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

Ladies and gentlemen, good day, and welcome to the Q3 FY '22 Earnings Conference Call of Dwarikesh Sugar Industries Limited, hosted by the Dolat Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Archit Joshi. Thank you, and over to you, sir.

Thanks, Rutuja. Good evening, one and all. On behalf of Dolat Capital, I would like to welcome all of you to the Q3 FY '22 Conference Call of Dwarikesh Sugar Industries Limited. We have with us today, Mr. Vijay S. Banka, Managing Director of Dwarikesh Sugar Industries Limited. Thanks a lot, sir, for letting us host the call. Without any further ado, I'd like to ask Mr. Banka to open the call with his introductory remarks after which we can have the floor open for a Q&A round. Thanks a lot, sir, and over to you.

Very good afternoon, everyone. We yesterday announced our unaudited financial results for the quarter and 9-month period ended on 31st December 2021. The quarter that has gone by has been reasonably satisfactory. We have clocked a total income of INR 602 crores, profit before tax of INR 41 crores and profit after tax of INR 29 crores. So this compares well with the profit -- the total income, the PBT and the PAT that we had recorded in corresponding quarter last year. So in 9 months period, we have turned over a total income of INR 1,502 crores, PBT of INR 133 crores and PAT of about INR 96 crores. So if you look at the PAT number of 9 months period it is more than the PAT that we clocked for the full year -- FY 2021. In terms of percentage inventories, the PAT -- the increase in the PAT figure, as well as the PBT figure, as well as the total income figure is impressive as you can see. So we are now -- I mean, speaking from the country's production perspective, we, yesterday, ISMA has published its numbers, and it's my estimate that the production will be about 31.45 million tonnes. Well, considering the fact that the Maharashtra and Karnataka, they are reporting good yields and good recoveries. So my guess is the production could touch 32 million tonnes for season 2021, '22. And we have all the numbers before you. During Q3 FY '22, our EBITDA margin was better than what we had clocked in the corresponding quarter last year. In the 9 months period also our EBITDA margin is better. During the quarter, we have sold sugar -- we have sold about 14.17 lakh quintals of sugar, which includes 2.50 lakh quintals of export sugar that we did, which is as compared to 10.38 lakh quintal of sugar that we sold in the corresponding quarter last year. In the corresponding quarter last year, we did not have any export sales. All the sugar that we sold was -- sold in the domestic market. Sugar sold during FY '21 9 months period, we sold about 35.88 lakh quintals of sugar, which includes 2.50 lakh quintals of sugar that we exported. So this number again compares better with what we had done in the 9 months period in the previous financial year. So we have carried a stock of 11.07 lakh quintals as on 31st December, which is a substantial reduction from what we had carried on corresponding date last year. Last year, we carried 19.49 lakhs quintal of sugar. So nearly 8 lakh quintals of sugar stock has come down. So -- and so far as the distillery segment is concerned, we've already sold about 3.92 crore liters of ethanol, in the 9-month period, which is as compared to 1.89 crore liters of ethanol that we had sold in the previous year 9 months. So with term loan profile is lean and trim, all the loans that we carry in our books are at subsidized rate of interest. And our rating continues to be A+, although ICRA has recently revised our outlook from stable to positive. So which means -- in due course, we should get the much deferred upgrade in our rating. Our short-term rating for the commercial paper program is A1+, so this is about what I mean and so far as company is concerned. Now India, as we have heard, I mean, we have contracts for about 4 million tonnes of sugar exports have been already signed, which is good news considering the fact that there is no subsidy that is being given by the government this year. And we expect that 6 million tonnes of sugar will get exported. So we are looking at a very healthy sugar balance sheet for the country. We have started the year with an opening stock of 8.2 million tonnes, and we should end with a closing stock of nearly 6 million to 7 million tonnes. So some reduction in the closing stock level. And if you look at it from the perspective that a couple of years ago -- 3 years ago we had an opening stock of 14 million tonnes in terms of substantial reduction. All credit to the government for incentivizing exports in the last 2, 3 years and also for giving impetus to the ethanol lending policy as a result of which we are seeing sacrifice of sugar in favor of ethanol, while in season 2021, nearly 2 million tonnes of sugar was sacrificed in favor of ethanol. This season, the sacrifice is going to be about 3.4 million tonnes of sugar. So this number is going to go up in the coming years. So we should -- I mean, the sugar industry should now -- in a couple of years from now should witness a scenario where production will be more or less equal to the consumption. And if at all, there is surplus, maybe a small surplus of 1 million or 2 million tonnes it will be usually great -- it will be easy for the country to push it out of -- push it out in the export market because with the news that India is not going to have too much of surplus sugar, international prices also should get better. So pushing out the 2 million tonnes of extra sugar should not pose any kind of a problem. So we are looking at the future with a sense of optimism. Of course, optimism always has to be -- I mean we are cautiously optimistic. But as of now, things look good. The government has been supportive and the economics of the sugar industry has been good in the last couple of years. So we look at the future with presence of optimism. Thank you very much. Well, whatever questions you have, you may please ask me. I'm ready to answer you.

