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

Yes. So you all are well worse with the sector. But anyway, I would be happy to share my thoughts, my views on the sector. We are now...

I would request everyone to be on mute, please thank you so much. Yes, sir, please continue.

Yes. Sugar sector has now entered a phase where the problems of the sectors now seem to be getting resolved. I mean the sector should see some sustained growth in the times to come. So this hitherto witness cyclicality is now a thing of past. We are all getting used to the fact that the farmers are going to grow sugarcane and grow sugarcane in large quantities. So the sugarcane prices have been so remunerative, the successive increases in the last so many years has made the sugarcane cane crop a very remunerative crop. Addition of new varieties such as 0238 and coupled with scientific agrarian practices. So this has resulted in the income of the farmers being increased multiple times. So the farmers are happy growing sugarcane. So as a rule now, we have to accept barring unfortunate drought that happens in Maharashtra and Karnataka, let's say, once in 5 years or so sugarcane cultivation -- sugarcane cultivation is on the higher side. So sugarcane availability for the sugar mills is on the higher side itself. So with that background, with the overhang of stock that has been there, now the government and the industry together is trying to address the problem. Number one, on short-term basis by allowing exports -- by encouraging exports, subsidizing the exports; and number two, a long-term program, which is the ethanol blending program. The idea of the government as well as the industry is that we should sacrifice more and more sugar production in the times to come, such that sugar production and consumption are kind of balanced. So that the ability of the sugarcane mills. So that the sugar mills are able to earn some decent profits from the sugar segment. And ethanol segment will, of course, drive the business going forward. So the ability of the sugar mills is improved insofar as making payment to the farmers is concerned. So that is the basic objective, plus the objective of the government is also that oil imports should be minimized to the extent possible so that we are at [indiscernible] in that sense. So these are the objectives which the government is working, and the industry is also responding in equal measure of participating in the ethanol blending program. So we see -- in the next 2, 3 years' time, we see structural changes which have already got initiated, should reach satisfactory levels. So that is how it is. Well, I would request you, let's start the interaction. You can ask me questions. I'm ready with the answers.

[Operator Instructions]

Mr. Banka. This is [ Viraj Mahadevia ] here. So yes, I think the sector looks very interesting as you just mentioned, your company-specific has some leverage on the books. And I was keen to understand if your CapEx cycle is complete. And as your cash profile steps up to better and more stable performance, and hopefully reduce working capital days. What will you prioritize your cash generation for?

See, as of now, I mean, there it's a long way to go before we are cash surplus because we always have -- I mean, 2 of our long-term loans are there, which are getting repaid as per the repayment plan. Additionally, sugar mills are compelled to carry a lot of stock. So with that happening, there is always working capital availment to that extent. In March, the figure number -- figure appears to be a little inflated because around March, April is the time when we carry the maximum stock. I'm progressively, when we get closer to, let's say, September or October, our utilization comes down substantially. So additionally, we are, like I mentioned in my earnings call also that we are contemplating setting up of another distillery, which will need CapEx of -- require a CapEx of about INR 225 crores. So as of now, we have not reached a stage where we are cash surplus. It will take some time. And when we get closer, we will take a decision on that.

Understood. So you don't see yourself deleveraging meaningfully over the next 1 year?

No, no, no. See, let me tell you, all our term loans for example, they are all subsidized loans, availed at rate of interest of 5% or 4%, the [ declary ] loan comes about 50% [indiscernible] . So if our -- if my applicable rate is, let's say, 7.75%, so half of it is subsidized. Similarly, is a soft loan from the government of Uttar Pradesh, which is at 5% rate of interest. So -- and working capital at, yes, it's at the regular rate of interest. So there is no prepayment of long term loans, it really makes no sense actually.

So you'll prioritize it for expansion for growth?

Yes, yes, yes. So we will claw back money so that we -- going forward, our working capital utilization comes down, and we are able to reach a stage of being cash surplus. But that's a far cry.

But presumably, your cash generation can be used for working capital funding, right? So you don't need to borrow those expensive loans.

Exactly. Yes, yes, absolutely. Absolutely.

Amber, can you please go ahead with your question?

Good afternoon, Mr. Amber.

Can you please unmute?

Can you hear me now?

Yes, how are you? How is Singapore?

