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

Ladies and gentlemen, good day, and welcome to the Dwarikesh Sugar Industries Limited Q1 FY '21 Earnings Conference Call, hosted by Dolat Capital Market Private Limited. [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.

Yes. Thanks, On behalf of Dolat Capital, I welcome my participants for the Q1 FY '21 Earnings Conference Call of Dwarikesh Sugar Industries Limited. We have with us today, Mr. Vijay S. Banka, the 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 allow for open for Q&A. Over to you, sir.

Very good afternoon to all. I welcome you all to the Q1 FY '21 Earnings Call Conference. We have had -- I must also thank Dolat Capital for hosting this conference. We have had a decent quarter -- decent first quarter. Our turnover -- our total income was INR 441 crores, EBITDA INR 51 crores and EBDT at INR 35.5 crores. Profit before tax of INR 25.52 crores. So we will see Q1 of FY '20, all our numbers in absolute terms as well as in percentage terms are better. Of course, our PAT is lesser than what it was in the corresponding quarter last year, that is because of the higher provisioning of taxes. Considering the fact that we operated this particular quarter captures the results of lockdown period, I must look back at the results with satisfaction although results could have been better, had the sales of sugar been brisk and had the lifting and sales of ethanol been brisk. We had -- thanks to the Government of Uttar Pradesh and thanks to Government of India, we had uninterrupted crushing operation. Since sugar was classified as an essential commodity industry, we had uninterrupted operation, and we -- demand destruction will happen. Some estimates for the demand destruction at about 1 million ton, some slightly 1.5 million ton. So whatever the number be, the Government of India has managed the situation very well. They regulated the releases. They gave the releases on the lower side. Though is I must confess there was pressure on the selling price of sugar. So the sugar price at which sugar was sold was a little bit less than the price at which we sold sugar in the previous quarter. So having said that, I must now say that normal seems to have returned. We are -- we have -- the releases -- released quantity is also being increased, and we are seeing brisk sales. And in fact, in this quarter, we sold about INR 12.56 lakh quintals of sugar, which included INR 6.06 lakh quintals of export. So I'm not saying here that our [ Street ] number got impacted from the export number. Though there were challenges at the port, though there was restricted movements, somehow we managed the situation. We were able to ship out about INR 6.06 lakhs quintals of sugar. So we have no -- government has announced another export -- they have done another redistribution of export quota, under which we have received an additional quota of INR 1.99 lakhs -- 99 lakhs quintals. So we have -- we are in the process of executing those -- executing the export quota also. So this is in -- just clearly on the [ distributed ] front, I must say that the lifting got impacted because all market depots were stocked fully insofar as ethanol is concerned because the fuel consumption was on the lower side. There were hardly any vehicular movement. So this a setback. We were offered a choice of supplying our technology [ far from the ports ] which we did, but I must say here that, yes, it could have been better, had there been no lockdown at -- had there been a normal situation. Going forward, on the ethanol front, although like I mentioned earlier, normalcy seems to have returned in the case of sugar's case. Ethanol, pace will become normal, maybe it will be -- it will take another quarter. And thereafter, we should see some ethanol operations also on full swing into Q3 and thereafter. So all in all, it's been a decent quarter, and we have had -- we, of course, have started with a huge stock. We are -- as on June 30, we are carrying a stock of 28.99 lakh almost 29 lakh quintals. So I must also add here that government of India is contemplating plans to purchasing in the -- [ let's see ] minimum selling price of sugar [ at its ] factories. So this will be a welcome move. This will, of course, be coupled with a INR 10 per quintal hike in the fare and remunerative price. But if approved, these prices could become effective from October 1, 2020. So this will be well for the sugar industry. And well, we look forward to the full year represents of optimism. Thank you very much. Now I'll invite questions from you all. You can shoot, I'm ready to answer. Thank you very much.

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

Sir, congrats for a good operational numbers. Sir, just a few things about the -- now our distributing operations have been impacted. So what could be the -- what is the contract which we have done with [ ONSID? ] And how much probably they have listed this year? And how much we would be able to supply roughly in a full year-period?

We had contracted to sell them about [ INR 2.4 crores ] of ethanol, but their lifting, as I mentioned, has been [ safe region. ] So we expect their lifting to be briefly little on the lower side in the coming months in the ongoing quarter. So we -- so let me tell you how much have we sold in the last quarter, one moment. Yes. We sold about 43 lakhs in between there -- 43 lakhs in between of 43.5 lakhs of ethanol [ demand ] in the last quarter. So we expect similar number in the ongoing quarter. But thereafter, we expect brisk numbers to come in.

