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

Ladies and gentlemen, good day, and welcome to the Dwarikesh Sugar Industries Limited Q3 FY '21 Earnings Conference Call hosted by Dolat Capital Markets. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Archit Joshi from Dolat Capital Markets. Thank you, and over to you, sir.

Thanks, Steven. Good afternoon, everybody. On behalf of Dolat Capital, I would like to welcome you all to the 3Q FY '21 Earnings Conference Call of Dwarikesh Sugar Industries Limited. We have with us today Mr. Vijay Banka, the Managing Director of Dwarikesh Sugar Industries Limited. Thanks a lot, sir, for giving us the chance to host this call. Without further ado, I'd like to hand over the floor to Mr. Banka for his opening remarks. Post this, we'll have a round for a Q&A session. Thanks and over to you, sir.

Very good afternoon to you all. A very warm welcome to you all to the Q3 FY '21 earning call conference. Our results are already with you. I must confess that this has been a bit of a challenging quarter. We've -- also in terms of total income, we have clocked a higher total income. We had a total income of INR 385.19 crores. And for 9 months period, our turnover has been INR 1,245 crores. And we have locked the PAT of INR 7.47 crores, which, of course, compares well with the PAT that we clocked in the corresponding period -- corresponding quarter last year. So on 9-month basis also, our results compare better with -- are better placed as far as the corresponding 9-month numbers of the last year are concerned. So like I said, we clocked a turnover of INR 385.19 crore and profit after tax of INR 7.47 crores. The growth in the total income is 20%, and the growth in the profit after tax is 65%. And if you take the 9 months results into consideration, the total income at INR 1,245 crores is 42% more than the total income of the 9 months period in the last year and profit at INR 43.31 crores is 48% more than the profit of the corresponding period last year. ISMA has come out with the numbers, I mean, just a week ago. So we expect to produce in the country about 30.2 million tonnes of sugar, which is after considering sacrifice of about 2 million tonnes of sugar in favor of ethanol, mainly of the use of B-heavy molasses as well as juice, sugarcane juice directly. So the prices of sugar have been a bit under pressure, mainly because the releases were high in the last 3 months. The raw materials, of course, tried to regulate the same by ordering a lesser release for the month of February. So I think the prices should get better from here onwards. Government of India has announced the export policy for the season 2019-'20. They're targeted to export about 6 million tonnes of sugar. Monthly admissible export quota of ours is about 7.95 lakh quintals, and we have contracted to sell the entire -- export the entire quantity and the dispatches are underway. The subsidy amount, though, as you are all aware, has been reduced instead of INR 10,448 per metric tonne in the last season, which then brought down to INR 6,000 a metric tonne. But considering the fact that the international prices are better, I think all mills will have a reasonably decent realization in selling sugar in the export market. So we have sold -- during the quarter, we have sold about 10.38 lakh quintals of sugar as compared to 9.21 lakh quintals in the previous -- corresponding quarter last year, which, of course, included 2.55 lakh quintals of sugar for export. So our sales volumes are better. In the 9 months period, we have sold about 34.26 lakh quintals of sugar -- so vis-à-vis it's 26.5 lakh quintals sold -- sugar sold in the previous 9-month period. We were carrying an inventory of 19.49 lakh quintals, which is a little less than what we were carrying in the -- on the same date last year. We have -- the inventory is valued at INR 30,900 a metric tonne. We've sold industrial alcohol of about 55.53 -- 5,553 kiloliters. We would've allowed to maintain a run rate of about 10,000 kiloliters per month, but there were some logistics issues in the -- with the OMC. We were initially allotted ethanol for Delhi depot, which was subsequently canceled and reallot -- we have been allotment for some other depot. So that adjustment is taking a little time. But going forward, we should be able to maintain decent run rate, insofar, as ethanol dispatches are concerned. Our 130 KLPD plant is fully operational. And as far as the loan profile is concerned, we have loans of about INR 211 crores, long-term loans, and -- of which all our loans are subsidized loans. INR 94 crore loans are due to the state government and all installments as and when they are falling due are being paid. INR 117 crores is the loan, which is what we had availed for our distillery project. So that is -- the repayment is yet to commence. We will repay it -- we will pay it as and when the same falls due. So we are -- insofar as the financial position is concerned, we are reasonably comfortably placed well. Insofar as the policies are concerned, like I said, the central government has already announced an export policy. The much awaited increase in the MSP doesn't seem to be happening because this was approved by the group of ministers long ago, but it finally did not get the cabinet nod. So we are just waiting. We are pushing for it. If it happens that will be -- that will augur very well for the sugar industry. State government of Uttar Pradesh is yet to announce the sugarcane price for the season 2020-'21. Perhaps the farmers agitations that are still in place in the north of India has -- I mean, that's the reason why strategically they've not announced any increase so far. So they've asked us to -- in the interim they've asked us to pay at the last year's sugarcane prices, so which we are doing. So that's about it. Internationally, season 2021 is expected to be a slightly deficit year with not much of production happening in Thailand. There has been generally dry weather in Brazil also. So -- although India's production numbers have gone up. So internationally, it's going to be a moderately difficult year. Insofar as India is concerned, the UP has had a -- which produced a record 12 million tonne plus -- tonnes of sugar in the last season is expected to produce less for 2 reasons. Number one, the yield at the farm level as well as the recovery and the mix level has come down. And number 2, more and more sugar mills are using -- generating B-heavy molasses or making ethanol. So these were the 2 reasons why we expect a lesser than last year's -- last season's production in UP. We expect to produce about -- per the ISMA's estimate, we expect to produce about 10.4 million tonnes of sugar in the ongoing season. That's about it. Thank you very much. And I now invite you to ask me questions, and I'll be too happy to answer them.