I am in Hong Kong, sir. Hong Kong is okay. So sir, a couple of questions. One is that you said sugarcane, you see a good output of sugarcane, which is good. But I'm just wondering like any way to reduce the water footprint of growing sugarcane? Because as we all know, it's a water guzzling crop and it might become an issue in the years to come. That's number one. Number two is anything on the horizon or expected or unexpected that can take sugar prices up, frankly? Because that seems to be the one thing that happened in the last cycle in 2017 when sugar prices went to INR 3,600, INR 3,700 even though supply seems to be quite ample. But I'm just wondering, like, except for a drought, is there any other way you think can consumption go up unexpectedly or anything like that, that can make sugar prices go up? And then number 3, by when will you finalize the decision on expansion of your distillery?

The first one is regarding sugarcane being the water guzzling crop. Sir, it's like this, over a period, technologies have so evolved, that our water, the water roll from the ground is more or less equal to -- we recycle the water to the extent possible. So there is 0 liquid discharge. There is 0 liquid discharge. And whatever sugar water is contained in the sugarcane is good enough and we use it for our consumption. So I'm not saying that we have already reached that 100% perfection stage. But we are almost there. So the water consumption is getting progressively reduced. And there is absolutely no 0 liquid discharge. And as a result, the maximum use of water contained in the sugarcane is paid off. And UP's basically state of Uttar Pradesh, water is not a problem, they're saying in Uttar Pradesh, you scratch the land and you get water. So the water tables are pretty high as of now even now because we are all located on the [indiscernible] plains. So but yes, this is a problem in so far as Maharashtra sugar mills are concerned. So there they have those once in 5 years kind of drought. So they do face this problem. And in that particular year, the sugar consumption production goes down substantially. The only reassurance we have at this point in time is that technology is evolving, and we are trying to minimize -- recycle whatever water, which is available. So that the groundwater level usage is getting minimized. So that's number 1. Number 2, you asked me about any...

Anything that can -- yes, sugar price.

Any spurt in the sugar prices, which can happen. Typically, it happens when there is drought in one of these states because UP has kind of reached a stage where year-on-year, the production is stable. Ship working sugarcane as well as sugar production is more or less stable. So typically, it can happen when there's -- southern states are -- the state of Maharashtra are facing drought. Having said that, now presently, the international prices are looking very good. International prices are far better because there's [ no ] news of drought in the North and the South of America, which includes Brazil as well. So there is a continuation of lower crop from Brazil. Additionally, the ethanol prices in those areas, whether made from corn or made from sugarcane the prices have risen. So I can, at this point, only say that the prices should remain stable. But yes, all these factors, the international prices does have a sentimental impact on the domestic sugar prices as well. But I mean, I don't see any kind of a [ 30 ] -- see, presently, it's around INR 3, 300 can become INR 3,400 at best. But I don't see the level of INR 3,600 or INR 3,700 coming too soon. I don't see that a possibility at all immediately.

Okay. Got it. And sir, lastly, anything on the CapEx? [indiscernible] finalized?

Yes, yes. You ask me about the CapEx. You see, we have been -- we have more or less finalized everything [indiscernible] because of this unfortunate pandemic. The second wave of pandemic, we have kept this on hold for a little while. The reason being, even those who already announced the CapEx and those who have started the CapEx, their work was going to suffer because the availability of oxygen, et cetera, industrial oxygen is going to be very difficult in the next 2, 3 months. So we will wait, and we expect some stabilization in the steel prices also. So we will take about 2, 3 months to finalize, this, sir.

Sukhwendar, please go ahead with your question.

Am I audible?

Yes, I can hear you.

So just a couple of questions. I just want to know what's your initial assessment of sugarcane planting for coming season '21/'22 vis-a-vis last year? And similarly, for sugar production?

See sugarcane plantation is more or less the same. I mean the area under sugarcane plantation should be similar to what we have seen in the last year, both in the state of Uttar Pradesh well as in the state of Maharashtra. Because Maharashtra also -- so we should see similar production levels also in the coming season. The only change that can happen is we have seen a sacrifice of 2 million tonnes of sugarcane in favor of ethanol in season 2021. But this sacrifice should go up. According to me, it should be more than 3 million tonnes.

And second question, in terms of pricing, where we stand, domestic prices, vis-a-vis the international export pricing for UP mills?

We are at -- domestically sugar is being sold at INR 3,300 a quintal. There are, of course, some sugar mills -- we do not make refined sugar, some sugar mills who make refined sugar mils are able to sell their products at INR 3,400 a quintal. So far as international prices is concerned, the international prices for raw sugar is presently around $0.17 per pound. So $0.17 per pound will give you x-factor realization, suppose we want to export under OGL which means without subsidy, our realization will be less than INR 3,000 a quintal. So which is the reason why there may not be many participants from the UP sugar industry. Some, we hear from Maharashtra, are doing it under the OGL, we will have to wait and see.