[Operator Instructions] The first question is from the line of Mr. Resham Jain from DSP Investment Managers.

So a couple of questions, mostly bookkeeping kind of question. But first is on the closing stock, what is the quantum which we have at the end of the quarter, December? You mentioned in your opening remarks that...

Yes, yes, 11.07 lakh quintals.

Okay. And that was 19.5 last year, right?

Correct. Correct. 19.49, yes. 19.5 lakh quintals. Yes.

And what is the value of this, per kg?

It's valued at INR 3,161 a quintal.

Okay. So INR 3,100?

61.

Okay. And the average realization during this quarter was around 35-odd level?

Yes, if you look in the investor presentation, you want me to repeat, I'll...

No, no, that's fine, sir.

Yes.

And sir, ethanol, this year, and with around 5.2, 5.3 crore liters approximately. Is that the right assumption?

See, we have already done 3.9 crore liters. So we should do anything between 1.4 crores to -- 1.4 crores in the 3 months period that we have now, Jan, Feb, and March.

Okay. And with the new capacity, sir, we will end up with what level of production of ethanol?

See -- and so far as the ethanol season year is concerned, from our Dwarikesh Nagar plant, we expect to supply about 5.4 crores liters of ethanol. And the new plant, which is going to come up and which will be operational in June 2022, and I forgot to mention the schedule of execution is perfectly on time, and we should be able to commission the plant in June 2022. So what we are doing in our Dwarikesh Dham sugar unit is that we are producing B-heavy molasses and storing it. So once this plant is commissioned, we should be using B-heavy molasses there and making manufacturing -- sorry, producing ethanol from there. So even if you were to assume that we'll get clear 3 months of distillery operations there. We should be able to do about 1.50 crores liters minimum from there. So together, we should be able to do about 7 crore liters in FY 2021, '22.

Okay. And at peak, it will be similar to this 5.4 crore liters?

Once both our plants are operational, our model is going to be that in season, we will be using juice for making ethanol. And in off season, we would be using the B-heavy molasses, which is all -- which we would generate during the season, and we will use it during the off season. So we expect to produce -- once both our plants are operational, we expect to produce about 11 crores liters of ethanol every year.

Okay. Got it, sir. And sir, just related to this quarter, our overall -- I think EBITDA per liter, if I look at is slightly lower compared to, let's say, previous quarter. So if you can explain why it is so in the ethanol business?

See, firstly, I must tell you, sir, it is very difficult in a sugar industry to view the segment results on a stand-alone basis. And number two, also on a quarter-on-quarter basis, I mean particularly quarter 3 of this year is comparable with the quarter 3 of last year, but not entirely. So in Q2, what ethanol we made was from the molasses that we had generated in the last season. And in Q3, what we have sold molasses is mostly, I mean, partly generated for what we had generated in the last season, partly what we have generated in the current ongoing season. So there has been a revision in the transfer price of B-heavy molasses based on the base price of B-heavy molasses, which has been prevailing in the market. So because of that, you will see lesser margin in case of -- in the sale of ethanol in percentage terms, yes.