So sir, with our capacities, approximately for the last, I think if I can -- could recall last time, you mentioned that we probably can build upon -- on FY '21 basis, we can see [ increases over few times. So is it -- is there still... ]

Effective 1st of November, our capacity will be [ 113 ] KLPD, which will, of course, include some amount of manufacture of the ENA also. So these will be -- I mean Q3 and Q4, Q4 particularly, we'll be well-utilized operations. So we can straight away calculate [ 113 to 19 ] what we gave and even number of quarter before that, we may be able to see good numbers. I'm not so sure whether we'll be able to do INR 3.5 crores retails, which we will try and maximize our ethanol [ first. ]

Sir, one thing on the sugar volume side. So now our run rate has been 1.2, so sometimes it's 90 domestic and 30 exports or sometimes like this quarter is [ 50-50. ] So is it possible that we probably -- what I understand, with Q2, you have some exports in the third transfer location. So probably your number should be somewhere around 1 lakh tons per quarter from now onwards, you can say that?

The Q2 numbers, in fact, could be better than the -- Q2 sales could be better, more than 1 lakh metric ton. Because we will doing exports of about -- export of more than 20,000 metric tons, partially several from the previously distributed quantity and the 1.99 lakh tons that we have got now. And plus, as we have seen in the month of our -- in the month of July, our quota has been in excess of 3 lakh tons. And this month as well the forecast, the sales release quantity is close to 3 lakh tons too. So assuming another 3 lakh quintals is what we get to sell in the next month, so that means domestic sales will be nearly 9 lakh quintals and export will be about 2 lakh quintals-plus. So it will be about more than 1 lakh metric tons.

That's it. And does the export extension, it will be done in next quarter then probably similar numbers for the other 2 quarters is right?

See, quota for the next year has yet not been announced. For the season 2020-21, quota has yet not been announced. I must commend the Government of India and as well as the sugar industry for making this [ in year ] 2019-20 a huge success. I believe specifically in terms of the target, I think the industry will be able to do anything above 5.5 million tons of export. So we have -- as an association, we have requested the government to set a target of at least 7 million tons for the coming year. We are not sure how much they're going -- what will be the quota but that will be decided and what will be the subsidy framework architecture that will be decided. So -- but if the sugar prices have to hold forward and if the farmers have to be played in kind, and if the sugar stocks in the country should be at reasonable level, I'm sure the government will have to come up with an export policy. But I don't think any kind of announcement of that before the month of October 2020.

Manyal, I'm really sorry to interrupt, but maybe you can call us and rejoin.

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

I just wonder, sir, how much [ price pressure ] can we look at this financial year?

Well, I'll talk about this evening same question. Financial year same question is also available on our Annual Report, but I'll -- I mean, what is more relevant is the seasonal [ cane ] crushing. Of course, financial year does contain an overlap of 2 seasons. We have, in the last concluded season, we have crushed 374 lakh quintals of sugar -- sugar cane. And we have produced sugar close to 45 lakh quintals of sugar. So at a recovery of 12.26%, our recovery -- adjusted recovery grow considering the sacrifice that we made of sugar in favor of economics, higher interest will be in excess of 12.4%.

Should we see some higher cane crushing this season, next season that is coming?

As per the available indications, the area on the sugarcane cultivation is higher. It is higher by 5%. But how much we will crush will depend on not only the area should sugarcane cultivation but also number 2, most importantly, on the weather conditions. Last year, it was a year which was conducive for sugarcane growth. So therefore, the yield at the farm level was higher. So more cane availability was there. Number two, also is what is relevant is we were able to get some additional sugarcane because of the COVID breakdown, on account of which the commissary and [ candy ] manufacturers had to shut shops. So in the month of March, April, which would have otherwise gone to commissary and candy manufacturers but it has come to us. So if we were to assume that the coming year is going to be a normal end of the year, but diversion will perhaps happen. It will not be the same situation as it was this year. So a host of factors will play an important role. So we will have to see -- and the fourth most important thing is how much of sugar is going to be sacrificed in favor of ethanol, but we have also played an important role because now all the sugar in the U.K. have ramped up their economic capacity. So we expect larger diversion of sugarcane being used for making ethanol [ bank ] sugar.

So we have talked about diversion of around 11,500, right, so, towards the end of year?

No. Are you talking about the UP industry as a whole? Or are you talking...

No, your company, sir?

Okay. Last year, we used about 40 -- we crushed about 40 lakh of sugarcane and diverted about 53 -- we diverted about 53,000 quintals of sugar in favor of ethanol. So in the coming year, our endeavor will be to use more and more of these [indiscernible] so which means our sugar sacrifice will definitely more than what we have done last year. It was -- if it was 53,000 last year, we expect to sacrifice at least 1.5 lakh quintals in the coming crushing season.