And just coming on to the domestic pricing. So under the current regime of monthly quota releases, assuming no intervention from the government in pricing, is it drought the only factor which would lead market forces to drive prices up?

Drought in India plus the international prices. International prices also plays a sentimental role on the domestic prices. So it's not just the drought. Drought will have the effect of dragging down the production estimates, and international prices, if there is good increase in the international prices, you can see some sugar mills considering doing export even without subsidy. So if some exporters, you see exporting sugar has made a couple of advantages in the sense that you're liquidating your stock quickly. Number two, the realization is faster. And so far as domestic sale is concerned, you are to mandatorily hold it for 12, 13 months, and when you are able to liquidate, completely liquidate the stock.

[ Mr. Sukhwender ]. Any follow-up question?

That's it from my side, sir.

Mr. Madhav, please go ahead with your question.

I just wanted to understand that they're talking about taking up the ethanol building in by 2025 to 20%. In that kind of scenario, I think the ethanol will be made from both the sugarcane root and plus, broken rice, et cetera. So say we hit that mark of 20% by 2025. In that case, basically, how much do you think would come from the sugarcane root for ethanol and how much from the other roots? And also in that scenario, how much of sugar can get sacrificed for ethanol production, say, [ 4, 5 others ]?

Sir, if we have to reach the 20% blending target, a lot of sugar mills have to take manufacture of ethanol directly from the sugarcane juice. So now we are talking of 300 crore liters, and we are saying that we are around 7% blending target. So 20% of 300 divided by 7 and [ 13% ]. So that is the kind of ethanol blending, ethanol production is what we are envisaging. So according to me, if 20% is reached, I mean, it's, of course, a daunting number according to me at this point in time. But yes, if we can reach 20%, at least about 600 crore liters or more. By the time, I expect the capacities also to be ramped at 600 crore liters can definitely come from sugarcane juice and sugar and [ behavior ] molasses?

Okay. So roughly, if I just do like a quick math, roughly, we need 850 crores liters of ethanol at the 20% blending. Instead you think 600 crores could come from the sugarcane root?

Yes, yes.

And balance would come from other materials like broken rice, et cetera?

Yes. It's just a number at this point in time. We have a long way to go. So it all depends how the capacities are ramped up in both the spaces. In sugarcane as well in case of using the grains. Now you see the discovery plants that we most of the people have set up. They are all -- they can use multiple feedstocks, including the grains in the off season, if some sugar mills want to run the -- use the grains. So but there are -- there can be some standalone distilleries also totally based on the grains. So we have not seen those being set up at this point in time. But yes, going forward, yes, and with the kind of impetus, with the kind of momentum this program is having, all those things are possible.

Understood. And the other question I had was right now, the pricing for ethanol is quite remunerative, and it's a good incentive for the industry to set up capacity. But I just wonder, like 3, 4 years out, do you think that the risk that the government might make the policy less remunerative for the industry? Or do you think like such prices would be here to stay?

No. The assurance we have from the government, although it's not a written assurance is that this is a policy which is going to stay there for 10 years, at least.

On the ethanol pricing?

Yes, yes, yes. Because it serves double objectives, 2 objectives of the government. Number one, the viability of the sugar mill has improved; and number two, the oil imports are reduced. So this program is irreversible.

And sir, last question was, I know we're sort of it's a little far out, but the 600 crores liter number that we have, any idea how the industry might do it from a mix of B-heavy, C-heavy and sugarcane juice? Any broad sort of thought on that?

So it all depends. I mean, a company to company, mill to mill, for example, if you heard about Balrampur so they have a smaller sugar plant of 5,000 [ TCD ], which they have announced that they will be dedicating it for making ethanol totally, which means there, they are not going to manufacture any sugar, and the entire thing will be based out of sugarcane juice in the season time. Because sugarcane juice cannot be -- I mean, storage issues are there if one wants to store sugarcane for the off-season. So -- and in off-season, they will be using grains. So that is their plan. So every company will have a different mix. I mean, B-heavy molasses, also people are going to use. I mean it's not that sugarcane -- sugar production will be totally abandoned. So another challenge here is that let's say, these Balrampur 5,000 TCD plant, they are going to use it dedicatedly for making ethanol. So they need a distillery of 320 KLPD. So you need large distillery capacities for the sugar mills. So as to besides that, okay, they are going to use only juice that's -- so typically, you will find most sugar companies with whatever distillation capacities they will have, they will be using juice during the season. And they will also manufacture B-heavy molasses, with which they'll run the distillery during the off-season.