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

Just want to know about, on the distillery front, what could be the run rate for FY '22?

See, we have contracted to sell about more than 4 crore liters of ethanol. So we'll -- I mean, FY '22 is a little too early to answer, but let me tell you like this. Insofar as the ethanol year is concerned, which commences from 1st of December and ends on the November 30th, so we are commencing on the 1 December 2020, going up to 30 November 2021, we should have -- we should be selling about 4 crore liters of ethanol. There are some logistic challenges. We have taken it up with the ministry. We have taken it up with the oil marketing companies also. Yesterday also, we had the joint sugar -- Joint Secretary, Sugar, was kind enough to organize that conference in which we have spelt out the problems that have been faced because we get quotas, we get allotments for a particular depot and then out of blue the depot says, "You please don't dispatch -- do the full dispatch. You dispatch a little less and you can dispatch it to some other depot." So there are a bit of logistics challenges, but we have found the assurance from the central government, from the oil marketing companies who are with the top brass that these issues will be ironed out. So we -- I don't see any problem in doing about 4 crores liters of ethanol sale in the ethanol year. One must also look at this perspective that the target of 20% blending for which the date set was 2030 has been advanced to 2025. So in order to achieve that kind of a target, nearly 900 crore liters of ethanol will be required. And here, we are talking about 300 crore liters of ethanol. So there's a lot of enthusiasm among the government circle as well as the oil marketing companies as well as the sugar companies to step up the ethanol dispatches, production and dispatches both.

And what could be the B-heavy out of this 4 crore?

The entire quantity is going to be B-heavy. Whatever little we've produced from C-heavy in the beginning of the season is what is going to be C-heavy, the rest of it all is going to be from B-heavy. So that's a miniscule quantity.

Right. So one can assume realization about 55-plus?

Yes. Something like that, yes.

Right, sir. And sir, any -- means your peers have announced the CapEx related to sugarcane juice to ethanol or even for that matter grain to ethanol. Is there any plan or anything under consideration regarding that?

No, no. We are -- yes, thanks. We are also very actively evaluating the proposal. And we are in talks with the equipment suppliers, the manufacturers. We are in the process of finalizing the layout, et cetera. So many a loose end needs to be tied up, so -- but we are working in the direction. And as and when we have taken concrete steps, we will keep everyone informed.

Sir, just 1 thing on the...

And let me also assure you that it is not going to take too long a period. I mean once we've taken all the required steps, so maybe 12 or 13 months is what the project execution time will be.

Okay. Okay. But any ballpark thing in the sense what could be the CapEx? Or whether it will be grain-based or sugarcane juice?

No. It will be multi-feedstock based. One can -- what we are contemplating is that it can be -- we can use juice directly in which we have -- the capacity of the plant is going to be larger. If we use B-heavy, it will be commensurately lesser. If we will C-heavy, it will be commensurately further lesser. And then -- we will also have the wherewithal to use grains if required during the off season.

Right, sir. Right, sir. Yes. Sir, just 1 last thing on this year's sugar production and specifically in UP, when the recovery rates are lower. But I think this would be the time, say, in January or mid of January when the plantation sugar generally starts. So have you seen any reduction in the plantation for the recoveries also? Or how are things? And how the overall full year's scenario would be in terms of your production levels?

See let us divide this into 2 parts. First is insofar as cane availability is concerned and second is about the recovery and therefore the production. So insofar as the cane availability is concerned, in case of ratoon crop, there has been -- yield at the farm levels has been lesser. And the recovery also at the middle levels has been lesser. So plantation crop, as of now, things seem to be all right, I mean, both insofar as the yield is concerned as well as the recovery is concerned. But going forward, we must see that last year, we were all the beneficiaries of the COVID breakdown, which resulted in nondiversion of sugarcane to the khandsaris and the jaggery makers. So such a phenomenon will not happen this year. This year, the diversion will be regular, I mean as it used to happen in the past. So multiple factors will act in the same, number 1, the yields are lower; number 2, the recovery is lower; and number 3, the diversion is going to be regular. So from that perspective, ISMA has scaled down the production estimate of UP. Hello?

Hello?

Hello?

Yes. Tell me, sir.

Yes. Tell me, sir.

Yes. So sir, you mentioned 10.2 or 10.5 around for the UP...

10.2% or 10.5% is what is the number.

Right, right. And what could it be, means what could be the number for the Dwarikesh in this season?

See, we have -- last year season, we crushed about 375 lakh quintals of sugarcane in the season than the entire season. So our estimate is this season, we could crush anything between 340 lakh to 345 lakh quintals of sugarcane. There's going to be -- in 2 of the plants, there is going to be -- the recovery rate could be maybe about 0.2 -- eventually, the recovery rate drop can be about 0.2% to 0.3%. But since we are generating B-heavy molasses in 2 of our units, so there is going to be a sacrifice of sugar production to the tune of about 35,000 metric tonnes or so. So -- I mean, if you add up all these numbers, our production is going to be lesser than what it was last year.

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

Sir, I joined a bit late. Sir, can you please tell me, sir, what is your crushing target this season? And what kind of recovery rate we can look at?