Just last question. Sir, what happened within power? I see your revenues have jumped so high and also if the EBIT margin on that segment on just on the net revenue, it is absolutely very high. So what is the reason for that?

Okay. I'll explain, what happened. When you're comparing this particular quarter with the corresponding quarter last year, last year, our crushing was much significantly lesser. Last year, if you recall, last season, we crushed only about 307 lakhs [ total ] vis-a-vis 374 lakhs quintals that we have crushed in this season, which means the crushing has been higher by 22%. So commensurate with the crushing power we generated and power in [ that quintal was ] higher which is why you find higher quantity of power sold and higher revenue coming from crushing segment. Now I would request you to not see the segment result in isolation insofar as sugar and power are concerned. They are interrelated. And as I mentioned in my earlier call also, we had recalibrated our transfer pricing, which is the reason why we are seeing better margins in the business.

Can you explain that recalibration in transfer pricing? How come you're getting...

We recalibrated our transfer price of [ petrol ] which is the basic feedstock for the -- for generating power. This was done some time in the third quarter. And it was done retrospectively from the beginning of the year, which is the reason, if you see the first quarter results, the [ transport-izing ] is different. If you see the results of this quarter, the [ transport-izing ] is different.

[Operator Instructions] The next question is from the line of Arun Gopalan from Systematix.

I just need only one data point, and my one question has already been answered, sir. And just want to know about the inventory valued on -- is in June 30 that 29-point quintals?

Yes. 28.99. We are 2,877 [ sir. ] 2,877 which is 877 per quintal.

The next question is from the line of [ Srinven Vegaria ] from [ SKP ] Securities.

I believe we had a capacity of 50 KLPD for the facility side and in the third quarter, we commissioned 100 KLPD [indiscernible] but in the Annual Report of FY '20, the expected capacity is being mentioned at 100 KLPD instead of 150. So can you explain here...

Yes. Let me explain. You see our original capacity was 40 KLPD. We've added another one plant of 100 KLPD, okay? I have already explained this in my previous earnings calls also, we have -- we are yet to receive some approvals for the advanced capacity. As of now, we have approval for only about 100 KLPD. So from -- first off, at least, if not, from November, at least from December, our capacity will be fully -- we will be fully operational at 130 KLPD, and you will see that number.

Okay, sir. Okay. Sir, what is the annual ethanol sales that you are looking for in FY '21 and FY '22? And what is the mix that we can produce by being heavy [indiscernible]? What is the percentage?

It's quite unfortunate that in Q3 -- in Q1 and Q2, we will see lesser offtake of ethanol. Otherwise, we were expecting to -- I mean, have all things of at least about 3.75 crore liters on a full year basis. Because of the COVID outbreak, the lifting is also impacted. And as a result, even the production had to be taken ahead because there were storage constrained. So -- but well, if you talk about '21, '22, we will try and make up as much as is possible in Q3 and Q4. But we should normally in any given normal year, we should be able to produce and sell at least 3.74 crores of [ alcohol. ]

And what is the mixture of B-heavy and C-heavy?

We'll try and do 50-50. We'll try and maximize our B-heavy so that we also work to the nation's cause of minimizing sugar production.

Okay. And lastly, sir, what is the -- any plan for rewarding to shareholders?

Well, we have been liberal with our divisions, and we will continue to be liberal with our divisions in the times to come.

Any buyback as such?

As of now, we are not thought of, but yes, at the appropriate time, we will think of all possible ways and means to reward our shareholders.

The next question is from the line of [ Amir Tanasia ] from [ Roshi ] India.

Two questions. One is what is the transfer price that you used for the gas from the sugar sector to the power sector? And I think related to that, what is the reverse transfer price of power that you used from the power sector to the sugar sector for in-house consumption? And second, on a steady-state basis going forward from November, what do you think you can do in terms of ethanol production and offtake per month? Just some guidance that would be helpful.

Sure, sir. Our transfer pricing of [ the delta fuels ] to the market [ price ] at which [indiscernible] soon which is around INR 175 [indiscernible]. And similarly, the power, which has been consumed domestically is similarly priced on market price basis, which is the price -- which is the price -- which is around [ 173, sir, ] which is the price at which industrial consumers are able to buy power from the power group. So this is [ first. And then... ]

And do you account for this power in your power sales category? Or is it the in-house power is not accounted?