[ Biraj ], can you please go ahead with your question?

Mr. Banka, [ Biraj ] here again. As you mentioned, as your export step up, there's a better working capital implication for you. Also as you supply greater ethanol to the government, as part of a blending program, there's a positive working capital implication for you. So as these elements change between, say, '20 -- FY '21 to '22, what do you see your working capital reduced by in number of days?

So ethanol program will definitely impact. It will reduce our working capital requirement. And so far as ethanol export is concerned, in FY 2021, we exported nearly 159,000 metric tons of sugar, sugar, which was partially because the government did 2 - 3 redistribution of the allotment, the ethanol of ethanol scheme of -- sorry, MAEQ of 2019/'20. In 2021, they have not done nothing of that sort. So -- but having said that, whatever export allotments are made to us, export quotas are allotted to us, we will do that. And both the programs have the effect of moderating the working capital requirement.

So do you have a target...

It should come down [indiscernible] ...

By how many days? I mean, give us a sense of where you were in '21 and where you finish '22?

If, for example, my average utilization of working capital it was, let's say, INR 300 crores in 2021. Now that should come down to about INR 250 crores average utilization.

So about a -- so a 20% reduction in working capital?

Yes. Yes.

And sir, can you give us some clarity as to how this MSP is calculated? You said there's an impact, obviously, of local drought and availability, but there's also this notional impact of international pricing, which we all know is high and likely to go higher given drought in Thailand and South America, et cetera. So how is MSP actually calculated for domestic -- minimum support price for domestic supply?

Sir, MSP is announced. It's not calculated on any basis.

There's no formula or anything?

No, no, nothing of that sort, sir. It's a perception that minimum sugar mills with this kind of MSP, we'll have some decent ability to pay the farmers [indiscernible] and [ dues ].

[ Jagdeep ], can you please go ahead with your question?

Mr. Banka. You announced sugar expansion of [ 2,500 TCD ] in the con call, I believe. Could you explain the rationale, why do you need to go for sugar expansion rather than put up additional [indiscernible] ?

You see what happens is we have 3 plants, 6,500 TCD one and the other 2 plants are 7,500 TCD. So what we have -- we have, over a period, done some changes in our plant, improved their efficiencies. So as a result, we have seen on several days for example, in the 6,500 TCD plant, we operate it at 7,000, let's say, 6,800, 6,900. And in a 7,500 TCD plant, we can go up to 8,000 TCD also. And in the times to come, when we will be -- when we have plans of making more of B-heavy molasses, the production, it gets better. So with that, this is not -- this requires some regulatory approval. So they -- which is the reason why we have sought increase in the capacities. So it achieves 2 objectives. Number one, it regularizes our rational higher crush rate or higher production. Number two, we can carry on with our efficiency improvement programs and see that we ramp up our production capabilities.

What I understand is that it will increase your sugar production, which you are focusing at rather than increasing your ethanol production?

Sorry?

What I understand is that it will increase your sugar production?

Yes. Yes, it will. Like I said, number one, it regularizes our occasional higher crushing and higher production. And number two, year-on-year efficiency improvement plans, which we do, which has the effect of improving our production run rate. So all that will happen. And as a result, our production crushing rate as well as production will go up. And we are seeking approvals at a comfortable higher number, such that, for example, in the third unit, we are planning a distillery capacity. So we can with some not very significant CapEx, we can ramp up the crushing capacity there such that, typically, what happens in a sugar -- in case of sugar mill, the higher the capacity, you get that much cane. Lower the capacity, you will get the cane accordingly. So the [ drawal ] percentage improves so I mean that gives us more flexibility once we have the necessary approvals.

But if you have availability of the cane, would it not make sense to increase the ethanol capacity so that you can convert that?

Yes, will do it. We have been doing this -- the ongoing exercises. We have been -- our year on May here, crushing rate is getting better. So...

Are you planning -- foreseeing a scenario where probably sugar might get a very high price going forward, let's say, next 2 years, 2 years down the line?

