up this ethanol blending program because it addresses the larger issue of the farmers growing sugarcane and also the country's foreign exchange resources.

Okay. So you're hoping that at some point, the government will come up with a more long-term policy than just 1-year pricing, right?

Perhaps. Yes, yes. That has been a long-standing demand of the industry. And that will help in stepping up the capacities for ethanol -- for the distillation capacity. We're normally -- I mean, the banks would ask this question that, okay, because these distillery plants of late, particularly those where directly sugarcane juice is to be used, they have become very capital intensive, so the bank would obviously want an assurance on the pricing going forward.

Correct, correct, correct. And the sugar MSP is here to stay now that production is going to be even higher next year? I mean the need for an MSP is like it's not going away any time soon, I would assume?

No, no. It wouldn't. In fact, we have been requesting and what we are hearing that -- and we are hopeful that there could be possibly some increase in the MSP, which is presently at INR 3,100.

The next question is from the line of Arun Gopalan from Systematix Group.

I'm not sure if I missed the first part of your inventory when you were talking about the inventory. So I see that the sugar inventory, the sugar stock as on 31st March was 29.58 lakh quintal. I would like to know what this is valued at as on 31 March.

It's valued at INR 2,890 a quintal, sir.

INR 2,890 per quintal.

Yes.

Okay. The second question, so I'll make it very specific. Second question which I had was on your realization. The average realization for the quarter you're posting is INR 29.05 per kg. MSP is standing at INR 31 per kg. So what is the...

Yes, sir. Yes. Let me explain. Sure. I've already explained this, but let me explain once again. You see this realization of INR 2,905 per quintal is including for the quantity that we have exported and without considering the incentive on export, okay? So we have -- my average realization has been for this quarter, if I account for the subsidy on export, is INR 3,195 per quintal, okay? And for a full year basis, what appears as INR 2,968 is actually INR 3,130 because the subsidy gets accounted not as the part of the sales, but it gets accounted as other operating income.

All right. And next question I had was on the export quantity. So what was your export realization and the quantity exported?

So the -- in this particular -- I'll talk about the MAEQ 2019-'20 for the season because on the full year basis, we have, in the first quarter of this year, we have exported under the MAEQ of 2018/'19 also. So I'll talk about MAEQ 2019-'20. I had an export obligation, the first export obligation was about nearly 79,000 metric tonnes. So out of which what got exported and got accounted before March 31 is almost about 60,000 metric tonnes, 60,000. Yes. The rest of it -- I mean, after...

60,000 metric tonnes was exported till which date?

30th -- 31st of March.

31st of March. Okay.

59,550 metric tonnes precisely.

Okay. And how much of a subsidy was booked for the current...

It is about INR 62.22 crores.

INR 62.22 crores is booked in the current fiscal?

Yes.

Okay. And the rest will be for next year?

Yes, yes. Next will be in the next year.

I have one more question on your co-gen. Like, when I look at your co-gen, your co-gen quarter-on-quarter is higher, but I guess year-on-year, a little tepid. But is it true that your co-gen has done better than the other mills in UP? And if so then what is the reason for it?

No, sir, co-gen is -- basically, the co-gens performance is the same across all companies in UP. Everybody is getting a realization of INR 2.95, anything ranging between INR 2.90 to INR 3. So there has been a more than 40% reduction in the selling price of power, okay. Now the profit that you see in the co-gen segment is because of the transfer pricing, at what price we account for the transfer of the power and at what price we transfer the power that is consumed captively. But going forward, this is -- co-gen segment is a bit of -- we are -- I mean, I would say it's a defensive bet for us in the sense that even in the year which went by in the last quarter, I mean, once we started the season of 2019-'20, we did what we call as incidental cogeneration. You see, for example, in one plant if my capacity is to export 24 megawatts of power, so I do incidental cogeneration, which means I don't get the whole hog of recycling the steam and doing co-gen again. So what I have done is -- we've done co-gen of about only 18 megawatts. So what happens is in the process bagasse becomes scare because the steam consumption obviously comes down and there is no recycling of steam happening. So the bagasse consumption comes down. So we have sold bagasse. And we've realized and most sugar companies also have realized that their revenues are better in selling the bagasse than in selling the power.