I was explaining to Sanjay a little while ago, that last year, the crushing numbers were higher because farm yields were also better, the recoveries were also better. And additionally, there was no diversion happening to the jaggery and khandsari manufacturers because towards the middle of March COVID -- on account of COVID pandemic, the breakdown -- the lockdown was announced. So those khandsari sugar makers as well as jaggery makers, they have to shut shop. So no diversion happened. So this year, number 1, the recovery yields are lower; number 2 -- as far as the ratoon crop is concerned -- and let me tell you, the yields are much lower. In case when you go towards east of UP, east and western side of UP, not so much of an impact. The recoveries, of course, are lower. And, of course, everybody blames the climate or weather condition for that. And number 3, the diversion is not going to happen. So I was mentioning that having 375 lakh quintals crushed last season, we could end up crushing anything between 340 lakh to 345 lakh quintals of sugar in this year.

Okay. Okay. Sir, with the diversion of B-heavy, can we look at around 10 -- a little higher than a 10.5% kind of -- 10.5% to...

No. I think we should talk about the adjusted recovery. Our adjusted recovery, which factors our -- the diversion also, last year was close to 12.4%. So insofar as the adjusted recovery is concerned, yes, there is going to be a reduction, like I said, because the ratoon crop recoveries were not so good. I mean if I'm very conservative, I would say the drop can be to the extent of 0.3%, at least. It can get better from here on, let me assure you that because the plantation crop, we can get better recovery. So it could be about -- if it was 12.4% last year, it could be anything -- it could be around 12.1% this year. And plus, factor for the generation of B-heavy molasses and on account of that the sacrifice of sugar of nearly about 30,000, 35,000 metric tonne.

Okay. Okay. Okay. Sir, such a drop in yield and lower recovery also, will that -- do you see any stronger domestic prices in the mandi?

No. This has been more than made up by improvement in crushing numbers and the production numbers in Maharashtra. So for Maharashtra also the estimate is -- Maharashtra will also produce equal quantity of sugar, as we're going to produce in UP. So the overall country's number is about 30.2 million tonnes. So -- we started the year with about 10 -- season with about 10.3 million in terms of sugar stock, 30.2 million, so 10.3 million, 30.2 million and then let's see how much of export happens. But then things are -- see, interesting thing and an encouraging thing is that the diversion -- diversion happening in favor of ethanol. Like last year, the number was only -- was a little less than 1 million tonnes. This year, the sacrifice of sugar in favor of ethanol is estimated to be at least 2 million tonnes. And when we go forward next year, you will find lots of -- many sugar companies making ethanol directly from sugarcane juice. So it's just a matter of 1 or 2 years, when I think we can see a sacrifice of 3 million to 4 million tonnes of sugar in favor of ethanol. So we are inching towards a balancing position where production and consumption are equal, assuming that consumption also registers a moderate growth, if not more, year after year.

Sir, my next question is on our run rate was around -- of ethanol, we did around 5.6 crore liters of volume. So what happened in that? It's a bit lower...

Yes. Yes. It's lower. Actually, our ethanol run rate should be at least 1 crore liters per quarter. This year, number 1, in the quarter, you see we started our -- our plant was under shutdown for various repairs. And then we enhanced our capacity to 130 KLPD. So the process of synchronization was on between 100 KLPD and 30 KLPD. So those 2 generate a run rate production of about 130 KLPD. And then when the bidding happened, we did for depots, which are closer to our place. And out of blue, they -- the allotments were canceled. So they expected -- so the subtle adjustment in going -- moving away to other depots, of course, it takes a little time. But like I explained a little while ago, the matter has been escalated to the top levels of both Food Ministry and Petrol Ministry as well as OMC. So -- and we expect these issues to be ironed out very quickly. And I don't see any problem in maintaining -- in supplying about 4 crore liters for the ethanol season, which is commencing from 1st December and ending up to -- ending on 30th November.

So we should normalize from the next quarter or the next to next quarter itself?

Yes, yes, yes.

Okay. Sir, one more clarification, sir, 100 KLPD will be totally for ethanol and 30 KLPD will be for ENA. Has it been...

No. No. We are going to use the entire 130 KLPD for ethanol because we have limited capacity of 130 KLPD. So whether we use it for 100 KL for ethanol and 30 KL for ENA, we see more value-add in using the 130 KLPD for ethanol. We will -- insofar as our levy obligation of molasses is concerned, we'll give the molasses from one of our units, the third unit where we are not generating B-heavy molasses.

Okay. Okay. And that's about 16.5%, right, sir?

It's 18%. Yes, 18% on a presumptive molasses generation of about 4.85%.

The next question is from the line of Kunal Mehta from Vallum Capital.

Sir, I just want to understand, we have signed up for exports. We are contracting [indiscernible] the entire export quota which we had got. So could you please give us an understanding in this, in both in dollar terms and rupee terms, what is a pricing which we have got for this, average pricing?

Sure. We have done a total INR deal. We did not get into FOB contract because FOB contract meaning waiting for the LCs to come and that they were wanting late delivery periods, going beyond March also. So we did a INR transaction where the money comes to us upfront. And we will be -- give delivery at Kandla. So we did it when the U.S. -- when the sugar -- raw sugar stock was quoting around $0.146 per pound. So our average realization considering the transportation costs, et cetera, and also factoring for the subsidy that we are going to get is about INR 30.5, INR 30,500 a metric tonne. Now this has all been done for raw sugar. And when we do raw sugar inherent other advantages because the recoveries get better, so additionally you'll get a benefit of at least about INR 1,000 a metric tonne. And not to speak about the benefit of interest costs because we will be completing our entire dispatches within February.

Okay. Understood, sir. So this is the issue -- to understand, sir, so on this INR 30.5, our cost of production, you're saying, is that's why this raw sugar is roughly INR 29.5, that is what you are trying to say? So we...

Yes, yes. Whatever be the cost of regular sugar, the raw sugar cost is at least -- cost of the raw sugar is at least a INR 1,000 per metric tonne lesser.