No I don't foresee a very high realization for the sugar prices because now government intervention will always be there. There will be a certain level beyond which the government may not be comfortable. Like in 2016, '17, when there was a bull run. So government was okay with the price of INR 3,600, which the sugar mills got INR 3,600 INR 3,700. But with more sacrificing -- sacrifice happening in favor of ethanol with sugar production being more or less equal to the sugar consumption and the -- with the moderation of inventory level. Presently, for example, we are going to carry our year-end inventory will be about 9 million tonnes plus. So 9 million tonnes roughly translates to 4.5 -- 4 to 4.5 months of consumption. So if the inventory gets moderated up to, let's say, 3 months of consumption, I don't think there is either pressure on the selling prices of sugar or there is a possibility of runaway increase in the sugar prices. If the inventory gets lower than the 3 months consumption mark, then yes, there is always a possibility of prices going a bit out of control.

And are you also seeing similar trend across the industry in UP, other people are also increasing their sugar capacity?

Sorry?

Are you seeing a trend where other mills are also increasing their sugar capacity?

I'm not too sure about that. But every sugar mill, I think they keep doing improvisation in the production processes year-on-year. So I think it's an ongoing exercise, but I'm not aware of any sugar mill having sought any similar approval from the authorities.

Mr. Banka, as I understand, Brazil is facing certain issues this year. And is it correct to say that they will be facing similar issues next year because of drought this year? Next year crop would also be lesser?

When we are talking about lesser production, it's for the season '21/'22. '20/'21, as far as Brazil is concerned, it is already over. Their season is I mean their season runs from April to October. So when we are talking of season '21/'22 insofar as Brazil is concerned, it's from October sorry, April '21 to October '21. So in this season, we expect lesser production because of the drought effect. So next year, it's difficult to say. I mean, it all depends how this [indiscernible] factor plays out.

You also mentioned somewhere that the real remunerative price to export would be around $0.19 under OGL. Would it be lesser for mills based in Maharashtra? Are they competent to export?

No. You see, Maharashtra sugar mills, insofar as the advantage of transportation is concerned, it's not much. It's about INR 500 a tonne or at the most about INR 700 a tonne. So that is the kind of advantage which Maharashtra sugar mills have. So we in UP have a choice of only, at least those of us in the western UP, we have a choice of only Kandla port or the Mundra port. Whereas Maharashtra, they have a choice of multiple ports, Nhava Sheva and many others. Jaigarh. So they have a choice of multiple ports. So they do get some benefit in transporting sugar from their respective mill to the port, which is about -- which could be about INR 700 a metric tonne. So if you see in the overall price structure. It is -- I mean, it's a good number, but not a number which -- not a very significant number as such. So but we have seen that Maharashtra sugar mills are normally -- I mean, sorry for saying this, they normally do some panic selling. So we see them see them participating, we have seen their participation in exports, even at a lower price levels.

Mr. Banka, last question. Is the optimism regarding hike in MSP? Has it waned down because nobody is talking about it any further now?

If you heard Mr. Piyush Goyal in one of the meetings that he has had with industry and industry representatives and others, he had ruled out any MSP increase. Now MSP increase was first nearly a year ago, a group of Ministers meeting headed by Mr. Amit Shah. It was taken on record, and it was recommended to the cabinet for approval from INR 3,100 to INR 3,300. [ DPIO ] has also recommended it being taken from INR 3,100 to INR 3,300, although the industry's request is for a higher number of INR 3,400. But I really don't see anything happening. There have been occasional rumors that, yes, this may be increased. Look at it like this, as it is, the prices are at INR 3,300 levels.

[ Mr. Sandeep ], please go ahead with your question.

I have 3 questions. First question is [indiscernible] to [ CBG ]. Is that an opportunity, again, that is being incentivized by the government? And what are your thoughts? Would you look at it? Or it's too early?

It's very small business actually. Very, very small. I mean, in terms of optics, yes, to say that we are doing this, it sounds good. But otherwise, very insignificant in so far as overall revenue of the sugar stream is concerned.

Understood. The second question is that 600 crore liters of ethanol, according to you, given your experience in the industry, how much is realistically possible? Good number ...

This year, 300 crores liters is going to happen. So 600 crores liters, maybe a couple of -- 2 to 3 years down the line should be possible.

But that means a lot of CapEx will be required to reach that?

Yes, yes. Everybody is doing CapEx and doing those subtle changes in their -- in the way they operate their plant, making ethanol out of juice directly, either to -- most of us were doing the -- following the conventional route. It's only the last year when sugar mill started using [ BAV ] molasses. And this year, we are seeing sugar mills switching over to the juice route. And you will see that number going up in the coming years.