No. No. No. In-house is netted out eventually. But if you see our segment results, you'll see it's all grossed up and then there are still [indiscernible] [ include ] the segment revenues and what comes out of the balance sheet is the net revenue. Okay? Now coming to your second question, sir, on the ethanol. You see once the normalcy returns and once the new tenders are out, we -- our capacity will be 130 KLPD per day. Now assuming at 25 days of normal working, so 130 to 25 daily per month, our production and sales should be at least of 30 lakh liters.

30 lakh liters. Okay. And you're going to try and maximize [ vis-a-vis the ] cost?

Yes. We will try and maximize [ vis-a-vis cost. ]

The next question is from the line of from [ Aniro Dihal ] from [ Cogenesis. ]

Sir, I just wanted to ask, you said the ethanol -- production of the ethanol sales will only improve going ahead. So is it for the whole sugar sector? Or is it just for your company as such?

No. You see somebody [ are at their ] capacity already. We have we ramped up our capacity. Our higher capacity has become operational from December, and this will be further added up on consequent upon receiving your -- some approvals. So versus 100 commencing from December will now make up 130 commencing from the month of November 2020. So we will also have an increase, but other -- so far, unless they have added new plants in the last year or -- I mean some are being in the process of being added, but they will -- I mean, it can be different. But effort is across the sector, there is effort to maximize ethanol production.

Across the sector?

Yes. There, I must also mention that there are some people who are also -- they have done successfully using sugarcane use for making ethanol. When [ Dwarikesh starts the process ] of sugar production, eventually more.

The next question is from the line of Shivani Mittal from Dalmia Securities.

Sir, I had 2 questions. Number one is that if you could just throw some light on the average realization for the distillery segment? I see they have come down from 50.7 liters to about 46.2.

That's because we sold more of ethanol made from [ sugar from ] seasonal losses. So if you're comparing it with Q4 of 2019-20, in Q4 of 2019-20, we had sold more of I mean the quantity of ethanol made from [ C-heavy ] molasses for which the price is INR 64.27 per liter, a little bit more. And in this quarter, we have mostly sold [indiscernible] molasses which is why I'm sure you must be aware that the price for ethanol sold -- made from C-heavy, right?

Yes. And also, sir, how do you see the global -- the crisis playing out maybe in the near future or down the line, if you could just give me a roundabout estimate.

Yes. Sure. See, we have had a deficit season of 2019-20, and it was a deficit of almost 9 million tons, which was mainly caused by a drag in the production in Brazil, India as well as Thailand. All 3 countries, major sugar producing countries had a lesser production. India because of the unfortunate droughts in Maharashtra. Thailand also for same reason and Brazil, the story was different. More ethanol was -- I mean, more sugar was used for making -- sugarcane juice was used for making ethanol. We are seeing about 65% of sugarcane juices used for making ethanol and only 35% being used for making sugar. So consequently on the drop in the fuel prices, food prices, we have seen a couple of months ago, a big drop in the sugar prices also. So the prices went [ down to 10 cents a cup -- real now. ] But the economics of ethanol in Brazil underwent a big change, and we are going to see extra sugar production in the coming year. So in the season 2021. So this may not be a -- definitely, it will -- it may not be a big surplus year, but it will not be a big deficit year also. According to [ me, ] the production number -- offtake numbers should be more or less same. India is going to produce more sugar. Thailand is going to continue to produce less sugar. So we will have increased numbers coming from Brazil and India, which should pop up the production numbers. So based on this, yes, sugar prices and the very different -- internationally, we have already seen the sugar prices being on a roller coaster ride. Presently, the sugar prices are higher. But the fact of the matter is that we always got opportunities to export. So India should be able to fulfill yet another year of successful export program.

Okay. Yes. And sir, coming around like revolving around what you just said, you think maybe a few years down the line, we would be moving to a more Brazil-like environment like diverting more sugarcane use for [indiscernible] we are already producing from [indiscernible] but the change in production [indiscernible].

Yes. The effort is to replicate the Brazilian model, develop that kind of flexibility like the sugar industry first had to be able to make those couple adjustments to produce when -- produce sugar is sugar is remunerative and typically ethanol but ethanol [indiscernible]. So that is the effort. But as of now, we have seen, for example, the season which went by. We have seen a sacrifice of only 1 million ton. Now this -- but the price is expected to increase in the coming season, it will be 1.5 million ton. The big impetus, the big push to this policy will come when the sugar industry is able to use the sugarcane juice to make ethanol. That is a -- you will see more [ certified of ] sugar in favor of ethanol and larger, I mean, the [ customer ] for the sugar industry. The problem is in order to use sugarcane juice, you need huge capacities of distillery. So there is very reports from the industry to the government to announce a 5-year pricing policy. We are not asking for the numbers to be even but a broad policy framework on the industry, the sugarcane -- on the ethanol pricing so that the proportion of the sugar mills when they go to bank become bankable. Everybody knows that the proper long-term plan is in place. There is no denying of that the government's intention and effort to maximize ethanol production is very, very evident.