The next question is from the line of Sanjay Manyal, ICICIdirect.

Sir, this -- just now because entire year has been passed and the domestic quota what we received, so you -- I'm sure you would have a good sense of what kind of an annual quota we are receiving. And in that sense, what would be -- what is expected from the FY '21 levels?

See FY '21 for the 3 months, we have already received the quota. So -- and...

That's at 50,000 metric tonnes?

55,000 metric tonnes. And we have done export of about 60,000 metric tonnes. So going forward, yes, now comes the recalibration on the part of the government, and we expect larger quotas in the coming months because the weightage of our stock vis-à-vis the country's stock, obviously, has gone up. And we -- within UP, also, our production has been 22% higher this season as compared to the last year, which has not been the case for other sugar mills. So going forward, we expect to receive larger quotas in the coming quarter. So now the numbers of crushing and production are frozen, so we expect that recalibration to be done by the government now.

So, would it be safe to assume like 30,000 metric tonnes per month for the domestic quota and accordingly 350,000...

I think, yes, we must get that kind of quota. We must get. We must get.

And so 3.6 on an annual basis and then say, 120,000 export, can we like assume if the export -- if the export subsidy is announced?

Yes, yes, yes. We expect larger export target in the coming -- for the coming season. And we expect better improved releases. So just, I think -- I mean, of course, we have to keep our fingers crossed. There's not much we come to know as to how the quotas are allocated and all. So -- but we do expect larger domestic quota as well as higher export quota. And our performance on the exports also has been good. We have been able to do every -- I mean, the last metric tonne of quota that was allocated to us, so we have been able to export. So we -- I think those factors should weigh in and should help us.

Sir, if in that sense, if I just -- we just want to calculate, say, 3.6 plus 1.2, then ideally, my sales in FY '21 should be higher than the production because if I assume the similar kind of production happens next year as well?

We will have to wait and see. I mean the big question that has been imponderable is the quota, domestic quota, how much you get? See, I have no doubt on export obligation for the coming year, it should be larger. But domestic quota is something -- yes, by application of all logics, our quota should be higher.

Right, sir. Right, sir. And sir, we have produced 20% more this year.

22%.

And that would have been mainly because of higher crushing, will that -- so confirm it, will that trend continue next year as well or we will come back to the previous year level?

No. Let me -- see, this year, we have crushed about 300 -- this season, I'm talking about the season, okay? So this season, we have crushed 374 lakh quintals of sugarcane. Now a safe estimate that because of the COVID outbreak and because of nondiversion of sugarcane for jaggery and khandsari unit maybe about 20 lakh tonnes -- 20 lakh quintals was crushed more. So 355 lakh quintals is a safe bet for next year. I mean -- and as per the indication available, the harvesting is pretty good. So I don't see any -- maybe a small downside, but numbers should be more or less the same in the coming season also.

Great, sir. And sir, our domestic realizations have been somewhere around the full year basis, I mean, it's the overall realization [indiscernible] including the 3,195 you mentioned...

Yes, for the quarter was 3,195 and for the full year basis, it's 3,130.

3,130. Okay. Now would it be sort of safe to assume that if suppose MSP -- so probably one quarter has an aberration where the prices have gone...

Yes, yes, yes. I mean because of the COVID outbreak, our prices were just a little above the MSP benchmark.

But the rest of the year it was -- domestic was about 3 to 4 points...

Yes, yes, yes. It's been -- depending on the monthly releases, the government announces. If the quota is higher, okay, there is a little bit of pressure on the price, so the prices come down a little, but the prices overall, as you have seen, have been higher.

Right, sir. Right, sir. Yes. And sir, what is our debt as on date, farmer's payment, which is -- or farmer arrears we can -- which we had as on date?