Sir, last question is that, clearly, with ethanol and everything else, the sugar companies' profitability has improved and the balance sheets have improved for at least the larger players, more efficient players. But it still remains a very regulated industry from the raw material price to the finished price, whether it is sugar, ethanol, it's all fixed. Is that the reason why sugar mills are not looking to acquire to increase more crushing capacity otherwise, everybody is tweaking rather than really expanding. Is that a possibility going forward?

Sir, let me just tell you something. All over, the sugar industry is regulated, not just in India, everywhere, Brazil -- take Brazil, take Thailand, every other country is regulated. Every other country, sugar industry is regulated. So I mean India being regulated is not something. It's just that in the past, it was regulated in a manner such that it was -- there was runaway increase in the sugarcane prices. But if you have seen in the last 4, 5 years, sugar -- sugarcane prices have been moderated by the central government as well as the state government. So -- and in any case, I must add here that the farmers' incomes are getting better and better because of better varieties, because of better yield because, of better agrarian practices. So -- and number two, if your question is, yes, why aren't we acquiring? Why aren't we taking over sugar mills? Why aren't -- why isn't horizontal growth happening? So as of now, we will see most of the growth that is happening is all vertical. Sugar mills are, as you rightly said, we are tweaking our working in a manner, such that we are increasing our own production rather than looking at acquiring sugar companies. So yes, that's a fact. But I think that will undergo a change in a couple of years' time.

And lastly, if I may, from ethanol as ethanol's sort of capacity has increased, value addition to ethanol becomes a very big opportunity for sugar companies. Is that a thought whether it is bioplastics, whether it is aviation, what kind of value addition can happen? And within the stream, you get more and more sort of margins and cash flows?

So, people do talk about ethanol being used for -- as an aero fuel or whatever it is. Yes. But I don't think those technologies have yet come into India. See, we have a few research agencies within India in Maharashtra as well as UP, who are constantly working at it. And if and when there are any technological advancements, yes, I'm sure, as an industry, we would want to lap them up. We would want to take -- make use of them. But as of now, there are no known technologies for these products.

Mr. Mayur, please go ahead with your question. [Operator Instructions]

My ignorance in this sector. But just wanted to check, with the shift from sugar to ethanol, your margins have been in the range of around 9%, 10%, if I'm not mistaken. What should we see as an increment margin coming to your company over the next 2, 3 years with ethanol story being a steady state?

So it's like this. If you see most of the sugar companies, so the margins are, in case of ethanol, the margins range between 25% to 35%. And in sugar segment, about 2% to 3%. So if sugar presence in ethanol segment increases, the margins will get that much better. So 9%, 10%, which you see in our case, there's definitely scope for improvement there.

And on the growth front. The kind of prices that is there, your production is fixed. So it is just the ethanol movement will lead to higher growth for this, if I look at the top line basis?

No. You see, so far as our last year's working is concerned, 2021. We have not been able to reap the full benefits of our ethanol expansion that we have undertaken so far. This was explained by me in my earnings call also. So in FY 2021, we have had a production of about 3 crore liters of ethanol and a similar quantity of sale of ethanol, 3.17 crore liters of ethanol. So in 2021 from the same capacities, we should be able to do about 5 crore liters of ethanol production and sales. So we will be able to reap the full benefits of the expansion that we have done, 130 KLPD expansion that we have done and which -- and the plant has the ability to produce 20%/30% at least more than what is its stated capacity. So we should be able to see production of about -- production and sale of about 5 crore liters of ethanol. And that is how things are expected to get better.

Just one last question, sir. What was the expansion the sugar that you were talking about? I missed that?

I'm not able to hear you.

What was the sugar capacity expansion you were talking about? I missed that number.

So, in one of the units, which is a 6,500 TCD unit, we have sought an approval to crush up to 7,500 TCD per day. And in another unit, which is a 7,500 TCD, we have sought approval for crushing up to 10,000 TCD per day.

Vipul, could you please go ahead with your question?

Just one question from my side please. So given the backdrop of this ethanol blending program, there have been some change in the competitive scenario with respect to the tendering that is done for the process equipment. So do you see any change in terms of bidding or your preference for going for a technically superior process equipment supplier? Or is it still the conventional way in terms of your preference for going for the bidding? So that is one. And just a follow-up on this. So are there any new players that have entered into this segment? Or is it just the old conventional players?