Yes. Yes. And if I could squeeze in this last one.

Sorry to interrupt the question [ but we will take the next participant. ] Thank you. The next question from the line of [ Udit Gupta, ] an Individual Investor.

Sir, my question, what is our processing cost of ethanol per liter without the cost from molasses included?

So it's all different actually. If the production is on a full-fledged basis, the cost can be INR 8 to INR 10 a liter, otherwise can be higher. So production in a particular period, the higher the cost, otherwise, it can be [ comparatively closer. ]

Got it, sir. Sir, right now, we are producing at about 15 lakh liter a month, approximately, sir?

We produced a substantial quantity in Q4. But like I mentioned in Q1 of 2021 and our production was a bit interrupted in the sense, the lifting was poor. We had to explore options to sell our ethanol to far from the port. So as a result of which, the production also got hampered because so far as storage is concerned, there are limitations at our level. We had not visualized such a situation where we will not be able to sell our ethanol.

Got it, sir. Sir, has the lifting improved in the month of July or August, say, going like...

It's better but I would not be too optimistic on the lifting in this quarter [ aside. ] I think going forward, yes, things are getting -- by the passing day, things are getting better and better. So you will see some [ better things ] only from Q3 onwards.

Okay. And sir, ethanol sales in quarter 1 were about 43, 44 lakh liters. And sir, the production would have been how much, sir?

Production was more actually. It was more 55 -- like around close to 55 -- around 55 to 60 lakh liters. So I'll just tell you one minute if you can hold on. Well, it was -- well, often I'll like to really look at my numbers, it is definitely more than 55 lakh liters.

The next question is from the line of [ Abila Shoshari ] from [ Dolal Ambrosia. ]

Sir, I want to know that have we have any data regarding how much ethanol [ seen ] is going towards the oil and gas company, how much towards duty and how much is for sanitizer? Because that is also one segment which is now the sales have increased towards the ethanol.

We don't have any structured numbers on this. Ethanol numbers, of course, are available there. We have done a blending on all India numbers close to about 170 crore liters. So insofar as [ unnecessarily ] for liquor manufacturing and I'm not too sure. Again, sanitizer, I would like to mention here that it's just about made a humble beginning. So the number cannot be very large on the sanitizer [ use. ]

Okay. But how much is this industrial sale [ as if that much? ] Can you get the data?

Sorry?

How much is industrial sales?

You mean...

To the industry. Apart from....

Apart from to the [indiscernible] our company asset.

No, overall industry.

Well, there are -- there's data available from the UP government, of course, but often, I'm not able to put them out. I will -- if you can contact me then I'll be able to give you that. Absolutely no problem. Those data are -- those numbers are available in the public domain.

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

Yes, just specifically on the molasses [ level ] I was unsure if it -- if the production is higher than probably -- and you would have a good quantity of [ bagasse ] also. So last time when we sort of mentioned that you will prefer selling more molasses because [ not how it plays out, not -- ] prices are not very remunerative. So you have some quantities of bagasse and at what price you have sold something or if you not, are planning to sale some?

We have -- yes. There is -- molasses was very interesting until the outbreak of this COVID outbreak. Now as a result of the COVID, we sold [indiscernible] at the price as high as INR 230 per quintal also. But after the COVID outbreak, the customers in and around our area had to shut shop. So the bagasse offset got impacted and prices also came downwards. So the prices -- presently, the prices are around INR 170, INR 75 per quintal. So very -- I must say here that this quarter that was done by -- is not a normal quarter in the strictest of terms because it captures mostly the story of a COVID breakdown. So we have bagasse enough for our operations to come in from the next crushing season, when you fire our boilers, we have enough of that. Plus we have bagasse enough for our distillery plants to be running during the off season.

Right. And sir, similar thing about the molasses as well. So if you run sort of before the disruption, you [ produced ] less ethanol. [ Or you were ] producing less ethanol then I'm sure that you have...

We have sold molasses. We have sold molasses. Yes, of course, we have sold molasses. There, again, the prices have ranged between INR 325 to INR 350 per quintal. We sold molasses in the last few years, yes.

Sir, if you can quantify how much of molasses you would have sold?

I would not have the number right away, but I can share the numbers. Absolutely.

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

Sir, what is our debt plan and repayment scheduled this year? And what is the debt position right now, both long term and short term?