See, my inventory as on date, I'll tell you one moment, just a second. My inventory as on date is, I have about 30.40 lakh quintals of sugar. And balance dispatches for the month, if I account for it, my closing inventory would be about 28.95 lakh quintals approximately.

That would be by the end of June, you are saying?

By the end of the June, that will be my inventory. Now as far as my long-term borrowings are concerned, I have -- just a moment, I'll tell you. Yes. I have -- as on 31 March, I had a soft loan outstanding of INR 114.31 crores. So that is on 31 March. So April, March -- April, May, June has got paid. So actually, out of INR 134.48 crores, 1/5 of the -- INR 26 crores has got paid, so it's about INR 108 crores what is outstanding as on the 31st of -- or 30 -- will be outstanding as on the 30 June. And distillery loan is about INR 116.88 crores. Now there is no repayment obligation until the 31st of March 2021. So this is my long-term borrowing. And there is a preference share outstanding, which is about INR 15 crores, which gets repaid in the month of August this year. And short-term borrowings, well it depends on the stock. So presently, our borrowings, one second I'll tell you, should be in the range of INR 500 crores or so. But we have enough drawing power and all.

Yes. Right, sir. And farmers -- means, what is the payment we still require...

We've paid more than 80% of the dues to the farmers, more than 80% of the due amount to the farmers.

Okay. Okay. Right, sir. And sir, just one more thing.

Sure, sir.

So what would -- hello? Can you hear me, sir?

Yes. Yes, I can hear you. Please go ahead.

So what would be our sacrifice because of the diversion towards B-heavy or sanitizer or ENA, all putting together, what could be our sacrifice -- sort of sugar sacrifice...

No. This was our first -- I mean we ventured into the new distillery plant for the first time. So this was just a beginning that we made in B-heavy molasses. So we sacrificed about 53,000 metric -- 50,000 -- 53,000 quintals of sugarcane. So introducing B-heavy molasses -- using the B-heavy molasses for making ethanol. Right, so our recovery for the entire season has been 12.26% vis-à-vis 12.31% for the last year, but if I factor for this 53,000 metric tonnes, my recovery is higher than the recovery that I clocked in the last season.

Okay, okay. Yes. Sir, I understand this, but from the next season onwards, what kind of...

Next season, there will be larger diversion. I mean at least one plant we'll be totally doing it on B-heavy basis. So we will -- maybe about the 4 crores or 3.75 or 4 crores liters that we will target, half of it will be from B-heavy. So we will have a sacrifice of at least about 150,000 quintals, minimum sacrifice of 150,000 quintals.

11,500 tonnes if I...

Metric tonnes. Yes.

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

Sir, my question is that, are we using both the distilleries or, sir, is only the 100 KLPD on operation?

No, no. It's presently only the 100 KLPD distillery is operational. Our 30 KLPD was already there. What was pending was the synchronization of 30 with 100 so as to use the utilities that we have for 130 KLPD. Some permissions are pending. So we are still operating only on 100 KLPD basis.

Sir, when do we expect to start using the 30 KLPD?

We expect to start soon at least before the November, we will be up and operational at expanded capacity.

So before the next ethanol season.

Yes, yes. Certainly, certainly.

Okay. And sir, in our old distillery, sir, do we have a 0-liquid discharge and the incineration boiler already in place?

No, the incineration and the CPU that we have set up for the new distillery is good enough to cater to the requirement of 130 KLPD. It is for 30 KL as well as 100 KL. So there will be -- there is no extra incineration or -- I mean CPU requirement...

No extra requirements...

Additional are not required.

So sir, both of them can operate at 330 days, sir?

330 days would be little farfetched. I would safely say 310 days. 310 days.

310 days. And sir, how much ethanol do we expect to produce in FY '21?

2021, we expect to produce at least about 3.75 crore liters, 3.75.