And sir, our cost of production this year would be for...

We will have to wait and see how our recoveries are. I mean it would be a little premature to talk about the eventual cost because everything will depend on the recoveries.

Okay. Sir, for this year, so for the quantity which you have contracted the exports, which we are -- which I think will move from our inventory, is there going to be some part of this year's crushing...

No, no. It will not be from the inventory, it will from the ongoing production.

Okay. Got it, sir. Got it. Okay. Okay. And sir, next question, I wanted to understand was that you mentioned that on the eastern side of UP, the yields this year are low. So I'm sure you also gave the reason that the ratoons of this year is a bit on the weaker side, and there is also the shipping too. So any reason why the yields on the western side are still more fine than the yields on the eastern side are very much affected because of -- so...

The yields are lower across UP. West UP is the least impacted and central UP is a little more impacted, and east UP is most impacted. So there has been the first attack of Red Rot also there. So that's also one of the reasons for the lower yield. But generally, climate plays a big role in the lower yield as well as lower recovery, unseasonal rainfall. For example, now, UP in the last 10, 12 days, had experienced extremely cold climate conditions and there was no sunshine during the day. So if a phenomenon like that occurs, the recoveries tends to get impacted. But yields, like I said, it's mainly the east UP was impacted more because of Red Rot as well as unfavorable climate conditions.

Understood, sir. I'm sorry. Sorry to interrupt you. Yes, please go ahead.

No, no. All of us -- be it west UP, central UP or east UP, all are impacted.

Okay. Okay. But sir, it was a bit more on the eastern side because I think eastern -- I think now eastern yields have started to give the results and the [ yields ] there are, are actually very, I would say, much, much lower as compared to what [ their yields ] were last year.

Yes.

And for you at least, it's been a lot more stable, understood, sir. And I expect that this is not something which is arising because of the -- because of something which is long lasting. This is something which is only -- maybe limited to only this season. And it is not like that even for the next year, we are going to see western yields, yields on the western side -- I'm sorry, yields on the eastern side be much lower at this level, et cetera. So how would you see this overall for UP also and for east and west of both?

I would call it a one-off phenomenon, this reason. But yes, the pest talk -- the pest attack which has devastated crops in some areas, that needs to be controlled seriously. Because that can do a big damage, unless of course, the remedy there is -- you approve the clumps which are impacted by the red rot attack, bring about change in the sowing patterns, plant some other varieties and all. But anyways, on a war footing, those issues can be addressed. So we only assume that next year, the weather will not play true and so any reduction in the yield or recovery on account of weather will not be repeated. Pest attack is a -- red rot pest attack is something which can be managed and which I'm sure all companies will be doing it.

Understood, sir. Understood. And -- but the yield which we reached last year, I think, did you say that, that yield is -- that yield and that -- of course -- I mean that recovery and that yield amount is practically a top which we have reached in terms of the yield and recovery? Or do you say we can think some -- there is a possibility...

No, no. That can be bettered. I mean, of course, the recovery seems to be plateauing, but I'm sure it can be better. It's not that the last year was the -- last season was the best season for all sugar companies. It can be bettered.

Understood, sir. And sir, yesterday, on the -- in the budget, there would be 1 provision. If you could help me understand because actually I'm not able to find it actually in -- find some -- in the reported, whatever has come out in the public domain. There was a certain thing about the blending of -- blending -- so I'm aware of the whole blending, everything about the blending background and where we are on this whole thing, but there is a specific provision on blending and how the net -- I think I'm not able to -- sir, anything in the budget which you observed, which could be beneficial for sugar companies supplying to the OMCs for blending? Anything, which has not been...

No. I think prior to the budget itself, the government policies are tailored to encourage ethanol production and ethanol consumption. I was speaking a little while ago, mentioning that the government has advanced a 20% blending target to 2025, which that too was for 2030. So 5 years, it has been advanced. But it's a monumental task, in the sense, that we are at 300 crore liters now, so you will have to ramp up capacity, more capacities are to come up. So government is working in all seriousness. And yesterday also, we had the conference where the UP authorities were involved and we were involved as we were asked to spell out our difficulties and all, so that the government can address those issues that are -- government is also interacting with the automobile industry very actively. So maybe next generation, they want to move to the flexi fuel concept also.

Understood, sir. Just one last question from my end, sir. Sir, I wanted to understand in the export contracts, which we are signing right now, where I think people are using -- so firstly, is there an -- so in terms of the contracts, since that you mentioned that the contracts, which you have signed are more or less FOB in nature where you may have to incur the cost to the transportation to the Kandla port, but in general in these contracts, are -- are most of the contracts on a CIF basis, where the mills have to incur the cost of export? And if it has been, how much is the cost of transportation? Because I think there, even those rates have gone up quite a lot. And so sir, how much is -- generally how -- if -- presently if somebody is doing the contract with somebody -- with a country in India, is it a supplier in Indonesia, with a buyer in Indonesia? Then on an average, what rates are you observing? And on a net basis, how much are mills making considering a dollar of roughly INR 73.1, INR 73.2, INR 73.3.