Sure. As of 30th of June, we have had a debt of long-term debt of INR 224 crores approximately. All of which INR 107.58 crores is the partial loan that we put from the UP State Government and [ INR 116.8 crores ] the loan that we took from the National Bank. There is no repayment of the [indiscernible] loan until March 31, 2021. This is repayable in 20 quarterly installments. And insofar as the first loan, it is in tender. The [ soft ] loan [indiscernible] [ from 2018 ] that is repayable in 60 monthly installments. So as on 30th of June, we had repaid about 12 installments. And on this, if you ask me, we already repaid about 14 monthly installment. So the lower amount is INR 103 crores of that and INR 117 crores of [indiscernible] so it will be INR 220 crores. So the [ deposit ] loan is being decreased at the rate of repaid in 60 monthly installments. So 14 have been paid and 46 more will follow. We have had preference shares outstanding of INR 15 crores. They were due for redemption yesterday, and [indiscernible]. And short term loan, of course, the working capital loan is -- it's commensurate with our stocking requirements in there.

So just how much are we going to [ repay in long-term loan? ]

Long-term loan? So 140 -- long-term loan, we will repay FY '20-'21, we will repay -- repaid INR 26 crores of -- INR 27 crores of, say, partial loan. And we will repay -- we have repaid already INR 15 crores of preference. So 26 -- 27 plus 15, 42 and one installment of INR 117 crores will be due on the -- it's actually not due on the 31st March, it will be due on the 1st of April. So I mean, if at all one installment of that. So that will be divided by 20, that is about INR 5 crores or so.

And sir, [indiscernible] [ there are some new excludes ] the molasses, Maharashtra government is also aligned that. So any update on that what you're using now?

See, since everybody has ramped up the [ display ] capacities, I don't -- we have seen incentives of molasses being done [ far off destiny -- far off ] Tamil Nadu [indiscernible] from UP. So Tamil Nadu, as you all are aware, is very short on the sugarcane availability and therefore, the sugarcane production and also the molasses production. But they have the [indiscernible] operational so they have been sourcing molasses from even UP sugar mills also. So there is interest rate movement. But in the coming season, I expect after all what sugar is in UP we'll sell molasses, molasses which [ is get out ] after meeting its own requirement.

The next question is from the line of from [ Amir Tanasia ] from [ Roshi ] India.

Mr. Banka, just a couple of other questions. One is sugarcane juice, you mentioned some people are making ethanol from sugarcane juice. But I mean, what I heard from sources in the industry that till our pricing framework is now...

Which is what I mentioned. You see, as on date, the price is okay. But for example, if you were to take our proposal because it a large CapEx up -- we're putting up. For example, I just tell you, there has been one sugar mill in Karnataka, which dedicated its 5,000 TCD of capacity to support a delivery of 320 KLPD, okay, only during the season. So you need huge distillation capacity. So we are at 21,500 TCDR company. So if we were to dedicate 5,000 TCD or a similar capacity then that would be inadequate, and we will have all distillation capacity. So basically, it's a capital-intensive proposal. And our company has a higher credit rating, it's all good, but when you take the proposal to the banker, the banker will ask for a long-term pricing certainty. So government is very enthusiastic about this economic lending program, but we are having get spread out the policy -- pricing policy framework.

Understood. Second thing is we end up sugar year '19/'20 exports will end up at about 1.4 lakh tons, correct?

Yes, sir. Sugar season, we will end up at 1.4 lakh tons. Yes.

I was pretty surprised to see that despite some good exports, your inventory position is fairly large sugar inventory. I mean, obviously, a lot of that has to do with the fact that there has been less production of ethanol...

No. I'll tell you 2 reason. I'll tell you there are 2 reasons, right? Our inventory is higher because our crushing and production has been 32% more than what we did in the previous year. Okay? So this number, so -- which has not been the case with other sugar companies. See, they may have had increases, but not the kind of 32% increase that we have had. So for this to set into the -- sink into the government record and this to be reflected by way of additional reserves, it will take some time. And in the last 3 months, because of the COVID impact, as we see the government has already accelerated. So we expect some decelerations in the months to come, sir.

Also, sir, just wondering when you started this CapEx and when you finished this CapEx for 100 KLPD distillery, did you expect -- I mean, was this part of the plan that these permissions will take so long for the full CapEx to come on track, it take a year? Or has there been some unexpected surprises here?

No. 100 KLPD, we have already -- we have had the approval upfront in place. So 130 is what has taken a little time. Yes. So 100 KLPD, we have approval -- we had approvals beforehand when we started this project.