So it's like this making ethanol as far as the fermentation and the distillation of process is concerned, it's not a rocket science. So obviously,, the technologies are very well known. So you have -- there is Praj, which obviously there they are better known and they are reputed for the integrity of their operations, and there are other players, other good players as well. ISGEC, for example, in North. So there are -- as far as fermentation and distillation is concerned, we don't see -- the technology is more or less the same. So we tell our preferences as to what we want in the plant. We tell them very clearly the plant specification, the details of the [ borrowed out ] equipment, what should be there -- what brand it should be, who should be the OEM and all that, all those specifications are clearly made by us. Secondly, the important part in the distillery is the incineration boilers. So there, again, after a lot of effort, technology has got stabilized. Two years ago, the technology was rather imperfect but now the technology is more or less perfect. And we are -- all of us have seen, we are operating our plants beyond our rated capacity. So there is not much actually. So these are the regular vendors ISGEC, Praj for boilers, [ KCP ] as well as [ Thermax ]. So these are the regular guys. And we have not seen any new entrant in the field. And anyone who enters new will be looked at with circumspect eyes, I guess, till the time they are able to establish their credentials.

[ Mr. Vibhuv ], could you please go ahead with your question?

Mr. Banka for this call. One question was, is there a possibility of a slight oversupply in ethanol capacity with everyone setting up new plants, sugar-based and non-sugar based as well?

No. I don't think -- because still, the pie is too large, and there's still scope for a lot of increase in the capacities. So we are at 300 crore liters. The target is to go beyond 600 crore liters.

[indiscernible] engines and computations then?

Sorry? I couldn't hear you.

Mr. Vibhuv, could you please unmute yourself.

Is 20% blending even possible, sir?

Yes, 20% blending, as of now, it looks like a very daunting task. But yes, going forward, everybody is committed to it, and everybody seems to be working in that direction.

Got that. And sir, and those levels, what kind of ROCs and ROC -- ROEs do you think sugar companies and we can -- our company can generate?

It's very difficult to answer. We have not looked at it yet.

But like maybe 20% level, sir? Because then it would be [indiscernible]

Like I told at the current levels, the margins can range between EBIT -- EBITDA margins can range between 25% to 30%.

For ethanol, right?

Yes. I assume those margins should be sustainable in the times to come.

And at the overall blended company basis, sir? 15% to 20%?

Sorry.

At the overall blended company basis?

Sir, we are at 9%, 10%. If you see sugar -- sugar contributes more than 80% of our -- to the total -- to our total revenue. So sugar segment is a dominant segment. It will continue to be a dominant segment. So while the margins in ethanol segment will remain and the volumes are going to go up from here onwards. So -- but overall, if it was 9%, 10%, it will get marginally better, 11%, 12%. I mean, it will grow year-on-year, there should be improvement.

[ Preet ], can you please go ahead with your question?

Mr. Banka, any issue with this 0238 Red Rot issue was coming up?

Yes, sir, Red Rot menace was there in UP last year and more so in eastern UP. See, our units are located in central UP and west of central mostly. So we have not had such significant impact of Red Rot. But having said that, we are taking all precautionary steps. We are -- I mean, whenever we -- our cane staff finds any clump affected by the Red Rot, they are approved it immediately. And we provide the farmers with the required chemicals, Trichoderma, et cetera, whatever chemicals are required are provided to them. So that we tell them not to grow sugarcane for, at least, a year or so there. So we are taking all precautionary measures. Well, if your question is, if 0238 has outlived its utility? No. I think it can be there for many more years to come. All we need to do is take adequate precautions or any attack of such epidemics, I mean Red Rot, any pest attack, be it Red Rot or any other attack. So all one needs to do is be very careful, very vigilant to take all precautionary measures. And this variety is here to stay for some more time.

Because in Balrampur, we saw dip in the crushing? And...

Yes, Balrampur, all the...

I was wondering -- I was wondering if this can be foreseen or did it happen all of a sudden, and they could not have done anything about it?

Balrampur all their plants are located in east UP. And where the menace was much more and perhaps, well, I wouldn't be able to comment. I'm sure they would have taken all precautionary measures. They must have foreseen and then they must have taken all such actions as are required. But in our part of the area, for example, in our unit, our 3 units. We've just concluded the season yesterday in the last unit. So as against 374 lakh quintals of sugarcane that we crushed in the last season, this year, we have crushed 378 lakh quintals, so 4.4 lakh quintals more. So in fact, there is 1% increase in the crushing.

And do we have replacement for 238?

In case of Balrampur, the decline in crushing is of almost about 17%. I'm not sure.

Yes. Yes. . And do we have alternative for 238?