Okay. And let me answer this. So you see it's like this. Normally, the contracts are done either on FOB basis or FOR basis. FOR basis, it is like what we have done. We've given them delivery at Kandla, okay? So it means you board the sugar onto the ships onto the containers -- sorry, on the vessels, onto the vessels and you get payment in foreign currency. For example, if you have done a deal with some international broking house, there is a contract which is executed. And thereafter, prior to your moving the goods to Kandla, or wherever, whichever the port B, you get an advance currency. So once the cargo is boarded on the vessel, then you send the LC for collection. So normally, all the logistics cost at the port, for example, storage, because you cannot offload it from your trucks or rail and immediately load it on to the vessel. There is a storage period involved. So you have to store there. And then again, you have to first unload the dock sugar, then store it and then again load it and move it on to the vessel. So there is a packing lag involved. So we chose a simpler way out. We do not want to get into all those things of -- yes, but what you said, the realization sometimes can be better. The most important thing is at what rate you have entered into a contract? What was the rate at which sugar was being quoted when you have done a transaction? For example, if I have done my transaction when raw sugar was being quoted at $0.146 or dollar, be it FOB or be it FOR, I mean, obviously, my realization would be better if somebody has, as compared to someone, who has done the transaction, when it is still less than, say, about $0.1425 or $0.143 or whatever it is. Conversely, their realization is going to be much better if they have done it, let's say, $0.15-plus or whatever. So the prices have moved up and down, up and down. They have been on roller coaster ride, international sugar prices. So one cannot always do a transaction at the best possible prices. There's always a element of judgment, which comes into picture. Sometimes, it goes wrong. Sometimes, it goes right.

Understood. Got it, sir. Got it, sir. And so this difference within the transportation cost is generally how much? I mean if I have to transfer sugar to Indonesia, the shipping has to be borne by the buyer itself, not by...

Buyer, buyer. We are not concerned. We are not concerned with that. When we do FOB transaction and that is how the prices are quoted, we don't incur any transportation cost.

The next question is from the line of Nimish Seth from GT Advisors.

I just wanted to ask if the company has any dividend policy. And if so, what is it? If not, are you [ signing ] a dividend?

No, no. We have a dividend policy, sir. We have -- our dividend policy is of about 20% to 25% of the net profit that we earn is what we intend to reward. Sometimes, it can be less. Sometimes, it's more. But typically, the band is 20% to 25%, sir.

And that -- do you have any policy for just 1 final dividend. This 25% includes a buyback? Or I mean is this a sum that you will...

Sir -- this is the sum, this is the sum, sir. This is...

It could be in any form, dividend, interim dividend, final, buyback, whatever?

Yes, yes, yes.

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

Yes. A couple of questions. First question is, what was the actual crush and recovery for quarter 4 2020? What was the number?

Quarter 4? Quarter 3?

Like the quarter that went by. October to December quarter, what was the amount of sugarcane that you crushed? And what was the recovery?

Sure, sure. I'll tell you, one moment, sir. So we started crushing 2 of our plants on the 31st of October and 1 plant we started crushing on the 7th of November. So since we commenced season early, we crushed about 119.63 lakh quintals of sugar in the quarter as compared to 104.83 lakh quintals in the corresponding quarter last year. And as far as the production number is concerned, we used about 12.2 lakh quintals of sugar, which includes 1.77 lakh quintals of raw sugar as compared to 11.97 lakh quintals of sugar that we produced, which included 7.37 lakh quintals of raw sugar during the same quarter last year, sir.

Okay. All right. Great. So basically, your recoveries have come down quite drastically. That's what it shows, sir?

No. Recoveries no, sir. But we have generated a lot of B-heavy molasses also. So that will factor for...

On the last call, you had indicated that you would be looking to do 4.5 crore liters for the whole year. And this call, you're saying 4 crore liters. So is that being explained by the lower recoveries in crush?

No, no, no, sir. That is all on account of logistic challenges, which we are facing with the oil marketing companies. We were -- for example, in this quarter, our run rate has been lower. That's mainly because we were allotted depots, which subsequently canceled the allotment. And we had to look around for other depots. So as a result, our production also suffered a setback and the dispatches also suffered a setback. But as I mentioned in my call earlier, this matter has been escalated to the top level in the Food Ministry, in the Petroleum Ministry as well as oil marketing companies, so we expect these issues to be ironed out. Assuming there are no challenges in dispatches, then production is not an issue at all. We can achieve a target of 4.5 crore liters with our existing plant capacity. But since we have had these issues, so now it could make up for the lost ground, it's going to be a tall order, sir.

Sir, let me ask you some -- 1 question, which I'm not clear. So when you say that these challenges came up during the quarter, like the dispatch and with the rerouting of the depots, et cetera. So certainly if you had the production capacity, then the raw material that was not being converted into final products, does it...

No, no, no. We have had storage issues also, sir. We've had some limited storage of ethanol as well as B-heavy ethanol. So we had storage constraints also, so we had to take a hit on the production as well. And whatever has been -- run rate has been lost in the last quarter, no matter how much hard the oil companies try, we can we can definitely step up our production. We can -- instead of 1.3 lakh liters, we can do more than that, we can step it up. But for them to make up for the lost ground, it's going to be a tall order for them, sir.

So the raw material inventory, if you can step it up -- I'm just trying to understand. You mean the raw material inventory is lying in your books or lying in your factories, so just not being processed yet?

Yes, yes, yes.

Okay. So just -- so the plant came, which is, as I understand, which has been now coming at the end of January, et cetera, how much could the recovery improve for the plant came? I mean adjusting for ethanol, adjusting for production of ethanol, let's just say the old way of counting recovery, which is only sugar...

No, no. I got it. I got it, sir. Sir, the improvement could be about 0.1% or so. So for example, if we have lost about 0.3% or 0.4%, the improvement can be about 0.1%. Recouping more than 0.1% would be difficult.

Okay. So it's not much. So it's just 10 bps, right?