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

Sir, my question is on the follow-up of previous question around comment. So you mentioned about the revision in transfer pricing of B-heavy molasses. Can you mention how much it has gone up from where to where last quarter to this quarter?

See, last quarter, our ethanol generated during season 2021. Our transfer price of B-heavy molasses was INR 670 a quintal, which has been revised to INR 1,030 a quintal.

Okay. INR 1,030 per quintal. Okay. But sir, on the simultaneously, we don't see that transfer pricing coming in the sugar segment. I think the EBIT margin of sugar segment has also gone down.

That's what I was mentioning a little while ago. It is very difficult to do -- I mean, to view the results on a stand-alone basis, even in so far as segments are concerned and on quarter-on-quarter basis also, it's very difficult to come to any kind of conclusion.

Okay. Okay, sir. Sir, can you mention our crushing volume and recovery this quarter?

Yes. Sure, I will. One moment. See, we commenced our crushing operations in 2 of our units on the 29th October. And in the third unit, we commenced our crushing operations on the 9th of November. So our crushing during the quarter was 124 lakh quintals, which is as compared to 120 lakh quintals that we crushed in the corresponding quarter last year. So about 4 lakh quintals more. So -- and in this season, we have been generating only B-heavy molasses across all 3 units, whereas in the last year in 2 of the units we generated B-heavy molasses and 1 unit we generated C-heavy molasses.

Okay. And sir, what is our recovery this time? Net recovery as mentioned?

Yes, net recovery. I can only talk about net recovery at this point in time because the gross recovery would be a little misleading. So our net recovery is 9.79% as compared to 10.35% recovery that we had clocked in the corresponding quarter last year. So I must mention 2 things here. Number one, the recovery may appear to be lower because we have generated B-heavy molasses in Dwarikesh Dham unit, whereas last year, we were generating C-heavy molasses in that year. So there has been sugar sacrificed, more sugar sacrificed in favor of ethanol, number one. Number two, what happens is even while we are generating B-heavy molasses, there can be more sacrifice of sugar -- if we -- if the B-heavy molasses that we generate has higher TRS content. So higher TRS content would mean that our ethanol recovery is going to be better. But at the same time, our sugar recovery will suffer. So this is a balancing act that we do, I mean, depending upon what we think is required. And -- having said that, I must say that the recovery trends have been lower in the quarter for all the sugar mills in UP because we have had very severe winter conditions, number one. Number two, there was unseasonal and very heavy rainfall in the -- towards the end of September. So which resulted in water logging in many parts of Uttar Pradesh including the Central UP, West UP -- East UP. West UP fortunately was less impacted. So that is the reason why the yield and the recovery trends have been little lower.

Okay. Okay. And sir, going forward in the 4Q, will this be made up, some recovery would be happening in the yield and what is our crushing...

Yes. See, the January month again has not been good in so far as weather conditions is concerned. But we have seen good sunshine in the last 3, 4 days. So that should improve the sucrose formation in the sugar. So from towards the end of January or from the beginning of February, we see more of plant cane coming because we would have exhausted ratoon crop. So plant cane, the recoveries are always better. Now let's see how much we are able to make up from the last -- the recovery that we have already lost, lost to that, we have to wait and see.

Okay. And sir, what is your crushing target for the season?

See crushing target is a -- last year, we -- last season, we crushed about 378 lakh quintals. So my guess is we should crush at least 375 lakh quintals this year. We were expecting to crush more this season, but because of the unseasonal rainfall, waterlogging, the yield at the farm levels also has been lower particularly in case of ratoon crop. So we will have to wait and see. There could always make some great recoveries in so far as weed is concerned when it comes to plant cane crop. So we will have to wait and see. But in any case, we should be able to do at least 375 lakh quintals.

Okay. Okay. Sir, my last question is that export net realization, how much are we getting?