Right. No, that's why I was mentioning. I was like because you had an older 40 KLPD plant [ that was up for approval... ]

Yes. This has been a bit of a pain point, from 100 to 150 has been a bit of a pain point.

100 to 130, but you expect it to get better as we go from here.

Yes. Now everything is clear.

Any reason, sir, you can give for the very huge jump in crushing this year? I mean, 22% is a lot. What was the reason for that? I'm just wondering.

So one is the yield in our area was good, number one. Number two, the diversion, which we see -- 2 of our units are in regional districts, where there is a cluster of commissaries and factories will switch. So there are a large number of commissaries and [ candy ] manufacturers in the Bijnor district. So because of the COVID outbreak, those people -- those units they shut shop. So we have had an extended crushing season in the Bijnor district. So whereas been so far as other sugar companies are concerned, okay, everybody has done -- opened a lot of plants in the Bijnor district, where again they also crush much more than what they [ invest in there per ] unit. But perhaps that was compensated a little by lesser or equal production in other districts. So each district has a specific -- each district has a different combination of sugar units, condenser units and [ dairy ] units. These [ 2 ] for example, have -- previously that wasn't happening because of [ the impact was already there. ]

The next question is from the line of [ Hassan Rajan ], an Individual Investor.

Congratulations to the team on excellent results, and [indiscernible]. At PBT levels, we are equal to [indiscernible] which a more [ launch ] company [ and so that the -- would show the 30% to 20% ] PBT level. So a lot of my questions were partly answered, but the total loan on March 31 is about INR 650 crores comprising of INR 193 crores long-term and current liability to loans of about INR 460 crores. So if I take INR 650 crores at the beginning of the quarter and have a -- and look at our interest cost [ principal of ] INR 15 crores [ my estimate ] roughly comes to a 10% cost. And I am wrong because the -- because of your increased [ sourcing ] in the first quarter, as you said, your working capital have loans shot up from INR 460 crores to maybe INR 560 crores or so. That is one. And the second follow-up is in next over 3 years, rough guidance of where would you like to see your debt line?

Sir, yes, because of higher crushing and higher production, we have had a higher level of stock. You see it's very difficult to establish a direct relationship between the loans that we are carrying and the interest cost because the term loans, as I have mentioned earlier, they are part of -- they are partly subsidized. On the working capital loan also, there is a [ buffer stock ] loan, which is subsidized by the government. So you cannot have a direct equation. And secondly, on the -- how do we see our debt profile to be in the coming 3 years? Well, every effort is going to be there, using the -- since the loans are subsidized, long-term loans, we have no intention whatsoever of repaying that. The number one. Number two, if and when there's any CapEx requirements, presently, there isn't any. But if and when there is any CapEx requirement, so there is -- we'll then decide about the judicious mix of internal accruals and the loan to be taken, if any.

Okay. And just a follow-up question, I mean, go back to -- I mean, if I was a promoter, I would [ definitely present a preference share ] and bringing money to borrowing you know, is that under consideration at all?

So preference share has its own cost. Even if a lower preference coupon rate also means in terms of -- I mean, of course, now just the [ preferred] is intact. But it has higher cost, sir, higher aspirations, higher cost expectation.

The next question is from the line of [ Prakash Asa ], an Individual Investor.

Actually, I have a few questions. In sale in the ethanol has been increased, but the margin has been decreased. What is the reason for that?

Yes. I'll explain to you, sir. Two, three reasons. Number one, you see we have had [ situation where ] supplies were not up to the mark because of the COVID outbreak, the defers were full with ethanol. So they were not able to source that now. So we have operated at a much lesser capacity than what our capacity is. We should have, I believe -- in about 90 days, we should have produced about 90 lakh liters of ethanol. Our production has been less on sales side, we are seeing only about 46 lakh liters. 43 lakh liters, right? One moment. So we have had lesser sales of ethanol. Now while the sales has been less, while the production has been less, the overheads are at the full level. So therefore, the cost of production of ethanol has gone up during this quarter. Number one. Number two, sir, we have had to sell ethanol too far from the ports. So we have had to incur additional transportation cost. So these are the 2 main reasons why -- the first and foremost is the lesser quantity affects the capacity utilization. And secondly, we had sell ethanol too far from the ports. And hence, our incremental transportation cost was higher.