Yes. 1% of the overall production. I'm talking about the overall production. So here, the recoveries can be a little more better, but overall impact could be, if it is 0.3% on a cumulative basis till date, on a cumulative basis till the end of the season, if there is an improvement, and which is possible, then the drop in the recovery could be as low as 0.2% or anything between 0.2% to 0.3%, sir.

One more question, sir. Ethanol production in this quarter was, you said, 55 lakh liter?

No, no. That is the dispatch number, sir. That is the dispatch number.

So what was the production number?

Production, I wouldn't have the number immediately, sir, but I didn't get back to you. Production was, of course, higher. We're carrying stock also, carrying stock also.

I can e-mail you for that. That's okay.

Sure, sure. Not an issue.

Secondly sir, this dispatch problem that you have had, which has caused quite a bit of pain, is it an industry issue? Or just something very specific to you?

No. It would be an industry issue, but someone is more hit -- someone has got it more than what others have got hit. So it's just a question of luck, sir. It's just a question of luck. For example, I may have been little more conservative and I'm opting for depots which are closer to our sugar mills. I mean a little, what should I say, little -- if I have displayed more courage, maybe I could have opted for depots which are a little far away. And maybe there, the impact is not so much felt.

But you have to bear the transportation cost yourself, is it?

Yes, exactly. There would have been some transportation impact, some transportation cost impact.

Right. Sir, what I'm trying to understand -- I mean, I don't know the production process fully. What I'm trying to understand is that when you purchase cane and the cane goes into processing, there's juice and there's molasses and there's sugar. And when you have all these problems in selling, right, those are the problems like you said, I mean, how feasible is it to make it up then? Because it sounds kind of -- to the common, to the layman, it sounds kind of unbelievable. So are you telling me that basically a lot of your next 3 quarters' profit is basically sitting in inventory right now? Would that be a fair thing to say?

No, no, no. See, it's like this. Insofar as sugar is concerned, see, there are no -- never issues because sugar -- every sugar company plans and builds up its godowns to accommodate any increase in the sugar inventory. So that is never an issue of storage of sugar. You either have your pakka godowns where your storing them or if the production surges, if the numbers are more and the dispatches are, for example, the releases that you get lesser, so then you can always have makeshift godowns in your factory premises. So that's not an issue at all, okay? So insofar as sugar is concerned, there is never any problem because you either -- you proceed with the mental framework that, okay, sugar is going to be stored over a period of time, okay? Ethanol is something which everybody believes can be sold and the way it is being marketed, the way it is being paneled is the fact that, okay, you will have a faster turnover of the product, you will have faster -- your money will churn faster than you do ethanol. So this -- these are when the government is launching a big scale project of ethanol blending program, so these are the initial hiccups which are there, sir. These will get ironed out in course of time.

Okay. No problem. I'll e-mail you for further details.

Sure, sir. Sure, sure. Okay.

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

Sir, I'd 2 questions. Firstly, I wanted the data point on how has our ethanol processing cost been and molasses transfer price for both B-heavy and C-heavy? [Technical Difficulty]

Ma'am, we request you to please stay connected. We are reconnecting Mr. Banka.

Yes. Hello?

Hello?

I'm so sorry, the call got disconnected.

No, no. So sir, I wanted the data point on how our ethanol processing costs have been and the molasses transfer price for both B-heavy and C-heavy?

Our -- you see, the cost is roughly -- conversion cost is roughly INR 10 a liter. And the transfer price for C-heavy molasses is INR 300 a quintal and for B-heavy, it's INR 670 a quintal.

Okay. And secondly, sir, how do you think what is your outlook exactly on the international sugar prices going forward because we are almost at all-time highs of $0.16-odd?

Well, season 2020-'21 is estimated to be a deficit year, with the deficit being a small quantity of about 1 million or 2 million tonnes. The deficit happening mainly because of drought condition in Thailand. And also because of China's weather and Brazil as well. So the international prices are presently around $0.16 a pound. So at these levels, I think the prices should be sustainable. I mean they could hover anything between $0.15 a pound to $0.16 a pound. Somebody wanted to know the ethanol -- inventory I was carrying 30th of -- 31st of December. We were carrying a inventory of 36.38 lakh liters.

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

Sir, first on the sugar profits for the quarter. It has come at the lower end. So could you help us the rationale behind that?

Yes. You see our -- 2 reasons. Number 1, the realization of sugar during this quarter is -- as compared to the corresponding quarter last year, is lower by about INR 80 a quintal, number 1. Number 2, the recoveries are also lower by about 0.3% to 0.4%. So a combination of these 2 factors has resulted in the segment results not being so good.

Okay. Second, in the ethanol, so you have mentioned there have been some cancellations to the depots that the company was alloted. So what is the rationale behind cancellations, sir?

These are not exactly cancellations. You see what these oil marketing companies do, they also estimate certain demand levels. They also estimate that we are going to sell about so much of fuel, and that is how we will need to blend so much of ethanol into it. So sometimes their estimates go haywire, which is the reason why they are not exactly -- these contracts are not canceled, these allotments are not canceled. They are actually -- they may offer you a choice of going to some other depot, which is perhaps in a far-flung area. So the main thing, why these -- why such problems occur is mainly because of their estimates going haywire. Like I said, the program has been -- a big program has been embarked upon on a very huge scale. So all are in the learning process. I'm sure in the times to come, everything will get ironed out.

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

Sir, what was our production of -- sale of B-heavy this time?

Sorry?

What was our sale of B-heavy liters in this time?

No. In this quarter, we have sold less of B-heavy. Actually -- because whatever -- if you see the realization -- so I'll tell you the average realization is...

46.

Average -- 46. So we've sold more of C-heavy only.

So what was the reason of this lesser B-heavy...