See, we have done -- we've exported about 25,000 metric tonnes of sugar. So we had contracted this at INR 3,450 a quintal, delivery at Kandla. So we incur transportation and other expenditure of about INR 2,200 per metric tonne. So net realization is between 32 and 32, it's about 32.5 -- INR 32,500 a metric tonne.

The next question is from the line of Karan Agarwal from Tusk Investment.

Hello, am I audible?

Yes, I can hear you. You need to be a little louder, sir.

So I have 2 questions from my side. One is around, we have seen in the presentation that our sugar sold volumes has been considerably increased over the previous year. Why is that? Is it because we have received more quotas or because of the export component coming here in Q3 FY '22 numbers?

Yes. Number one, yes, export numbers are coming in Q3 numbers. Number two, our quotas have been higher. Now while our quotas have been higher is because we have done exports -- a lot of export in the last year. And plus we have also been generating B-heavy molasses and making ethanol and supplying it to the OMC. So weightage has been given to that also. So as a result, our quotas have been higher and that's the reason why sugar volumes have gone up.

A follow-up question on that. Sir, I'd like to mention that the Q3 FY '22 volumes also constitute our export contracts and our export contracts were done at around 32.5 lakh like you mentioned in the previous answer. So -- but if I look at the average realization, it's coming to 35.43 per kg. So does that mean...

So the sales is -- sales of export -- export sales is booked at INR 34,500, okay? Export sales was booked at INR 34,500 but INR 200 to INR 250 per quintal of transportation cost, et cetera is contained in the other expenses.

Okay. And the domestic realization could be around 36, 37, if I'm correct?

35 something. I think we have given it in the presentation 1 moment I'll tell you.

On the overall realization number is 35.43 per kg, but this also includes...

No, no. See, the blended average realization is 35.27 and domestic realization is 35.44.

Okay, sir. Got it.

The next question is from the line of Rajyavardhan Sonthalia, an Individual Investor.

How are you, Mr. Banka? Congratulations on a very good set of results. So Mr. Banka, I had a couple, most of my questions have already been answered. So I have a couple of basic questions. Going ahead, since you mentioned that this year will mainly B-heavy, and you guys are going to store molasses, B-heavy molasses to using the off crushing season and during the crushing season you guys are going to primarily make ethanol from juice. So my question is your season runs around 9 months a year, correct?

No, 6 months. 5 to 6 months.

So we'll be doing -- so can I assume that we'll be doing 50% if going ahead, we had to project a number for how much B-heavy and how much ethanol you'd be producing from juice, could we say 50% from ethanol and 50% from -- roughly from -- 50% from B-heavy and 50% from juice?

Yes, yes, yes.

So out of -- and we projected 8 crore liters for next year FY '23, correct, if I'm not wrong?

FY, we should be able to do 8 crores yes, we should be able to.

FY '23, right?

Yes, yes, yes. And FY '24, we will be able to do 11 crore liters.

And out of 11 crore liters, 5.5 crore liters will go to -- directly from juice and 5.5 crore liters from B-heavy molasses?

Approximately, approximately. When we get closer to operating both the plants that is the time when we will decide on the right raw material there, I mean, to feedstock mix.

Sir, do we have enough -- is this because we don't have enough molasses to service the amount of the capacity we have for our distillery that we're going to -- is that we're going to use it?

No, no. See like this, with the kind of capacities that we are going to have in the times to come. I mean, with the new distillery also coming up, we should not be -- by following this mix of raw material -- feedstock mix of juice during season and during off season B-heavy molasses. We will neither be having surplus molasses, nor we will be required to purchase molasses from outside. So we will be self-sufficient and be able to run both distillery plant for about 320 days a year.

Very interesting. And sir, do you think you'll be able to export your entire excess sugar inventory apart from your buffer stock, obviously, within the year?

No. You see we have already exported 25,000 metric tonnes of sugar. Further export contracts -- signing of further export contracts will depend upon how the international price of sugar is, which presently is subdued. So at this price, we have no intention of signing any export contract. We might sign if the prices get significantly better.

Okay. And sir, my last question is how much eventually at 11 crore liters when we'll be producing a blend of B-heavy and juice -- directly from juice, what is the kind of sacrifice we'll be getting on our sugar production?