Okay. My second question is the export obligation that we did already. So we have booked a [ MAEQ ] redemption also [ in this... ]

Yes. We booked it. I just give you a breakup, sir. I just give to how we have stood. In this particular quarter, we have had a domestic sale of 6.49 lakh which we have sold at the rate of [ INR 3,131.23 -- INR 3,123 -- 21 ] a quintal. We've exported 6.06 lakh tons of sugar in this particular quarter. Our -- as a realization after considering the subsidy of [ INR 10.45 ] for subsidy [ that much ] our realization is [ INR 3,262, ] but you have to deduct some transportation costs that we have now incurred. So our realization on export is also higher than INR 3,000 [indiscernible]

Okay. Sir, one more question. Like coming on the sugar production, which is going to be 30.5 million. How -- given inventory that we have right now is 29 lakhs, which was very less if you compare from the last year, we had around 17 to 18 lakhs [ in terms of ] sugar. So how we are going to balance this because getting inventory is trying to cost us more in terms...

No. Yes, it will -- it does, of course. So we are working on a multi-pronged policy. Number one, of course, as I've said in my -- I answered one of the gentlemen that since the [ leakage ] of our sugar stock, the overall sugar stock of the country would now have got [ sanction. ] So we expect larger releases in the months to come. And secondly, we will be very actively participating in the export program of coming season as well. So this is how we'll try and moderate our inventory levels.

Okay. And do you think that now the prices are going high in the international market, currently, it is around the [ $0.13? ] [indiscernible]

Presently, it is very good. If the government was to announce export today, I would be very happy to do a transaction today sir, at today's pricing level. But we don't know. I mean, once the quota -- once the export program of India is announced and once there are some firm indication of the Brazilian production numbers, so the prices can swing a little in that time. But there are always opportunities coming our way for export. If not raw sugar export, there are opportunities to export the regular white sugar also. India has been able to a lot of sugar to Iran, Afghanistan, Sudan, many of these countries, Sri Lanka everywhere.

Okay. Sir. And last question about the MSC. We discussed this, I think, last time also, MSC, but there is some rumor about it that it is going to be started from 31st October -- 1st of October or there is also no clarity that whether it is going to start from now. So is there anything for that?

As for the available indication, it is going to start from 1st of October. The group of Ministers headed by Honorable Mr. Amit Shah, they have decided to recommend this to the cabinet. So once approved, this will be effective from October 1, 2020. But ahead of this, already, the sugar prices are working a little bit better. While our average realization in the first quarter was INR 131. Our sugar is recently being sold at [ INR 42, INR 50 or so. ]

Okay. And sir, do you see any impact on the price being going down since this MSP [ hedge ] will be from October?

No, there cannot be said when we will under obligation to sell at MSP or higher. We cannot sell it less than MSP.

And this MSP, which has been decided on previous year the FRP or this is going to be decided along with the coming year?

No. You see -- it doesn't work like that. That, okay, our old stock, we are stuck in position to sell it at lesser prices. Once the MSP becomes effective, it is sort of our entire stock, which we carry plus for whatever we can produce the future.

No, I mean to say that consideration of increasing MSP, it is because of coming year or it will be because also payment areas and all because question I am getting is that...

No. You are asking very valid question. Actually, they should have done it immediately because that would have helped the sugar milk to clear the year faster. So the fact that we are going to do it from 1st of October, which is that we will continue for some time.

And then there will be chances of increasing MSP next year also. I don't think so.

No. We don't know actually. As of now, what we have, we have to go by what we have -- what has come in the press, what has been heard from the industry sources. The fact though the MSP is going to go from INR 31 to INR 33. And F&R will grow from [ INR 275 ] [ in India ] to [ INR 285 ] [ in other countries. ]

So being election next year, you expect that there will be increase in SAP also?

So, it all depends. It all depends how the state government pursues the situation. We see -- historically, if you have been -- elections are not won by the government, which have announced a higher SAP. So what more important is for the government to ensure that whatever price has been decided has been paid to the farmers and there are lesser [ areas. ] So that is more relevant than any increase in the sugarcane performance price.

Okay, sir. I would like to request some [ more things. ] Lots of sugar company are coming up with the buyback and all. And I hope that coming years, we will be having -- coming year or in the same current year, I think there will be accruals. So are we looking to do any buyback?

So we will decide at the right time. We will take a very appropriate decision in the interest of all stakeholders.

Thank you very much. That was the last question in queue. I would now like to hand the conference back to Mr. Banka for closing comments.

Good afternoon. It's been a very gripping and very enlightening exchange of -- with one another. I'm so thankful to you all for reporting your faith and confidence in our company. It's been a good joining thus far, and we will try and -- we'll strive to improve our performance in the time to come. We'll try and keep getting better. We will identify areas where we need to improve ourselves, and we'll be doing that. Thank you very much.

Thank you very much. On behalf of Dolat Capital Markets, that concludes the conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.

Thank you.