3.75 crore liters. And sir, like, I know it's a little far off sir, but by FY '22 when both the distilleries are operational, so will we be able to do more than 4 crore liters?

Yes, we should be able to do more than 4 crore liters, yes. Going forward, yes, that is our target. That is our target.

The next question is from the line of [ S. N. Rajan ], an individual investor.

Congratulations on decent set of numbers.

Thank you, sir. That's all your good wishes and blessings.

Yes, my first question is, can you throw some light on what's the position of the case that has been filed by the sugar manufacturers for the power reduction which was done? My personal view is it's a losing battle because they are able to procure power at maybe less than INR 3 also, why would they pay INR 6-point whatever it is? And number 2 is, how long does it take for getting the money from the UP companies -- from the UP government for the power which is given to the grid? And also does it take delay in getting the export subsidy? Because I'm talking about receivables from state government and central government, how cumbersome is the process? And my last thing is, since we are into the business of sanitizers also being -- I mean, if I can call it an FMCG product, and I hope you're doing it under our own brand name, would you be looking at -- a couple of guys who are already having low sulfur sugar and all in that should we get -- we have some branded product as sugar for building on the Dwarikesh brand?

Sure, sir. Well, answering your first question about the power tariff. Well, as I had mentioned, as I had spoken about this in my earlier earnings call, the hypothesis of the order by which the prices were slashed is faulty. Number one, they are considering the bagasse cost as 1,000 -- INR 1,010 per metric tonne. And in fact, they are reducing the basic price of the bagasse on the analogy that bagasse is generated by the sugar mills. So it should be compared vis-à-vis the pit head cost of the coal and not the transported cost of the coal. So the basic hypothesis is wrong, number one. Number two, there were some technical errors also in the order. So we have -- see, the case that we have filed is a pretty strong case. I mean on the merits, we should get -- I mean the jurisprudence should appreciate our point of view.

And what is the validity of that old agreement, if at all?

Which one, sir?

Even if we win the case, all the sugar mills win the case, that tariff that was there...

No, tariff once in 5 years.

So it will be another 2 or 3 years left for that?

Yes, it was announced on the 1st of -- it was -- it became effective on the 1st of April 2019. So if we are getting any benefit, so it should be for 5 years' period. Now basically, it is an administrative call. Basically, it is a political call. Okay. So we are simultaneously requesting because ultimately, the state government has also got to look after the economic viability of the sugar mill. The liability of maybe not our company, maybe not the case of other companies, the viability of sugar companies would have definitely come down because of the reduction in the price of power. So we are waiting, but these things since it's a 3-way decision, a political, administrative as well as legal it is going to take time. It is going to take time. We are keeping our fingers crossed. But as a measure of abundant precaution, we are accounting for our power business based on the reduced power tariff. That is number one. So number two, you asked me about the incentives. No, your second question was on the amount receivable from the power company. See, as of now, we still have to get payment for the power evacuated by us in the month of March 2019 that is sum of, we have -- all our bills for February have been cleared 2019 and some amount of payment we have received for March 2019 also. So there is inordinate delay. But because of the largess being rolled out by the government for the discom companies, so we expect -- we are a little optimistic that maybe we should get our substantial part of our power dues very shortly. But there can be slips between the lip and the cup sir, you never know. So coming second on the incentives -- export incentives and all. Our experience has been that we have been rather meticulous in filing our papers and all, in collecting the papers, in collecting all the documents and filing all the documents. So we have had no issues whatsoever. But obviously, there is time lag. I mean, for example, under MIEQ, obligations got completed in the month of June, so we got our payment until October or so, which, if you ask me, is not very bad. So we have had our dues cleared, but there are issues of budget allocation, et cetera. Under MIEQ also 2019-'20, we have got -- for one unit, we have got a part payment. So it's both -- I mean, one is definitely the budgetary allocation problem is there. But secondly, one needs to be very meticulous in compiling and filing the papers, so which fortunately we have been doing it correctly. And the third was on the sanitizers, right?