We should be able to sacrifice I mean nearly 25% to 30% of sugar production, we should be able to sacrifice.

So in terms of yield, how much is that going down by?

You mean the recovery?

Yes.

Well, so far as the gross recovery is concerned, there would be no sacrifice, there -- it wouldn't be going down and so far as the net recovery is concerned, it will go down substantially.

So can we assume net recovery to be around 9%?

It might be. I have not worked out those numbers yet.

The next question is from the line of Nimish Sheth from GT Advisory.

Just a comment since most of the questions have been asked and answered. Good numbers, we're at an EPS of 5 for the 9 months, it looks like we'll end the year around 7, 7.5. So that's a 50% jump. You normally pay a INR 1 dividend last year, you guys gave INR 1.25. Can we, as investors, expect a 50% jump in the dividend? Because I keep asking you the same question, dividend policy but it's never addressed.

No, no, sir. Just want to see once our year is closed, once we have the numbers, once we have a total visibility and so far as the cash flow is concerned, that is the time we will take a call on our dividend, dividend quantum, and I can assure you that it will be good.

Okay. And sir, every company now as well as the leading companies have started giving interim dividend either it's in the second quarter, like even in the third quarter, like all the others, including actually Dalmia for this -- has announced an interim. Have you considered -- are you considering in the future to split this up given interim after the third and then whatever is the final 0 or extra in the last -- at the end of the year.

So first and foremost, our priority is to commission our distillery plant at...

[Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language] Definitely, sir, we have not yet become debt-free as such. We have -- I mean we have working capital debt most of the time. So anyways, debt requirements are coming down, I quite fully agree with you. But yes, once our position becomes a little bit more stronger, yes, why not sir, we will also -- would want to remunerate our shareholders in a manner that they are happy and satisfied.

Looking forward to that sir.

Thank you, sir.

The next question is from the line of Ashutosh Chaubey from Centra Advisors LLP.

So my question is with regards to the sugar realization. Even in the month of November, December, we are seeing that in UP, the prices were as high as INR 738. I just need to know why is that our sugar blended price realization is still at INR 35 and not a bit higher?

So the realization that you are talking about, those realizations are in spuds actually, not on a sustained basis. If you ask me on a sustained basis, what we have got, what the kind of realization we have got to the reasonable realization. I must mention here that there are a couple of factors which impact the realization. Number one, our realization could be a little lower because we are in the hinterland. So there are mills which are there on the highways, et cetera. So they always get better realization. And there are -- and the realization that you spoke about perhaps could be of refined sugar, whereas we do not make any refined sugar. Sir, the various compelling factors, so I wouldn't say that our realizations are low. But yes, every effort is being made to improve our realization.

Okay, sir. Fair enough. Sir, my next question is with regards to the sugar inventory. Now going -- now it is seeing that the inventory has been -- inventory expected to be around 31.5 million tonnes, and there is no talks going about any incentives, export incentives by -- from the government's end. So do you still see that, like you mentioned in the opening comment that we could see a 6, 6.5 around million tonnes of exports happening this year. Does this -- will this sugar inventory again cause any issue to the sector?

No, sir. See already 4 million contracts for 4 million tonnes of export sugar has been signed, okay? Now 2 million tonnes, there could be -- you see sugar prices may -- international sugar prices maybe subdued to date, but there are opportunities which come where there are daily spuds in the sugar prices. So that's the time when sugar mills would be looking to contract and more sugar for export. And we have a long way to go. We are just in the month of January, just -- we have finished January. So there are a few more months where there is every possibility that contracts for 2 more million tonnes of export sugar can be easily signed. And the consumption numbers also are improving in the sense that ISMA has estimated that we should have a consumption of about 27 million tonnes. So 27 and 6. 33 hopefully stock of 8 and 32.40. So yes, we can see -- we can -- we see inventory levels moderating from the 8.2 million tonne level as on the 30th September to about 7 million tonnes on 30th September 2022.