No, no. You see we were carrying some molasses stock, so -- of that previous season. So first, we made use of that molasses stock and converted it into ethanol and we sold it. So that's the reason why our initial sales in the month of October, November was all from B-heavy -- sorry, from C-heavy.

Sir, are we carrying any C-heavy molasses any more?

Nothing, nothing, nothing. No more. Only B-heavy.

From next quarter onwards, it will be only B-heavy?

B-heavy, B-heavy, exactly.

And sir, can you explain the logistic problem? As far I know, sir, the freight costs, would have to be spent by the OMCs for the ethanol procurement? Is that right, sir?

Yes. Yes, yes. They are supposed to pay, but they are -- they pay on a particular rate. So if you go to another depot, which is far away, so they will reimburse you at a particular wage rate, which is much less than the rate at which we are able to transport the material. So there is going to be some hit which one has to take. But I would say the ethanol [indiscernible] is brisk, no matter if you have to go a little beyond your area of operation, it's worthwhile doing so. But anyways, like I said, at a very high level, the matter has been taken up, and we expect resolution of the matter very quickly.

Okay. I hope so. Sir, another thing. Sir, how -- you mentioned about cancelation of some allotment of tenders in ethanol. How much of that quantity would have been canceled?

No. It's not cancelation. For example, we had opted for Delhi Depot because Delhi is very closer to our sugar mill. So the -- I don't remember exactly how much quantity of it was. But whatever the cancelation, whatever supplies which were meant for Delhi depot in the month of December, it got truncated. And then it took a while for us to -- for them to offer another depot and for us to sell ethanol to those depots.

Okay. Sir, and this rate mismatch are you talking, what kind of a variance would be in that?

Which rate mismatch?

The freight rate mismatch to far-away depots.

No. It can be as low as INR 1, it can be as high as INR 4 also.

The next question is from the line of Udit Gupta, an individual investor.

Sir, my question is, sir, what will be the proportion of B and C ethanol from FY '22?

Only the -- no, FY '21 hereafter is going to be only B-heavy. '21-'22, it will be only B-heavy. And...

Only B-heavy?

Only B-heavy, yes.

And sir, do we have, like, sufficient -- we will not be having any balance molasses, the entire quantity will be used?

Sorry?

Sir...

No, no. We will have -- yes, yes. We will have -- from 2 of our units, we are going to use B-heavy molasses. And then 1 unit, we will generate the regular molasses. As of now, that is what we are doing. We are generating the regular C-heavy molasses from where we will fulfill the country liquor levy requirement. We'll fulfill that requirement from there.

So for that, we will supply them molasses directly, not the...

We will supply the molasses. We not value-add it and make it ENA and give it to them.

Got it. Sir, any plans of expansion in the distillery, sir?

Yes. I mentioned a little while ago. We are examining to -- many loose ends are yet to be tied up. So we will let you know at the right time. But yes, it's on the anvil. We are working on it as of now. We are examining it. We are trying to see how quickly we can do it. So let me tell you the process of evaluation is on.

Yes, sir. So sir, we are looking at juice to ethanol?

Yes. There, we can use juice to ethanol, we can B-heavy to ethanol. See, for -- it's like this. For example, if we use juice, the capacity will be higher. I mean within the same plant, one will be able to generate -- manufacture more ethanol. If it is C-heavy, the capacity will be lower. If it is B-heavy, it will be somewhere in between and it will also have the wherewithal to use grains and make ethanol also. As it will all depend, we will -- we are just evaluating. Once we have taken a final call, we'll keep you informed.

Fine, sir. And sir, how many days is the distillery legally allowed to operate, sir, now?

It can operate for 350 days, sir.

350 days. And sir, how many days is realistic, sir? Can we actually...

That's possible. That's possible, unless it's C-heavy. C-heavy results in a lot of maintenance issues. But if you're running a plant on B-heavy and juice, you can run it for 350 days.

Sir, so next year, when we are planning for only B-heavy, we should be able to do it 350 days.

Yes, yes, yes. See, B-heavy is, we are not -- there is considerably lesser load on the plant. The boilers are also operating comfortably. So when one is generating B-heavy molasses and using it for manufacture of ethanol, the number of days that distilleries can operate are -- is much...

Sir, so at 130 KLPD, sir, maximum capacity is 4.5 crore liters?

4.5 crore liters, yes. Yes.

And sir, what is our inventory cost of sugar in the last quarter, sir, the third quarter?

We -- our closing inventory was valued at INR 30,900 a metric tonne.

INR 30,900?

Yes.

And sir, like you were talking about that we have some inventory of around 36 lakh liters of ethanol. So is this quantity then sold in the next few quarters at the higher prices because the prices are going to increase?

Yes, yes, yes. No, no. You see it's laid out of the B-heavy molasses for the season 2020-'21. So it will get the get the -- whatever rate it is at.

New price.

Yes, yes. New price.

And sir, like you were talking about, sir, like we do not have sufficient storage for ethanol. So are we looking at...

So we have this kind of storage. But beyond this, storing would have become very difficult.

Okay, okay. I get your point. So that means the production would have been close to what we would have done, but the other part just went to the storage?

Yes. So even production we had to take a hit. Production also we had to take a hit.

We had to take...

Yes.

And sir, normally, these OMCs, sir, do they like make up the quantity? Or is it like whatever is lost is just lost?

No. The effort will be to make it, but it's going to be some challenge.

It's going to be some challenge. And do they have -- they keep having more tenders, right, sir? Sir, like second tender, third tender.

Yes, yes. They [indiscernible] yes, like...

So in that we can offer the balance quantity?