Sanitizer and your lowish -- I mean, higher variety of sugar, premium quality...

Sugar. Yes. So insofar as sanitizers is concerned, so like I mentioned earlier, we started this as a corporate social responsibility initiative. Because the outbreak of pandemic, we are the natural producers of sanitizers as we produce sugar, so molasses is our byproduct, and we produce ethanol and 80% of the sanitizer -- I mean, the feedstock, 80% of the feedstock of sanitizers is alcohol. So we are the natural producers of sanitizers. And we can do it under stringent quality control measures. And we add all the right ingredients so as to make it soft on the hands and effective on the virus. So this -- but these are early days, we are seeing a lot of competition. I personally feel that this business can be scaled up, but we will have to wait and see, I'm sure once the lockdown is lifted there's going to be sudden demand -- huge demand for the sanitizers. So we will establish this as a Dwarikesh brand. We are not looking to do any kind of contract manufacturing at this point in time.

My question was simultaneously as cobranding, could you not look at sulfur-free sugar?

Sugar. We are not doing -- we are not manufacturing sulfur-free sugar, sir, only according to me, only Dhampure is manufacturing sulfur-free sugar. Rest of us are manufacturing the regular sugar. But yes, there is an opportunity for branding and selling. In fact, I was pleasantly surprised when I went to one of the shops in Bombay, and I was happy to see -- I mean, every time we see Madhur brand of sugar, which is manufactured by Shree Renuka Sugars Mills, but yesterday I was able to see Mawana sugar also. So which means sugar manufactured in UP has made inroads into the markets in Mumbai. So yes sir, we'll do the needful sir in that direction.

We'll take the next question from the line of [ Ajay Patel ], an individual investor.

My question is only on the export subsidiary. You have exported, I think, 9.6 lakhs tonne totally. Export quantum of subsidies is almost INR 100 crore. How much you have booked in last year? And how much you spill over to the next year?

Sir, I'll tell you, 9.61 metric tonnes that you are talking about export, which we did. So out of which, like I mentioned, about 6 lakh -- 60,000 metric tonnes is out of the MAEQ obligation of this year. 60,000 metric tonnes export subsidy amounting to about INR 62.2 crore has been booked as other operating income in the current financial. As far as MIEQ subsidy of the last year is concerned, see, if you remember, it is as a production subsidy. So that has got reduced from the cost of production of sugar. So whatever -- yes, please, sir, please.

But then why your other operating income is not showing that INR 60 crore?

No, sir, what you are seeing in the published result is operating -- other income. So there is a difference between other operating income and other income. Other income is income which is not related to the business per se.

Okay. Okay. Now my last question is, what was the valuation of inventory on 1 April 2019?

I don't recall how much it was per se, but...

Per kg, per kg, per kg. This year, it is 28.9 you said.

I don't recall, sir. Honestly, I don't recall. Maybe I can get back to you separately on this. I can get back to you.

Next question is from the line of [ Yashpal Madan ], an individual investor.

I just want to know from you if we compare the top line from last year same quarter, INR 215 crore to INR 460 crore, previous quarter also from INR 365 crore to INR 460 crores. First, if you could give me the working of comparison of year-on-year what are the drivers for this so much jump?

Sir, last year -- this year, our quota has been higher. Let me talk one by one. Insofar, the total income is concerned for the quarter. This year, quota was better than what it was last year, number one. Number two, we have exported, like I mentioned, 60,000 metric tonnes. So 6,000, if you see the breakup, I have sold about 12.28 lakh quintals of sugar in this particular quarter, okay? Insofar as the export is concerned, it's about 3.4 lakh quintals under this. So nearly 9 -- 8 to 9 lakh quintals of domestic sales I had in this quarter. So which is the reason we are having higher quarter-on-quarter sales. And as far as the year-on-year sales is concerned also, we've had more exports, the quantity, if you see the quantity is much larger, 38.78 lakh quintals vis-à-vis 31.77 lakh quintals. Now coming -- if I have to explain the profits for the last year as well as this year, last year, we had the benefit of higher power tariffs. And then last year, we had the benefit of one subsidy, which was received, INR 28 crores approximately, which pertained to the earlier financial year, which was received -- announced and received in the last financial year. So that is how it has been, sir.