Okay, sir. Fair enough. Okay. Yes, sir, go ahead.

And that's a decent inventory to carry in the sense that it's a kind of inventory where there will be no runaway increase in the sugar prices. And it is also a kind of inventory, which would offer reasonable prices to the sugar mills.

Sir, this ongoing sugar prices as it's prevailing right now, that is around 18, 18.5. So this should be a comfortable number for the industry, right?

Not for us in UP sir, not for us in UP. And even from -- even at this price, even Maharashtra mills are not signing contracts for export.

Okay. So probably because we are in UP, we would need INR 1, INR 1.5 of more logistics cost. That's the reason, right?

Yes, yes. At least, it should be -- see, there are multiple factors here again. Number one, the international enterprises. Number two, the exchange parity, I mean higher the -- if the rupee falls, if the rupee depreciates, it's more attractive to book the forward covers. So most of factors definitely -- at these prices, definitely, we will not be able to contract sugar for export.

Okay, sir. Sir, next question is on the debt and cash flow if you could give you that number as on 31 December.

Sure. Our -- see so far as we have had 3 term loans. One is a soft loan which is given by the state government of Uttar Pradesh, which carries the interest of 5% per annum. So the total outstanding there is INR 67 crores. We have a distillery loan, which we had availed for our Dwarikesh Nagar distillery plant. That loan was -- the loan quantum was INR 116.88 crores, where the outstanding is INR 93.5 crores. And the new distillery, which is going to come up in Bareilly, in Dwarikesh Dham plant in Bareilly District, we have been sanctioned the term loan of INR 185.6 crores. And we have already availed INR 30 crores of term loan on the -- by 31st of December 2021. So totally about INR 190 crores, INR 191 crores as on 31st December 2021. This loan quantum is going to go up because we will be availing the entire loan that has been sanctioned to us for the distillery at Dwarikesh Dham unit. We've been able to moderate our working capital debt. So it's been -- because the inventory levels have come down. So which is reflected in the interest costs that we have incurred during the quarter.

Okay. sir. Sir, and the cash levels would be?

Sorry, I didn't get your question. Can you repeat?

Cash balance?

No, we don't have cash balance. We are always borrowers. We have working capital debt also. There are times in a year where we are -- we may have surplus cash, but at least during the season typically in sugar industry when the season starts, the -- working capital limit is not there or very little. And as the stock levels peak up around April and the utilization goes down.

Okay. Understood. And sir, just 1 last question. This is more of a hypothetical question that long back, there was this report issued by VPIO saying that India would roughly require around 1,200 million liters of ethanol. So we are still short in terms of capacity. Now going forward once the capacity -- a lot of companies in the last 1 year have announced their capacity, ethanol capacity, even our company has announced that we have the upcoming capacities in July. So do we see our next leg of growth coming in next, say, 1, 1.5 years, 2 years, maybe when do you see that next? Because it's still a shortfall of the capacity of the total requirement that we want?

Most of the sugar mills are planning expansion of the distillery capacity like we have also done. There are many others who are doing. There are sugar companies whose balance sheet perhaps doesn't give of much confidence. So they are the ones who are maybe finding it difficult to get loans from the bank, but then the government is supporting them by working out this mechanism of tripartite arrangement where the sugar mill is a party, the OMCs are a party and the bank is a party. So they are working it out. So we should see some -- a lot of loans being sanctioned under that scheme, where the standard operating procedures have also been laid out. And additionally, according to my information, I mean I do meet bankers and all they've been flooded with requests for setting up of distillery based on rain. So we will have to wait and see. But yes, the momentum has been set, and there's a lot of enthusiasm to -- among the sugar mills also and to set up capacities and beside sugar mills, there are others who are wanting to set up distilleries based on rain.

The next question is from the line of Vikram Vilas Suryavanshi from PhillipCapital.

One question is that how much is the current landed cost of a cane for us?