Yes, yes, yes. Right. Yes.

We take the last question from the line of [ Dharmesh Yadav ], an individual investor.

Actually, my question is regarding the sugar being the primary product of the company and primary product -- because everyone is now focusing on ethanol, but still, if you see like 80% of the revenue, that comes from the sugar, and it is definitely affecting the bottom line. So what effort company or mill associations they are making to convince the government to increase the MSP because that has been, like, been sidelined for quite years now? So going forward also, if it is -- if the agitation from the farmer is gone and that SAP is increased, it will directly affect the margin of the sugar industry again even if ethanol and co-generation is doing good, it will affect everything. So how we are looking to...

So 2 things. Yes. Let me answer, sir. Two things. In this quarter, what also impacted the sugar was -- what impacted -- what was the pressure point on selling sugar were the large releases that the government had ordered in the last -- in all the 3 months. The quota release was higher. And which is why the sugar prices were under some pressure. Otherwise, in the previous quarters, if you have seen the sugar prices have been much better. If it is INR 3,180 per quintal in this quarter, our average realization in the previous quarter has been higher. So one is they have to regulate the releases properly. And secondly, our request for higher MSP is already with them. And in times to come, I'm talking purely from a long-term perspective, when we'll see huge sacrifices in sugar production in favor of ethanol and when the sugar balance is normal, and we are not carrying any abnormal stock, so then you'll find good support for the sugar prices at reasonable level. So that is how the problem will get addressed, sir, in times to come.

[Technical Difficulty] and to address the SAP issue, even if it is increased by INR 10, how much...

No. It will impact. It will impact. But I know that the government considers -- the central government considers all these factors and accordingly will take a call on the MSP as well.

Because that is only for UP government, right? Because every other state they are paying on SRP based, which has been decided by the central government. And central government has already decided that there will be no increase in MSP of the sugar. So I'm just...

Yes. They don't want to institutionalize it. So yes, in the short term, as you rightly said, there are challenges. So the one way to regulate is -- as a company, we can respond to by increasing our exports. We already sold our entire export quota. So if there is going to be more redistribution of export quota, we will evaluate at that point in time as to it makes us -- it makes more sense to export more. And of course, going forward, we will also -- our product mix is going to undergo a big change, and we'll be making more of ethanol.

Okay. The second thing is, as we are producing B-heavy molasses, like -- definitely, it will impact the recovery. Recovery will be impacted by 0.2%, if I'm not wrong?

No, no, no. Recovery, recovery -- see, if you talk about adjusted recovery, there should be really, theoretically speaking, no impact. But otherwise, the recoveries are lower by at least about 1.5%. Even it depend -- varies from company to company, mills to mills, the range is 1.4% to 1.7%.

So last year, we had produced around 42 lakh quintals.

45 lakh quintals in the last season, season we produced about 45 lakh.

Yes. And this year, we are looking to produce around 40 lakh, 40 lakh or 30 lakh...

Yes, yes. 40 lakh, around 40 lakh -- 38 lakh -- anything between 38 to 40 lakh quintals. Because we're going to suffer-- we will be sacrificing about 30,000 to 35,000 metric tonnes of sugar production, number 1, and the recoveries are also lower in any case and the crushing quantity is also lower.

So this 40 lakh will be including the less crushing bus also and also from the sacrificing also? So...

Yes. Not 40 lakh, it could be 38 lakh also. It could be 38 also. As we go forward, there will be more clarity.

Okay. And 4.5 crores of ethanol?

Yes, yes. That's what we are targeting. Yes, we are targeting. For this ethanol season, we will not have 4.5, we will have only -- we will be doing only about 4.

Okay. And so it will also bring up the cost of producing sugar as well? Or it is...

No. I mean cost of production of sugar will go up only if there is a change in the SAP, if there is an increase in SAP and if there is a lower recovery, lower recovery. Diversion to B-heavy ethanol -- diversion of B-heavy ethanol for making ethanol will not increase the cost of sugar production.

Okay. So the inventory will be almost costing at the same price?

Hope so. Let's wait and see.

Okay, sir. Apart from that, how much benefit we are going to get by producing B-heavy molasses in monthly release quota? Like, so far...

[indiscernible] it's just about began, the season has just began. So lets see how much -- it will definitely will result in better releases. We will have to see...

Yes. Because this month I followed that, I think it is around 6,000 tonne or something 60 lakh, 60 quintal something -- 60,000 quintal from the sacrifice of B-heavy molasses for [indiscernible]?

Yes. We will have to see sir, how much it is.

So like in a quarter even if we decrease the quota, sir, how much we are looking to sell?

No. We have got -- our releases are in the region of 2.5 lakh to 3 lakh quintals a month. So we will sell-out whatever is the quantity that we are required to sell, we will sell.

Okay. The second question for me is the co-gens, sir. The co-gen, there was a petition filed for the unit prices, where...

Nothing has happened, sir. Nothing has happened, sir, so far. The matter is in the court only. The matter is in the court.

So it can be considered that nothing will happen for that? Or the...

No, no. We proceed with the primsie. We are prepared for the worst, but hope for the best.

Okay. Apart from that nothing. And dividend, sir, any dividend expected in the month of March. Hopefully, month of March will be the better...

No, sir, we have not taken any call yet, sir. We have not taken any call as yet. Yes.

I now hand the conference over to the management for their closing comments.

Thank you, friends. Thank you for posing confidence in us. Thank you for being a part of this journey with us. Thanks a lot. We expect the policy framework gets better, and we are able to post better performances in the times to come. We look forward to your help and support throughout. Thank you so much.

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

Thank you.