Yes, we are working on it, but let me confess, let me admit that it is a very difficult task because this variety is such good variety that the farmers -- I mean we may want to change this variety and do all the efforts that are required, but the farmers are not willing to change this variety so soon because the yield is so good, the effort is so minimal. So, we are working on a few other varieties 118, 150, 23, there are many other varieties, like we work for 238 in the beginning. We are similarly working for other varieties. But this variety being so good, and the farmers getting such good yields, so it's going to be a challenging task.

And Mr. Banka, as far as sugar ethanol is concerned, we are seeing a dream run. Everybody is predicting very good numbers in next 1, 2, 3 years. Are you feeling internally some kind of a risk or a caution? Anything on the top of your mind?

No sir, as of now, nothing. Our industry has seen the worst of the days actually. So we, at least, see that we are on track to become self reliant -- we are on track to become our balanced growth. So, we don't foresee any risk as such. We have seen very challenging times the time in 2007 to 2014/'15 were -- they were the most difficult periods for all sugar companies.

[ Viraj ], could you please go ahead with your question?

Mr. Banka back again. Can you give me a sense of the mix -- your revenue mix between sugar, ethanol and exports in '21 for 6, 9 months of '21? And what does that mix look like 2 or 3 years out from now? I'm trying to work out the sort of blended margins where you can land at 2, 3 years out as ethanol and potentially export step-up in your overall mix?

I don't foresee a possibility of exports step up because the government of India has changed the policy this time. Although from a larger perspective of the industry, the policy has been very successful. So the sugar mills are allowed to solve the domestic quota with the export quota. So as a result, we have seen a 6 million target being achieved in -- I mean, we are already -- contracts have been signed for more than 5.7 million tonnes of export of sugar. And we see this target of 6 million tonnes being achieved way ahead of the schedule. So but in the process, yes, sugar mills like ours, like last year in MAEQ 2019/'20 with this policy not being there, there were a couple of opportunities available to us to bid for more exports and we got added targets. This year, in the MAEQ of 2019 -- 2021, our quota was 80,000 tonnes, and we have got no extra quota. So we don't see these numbers getting higher and higher in the times to come. So...

But if you have no incremental exports, you'll divert it towards ethanol, right, I would imagine?

Yes, yes, yes, we will be sacrificing more ethanol. Like I just said...

So ethanol plus exports block, what would that be as a percent of revenue last year? And what does that look like 3 years ahead?

Last year, our sugar revenue was 80% and our ethanol revenue was about 13%.

And export 7%?

No. Export is included in the 20%. So export, out of 49.49 lakh quintals that we sold 15 lakhs, almost about 30% we sold exports, yes. So 30%...

So exports plus ethanol is about 43%, right?

30% plus, 43%, yes. So...

And what does that mix look like 2 or 3 years out?

So 13% will obviously become 20%, at least, because the 3 will and export from...

Could say the same.

No, it will come down from 30%, it will come down to, let's say, about 20%. So 20% plus 20%. So yes, export plus this could be anything above 35%.

35%, 40%. But what are the margins in your export versus ethanol? Is export also 25%, 30% margin business?

No, no, no.

Yes. So what is export?

No, no, exporters' -- margins are similar to those that we get in domestic sale of sugars. The advantage in export, in fact, the realization in exports is lower. But the advantage in case of export is that number one, new export raw sugar, so which means the cost of production of raw sugar is lower. The recoveries are better. And you don't have to use the packing material, et cetera, was in the form of a bulk that's number one. And number two, in export, you are liquidating your stock faster. So you're not -- there is a substantial interest saving also. So there is about INR 200, INR 300 of arbitrage that is available in case of export, but export rates are always -- I mean, it all depends. When do you contract the export contract. For example, if somebody is contracting the export contract now, the realizations would be much better. I mean, I'm talking about a week ago now, of course, the subsidy has been reduced by INR 2. So somebody had contracted, let's say, week or 10 days ago, they would have sold it at a much better realization better than the domestic market real price that they would have sold.

Understood. Then I guess, the way to look at it really from a P&L perspective is really saying exports is 13% -- I'm sorry, ethanol is 13% of your revenues in '21, and that would be as high as 20-plus percent 2 years out?

Correct.

Because that's what makes the swing in your blended margins?

Yes, Absolutely.

Thank you so much, everyone. And in case of any further questions, this is a final call or else we'll end the call. Sir, there are no questions from participants.

Thank you so much. Thank you. It was a great session.