So it's -- we procure more than 90% of our cane that we procure is the early variety. So in case of early variety, the price for cane delivered at sugar mill gate is INR 350 a quintal. And we have -- I mean we are also required to source our sugar cane from the centers, which have been set up. And plus -- so there is transportation cost involved. And then additionally, we are required to pay society commission also which is INR 5.10 or so. I'm not too sure on that. So that's another payment that we are required to make. So INR 350 and you can add definitely anything between INR 10 to INR 15, so INR 360 to INR 365 becomes the landing cost of sugar cane.

Got it. And 1 more question about we have also seen some of the reports where some of the companies are going forward due to ethanol or by syrup where you can store the juice with some process for the year. So what we are seeing that the kind of capacity addition we are seeing in distillery. Is there any scope in future to go for like juice to ethanol by syrup to ethanol or expanded distillery capacity further, so your thought on this basically juice to ethanol kind of perspective?

See, as I have explained already, our model will be to run the distilleries, move the distilleries on sugarcane juice during the season and to run those distilleries on -- with B-heavy molasses at the feedstock during the off-season. So with the current capacity of sugar as well as distillery, we will neither be required to buy molasses from outside nor will we have any surplus molasses. When I say surplus molasses, I mean after meeting whatever is our levy obligation to the government of Uttar Pradesh for country liquor approvals. So we will have -- we will neither have surplus nor will we be short of molasses at the present capacity of the sugar mills as well as the distilleries. So if there has to be further increase in the molasses or ethanol generation, we will have to ramp up our sugar capacity. I mean do some vertical growth in our sugar plant capacity. Only then I see some improved -- some increase happening in the distillation capacities.

Okay. So when -- just like example in season when you are saying that I will use juice to ethanol and B-heavy will store for off season. So then during season, say, when you're using some juice to ethanol, in that period, we'll also be getting C molasses then? And that will be the...

No, no, no. We will not be getting the C-heavy molasses. The C-heavy molasses is mystery for us.

Okay. Okay. Since because you are producing B-heavy then C you will not get and then B-heavy will be...

Even our country liquor requirement, we will be fulfilling by supplying B-heavy molasses.

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

I joined the call a bit late. Can you please tell me, what was the recovery in this quarter? And how do you see the recovery going ahead?

See, the recovery during the quarter, which relates to season 2021, '22 was 9.79% as compared to 10.35% in the same quarter last year. The drop in the recovery is because of our generating B-heavy molasses from -- in Dwarikesh Dham unit also, where we were generating C-heavy molasses last season. So which means we have sacrificed more sugar in favor of ethanol throughout. I mean, across all our units. And then, of course, because of the unseasonal rainfall during -- late rainfall during September and also because of extremely cold climate conditions, the recovery trends have been a little lower in case of ratoon crop. But I mean, now there is sunshine so that should help sucrose formation of the sugar. So -- while it will be too early to talk about the recovery pattern for the entire season. I mean we have had some dent in the recovery so far. Let's see whether we'll be able to make it up in the balance part of the season.

Understood, sir. So this quarter, what was the gross recovery? I mean therefore...

Gross recovery is also lower as compared to last year, at least by about 0.2%.

The next question is from the line of Dhwanil Ketan Shah from I-Wealth Management.

Sir, just a couple of questions I have, as you were saying for the recovery rate...

I'm sorry to interrupt you Mr. Shah, but your voice is not clear, sir. It is echoing.

Is it better, now?

Yes, please go ahead.

Yes. Now it's better, yes.

Okay. So sir, just wanted to understand on the recovery rate, we've been reading a few articles where it has mentioned that some kind of diseases, disease have kind of taken place in the UP side of it in the sugar crop. So just wanted to understand from you how severe this is -- and are we also impacted by this and hence, our recovery rate is lower?

Well, not entirely. You see, let's divide UP into 3 parts, West UP, Central UP and the East UP, okay? So the problem of Red Rot is more severe, more intense in the East UP and of course, in parts of Central UP. So we have 2 of our units in West UP, almost -- I mean that more or less in West UP, I would say. So where the impact of the Red Rot is much lesser. But in the third unit that we have Bareilly -- in the Bareilly District, there the intensity of the pest attack is little more. So we are working on a program to replace the variety 0238 in a planned and phased manner. There are some interesting varieties which are available such as 15023, 14021, et cetera. So we will -- this is the transition phase, I mean, actually would take about 4 to 5 years, but we are working on it. And we will ensure that our crops are -- our crop is as robust as it should be and should not be pest grown.