I'm sorry I'm asking you again. Year-on-year, if you look at, let's say, if you look at the value terms...

Sir, your voice is not clear, sir.

Sir, I'm saying, let's say, if we compare value terms last year -- year-on-year, how much was domestic sale and how much is this year domestic sales, in value terms?

Okay. One minute, I'll tell you, sir. I'll tell you. Sure, sure, sure. Just a second, sir. You'll have to bear with me for a moment. Yes, sir. So I have sold 38.78 lakh quintals vis-à-vis 31.77 lakh quintals in the previous financial year, okay? My average realization was 2,967 point -- 2,958 vis-à-vis 2,963, right? So my total revenue from sale of sugar is INR 1,151.04 crores vis-à-vis INR 941.29 crores, okay? I have sold domestic sales, 29.17 lakh quintals of domestic sales I have sold in FY '19-'20 vis-à-vis 30.43 lakhs quintals last financial year. Export sales is 9.61 -- 9.62 lakh quintals vis-à-vis 1.34 lakh quintals in the previous financial year.

Export is much higher, basically.

Yes. Basically, export is much higher. See, actually, the export policy is announced for the season as such. But there is spillover. Not entire thing gets exported in a particular financial year. So for example, the export of -- our export quota has been nearly 120,000 metric tonnes for season '19/'20. Now 59,550 metric tonnes has gone out in -- before 31 March and the rest of it has gone out -- you will see the results of the same in the June quarter. So there is a overlap, sir. There is a overlap.

And there may be even difference between both the quarters of subsidy booked?

Yes, sir. Yes, sir. Yes, yes, yes.

So how much that will be?

Sir subsidy on the exported quantity, we have booked everything. It's -- you see, I was explaining to a gentleman a little while ago. So on this 59,550 metric tonnes that I have exported. So this is a straight and simple export assistance. So this is -- on this INR 62.22 crores has been booked as other operating income, okay? And on the 9 lakh 60 minus 59,550 metric tonnes, the subsidy that I have got that pertained to MIEQ 2018-'19, which was a production subsidy, which has been reduced from the cost of production of sugar.

Okay. Now next question is how has been the sale in current quarters during lockdown?

Sir we have got a quota -- monthly quota of 55,000 metric tonnes. And the entire balance export obligation will get exported in this quarter. So 55,000 plus 60,000, approximately. So 115,000 metric tonnes is what we are going to sell in this current quarter. But I was also explaining a little while ago that now that the production numbers for the season 2019-'20 are now frozen, the government obviously has to recalibrate and work out some increased quota for us, those of us who have produced more in Uttar Pradesh. So we expect higher quotas from July onwards.

And how much has been the recovery for whole season?

Sir, vis-à-vis 12.31% last season, 2018/'19 season. My recovery this year is 12.26%. You may get an impression that there has been a drop in the recovery, but that is not the case. Nearly 53,000 quintals of sugar was sacrificed and used for making ethanol because of the B-heavy route that we followed. So as a result, my recovery is close to 12.4%, sir, vis-à-vis 12.31% last year.

As there are no further questions, I now hand the conference over to Mr. Vijay S. Banka for closing comments.

Thank you, friends. Thank you, investors. It gives me a unique opportunity to participate, to share our thoughts with you and to help -- to answer all your questions. And we are indeed grateful to you all for reposing trust and confidence in us. We will continue to do what was within our control, perform as good as possible such exalted standards of efficiency and -- efficiencies. We'll continue to do that. And at the appropriate time, we'll get in touch with you with whatever development updates are there insofar as our company and industry is concerned. Thank you very much.

Thank you. Ladies and gentlemen, on behalf of Dolat Capital, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.

Thank you.