Okay. So sir, in the third unit, which you said that Bareilly you are seeing this Red Rot impact. So what happens that time, so the production would be far lower there compared to what is the impact of the disease?

Yes. So when the impact of Red Rot is there, the yield obviously is lower. So we will have to wait and see in case of ratoon crop, yes, we have seen a little lesser yield, but...

How much that would be sir? These are in...

See, we are still 3 months away from total closing of the season in that unit. So it will be difficult to say how much is going to be the impact. But last year, for example, we crushed about 120 lakh quintals of sugarcane in that particular unit. So this year, we should be able to crush the same 150 to 120 lakh quintals of sugarcane in that year -- that unit.

Got it. Got it. And what is the break up given, do you think we should end this year by, so currently, you said that on gross it is we are lower, right?

No. We see net recovery, obviously, will be lower because we are sacrificing more sugar in favor of ethanol. And so far as gross recovery is concerned, like I mentioned, we have already suffered a dent in case of ratoon crop. But there is every possibility that we should be able to recover some lost ground in case of plant cane crop. So we will have to wait and see to -- of course the total impact on the recovery for the full season.

Got it. Got it. Got it. And then, what is the distillery volume which we will do in FY '23? I missed that number. Probably...

It is about 8 crore liters in FY '23.

From both the plants, right, sir?

Yes, yes, yes. The third plant -- the second plant will be operational for part of the year. So that will not get the full year. So we expect at least about 8 crore liters from...

This year, around 5.3, 5.4, as you said.

Yes, 5.3 to 5.4 crore liters.

And sir, in spite of our sugar prices Y-o-Y increasing by INR 3.5, INR 4. So when we see the profitability of sugar has not concern even...

Sir, that is what I was telling right in the beginning of the con call that it is very difficult to segment, we should see the results in totality rather than segment wise, okay.

Even sir, when we see that...

And again, I must mention that we should not see it quarter-on-quarter basis. Quarter -- at least quarterly results, we should not view them in isolation. Typically, for all the sugar companies, the fourth quarter is the best of the lot actually. So I'm not trying to say how good or how bad it is going to be. But typically, that has been the trend.

The next question is from the line of Karan Agarwal from Tusk Investment.

Yes. Sir, my question was that since our distillery will be up and running in the first half of FY '23 as said. What are our plans going ahead in terms of expansion? Because there are -- as far as I understand, the other extensions also, for example, we could set up a biogas unit or we can make our own IMIL liquor also? Or this can extend into specialty chemicals. So what is the vision of your company beyond that? I understand it's very difficult to say now, but what is your vision?

So with the present distillery capacity and with the present sugar capacity, they complement 1 another, and we see possibility of no molasses surplus or no molasses deficit situation, okay? But yes, there are options available as we go forward. We could expand the capacities of our existing sugar mills. We will have to assess the cane availability situation, undertaken massive cane development exercise, so that areas where sugarcane has not grown, we must make them grow sugar cane and we could expand the sugar plant capacities. And when we do that, obviously, we will have more surplus of molasses. So distillery capacity is also can be ramped up. Or as you said, you can -- 1 can always use the capacity for some specialty chemicals, et cetera. The 1 area where we are lacking is the refined sugar, we don't make refined sugar. So that's another thing which can be explored. But our present thoughts are totally on setting up the new distillery, stabilizing its operation and then step on the accelerator and go to the next level.

The next question is from the line of Jhalak, an Individual Investor.

So sir, my question was the COGS that we see on a Q-o-Q basis. So the percentage of your COGS to sales was 74% in the last quarter, which has increased to 80%, sir, any specific reason for that?

No. Actually, we've been -- you see the sugarcane prices also has gone up. So that's 1 reason. And let me -- I may sound repetitive, but like I said, we must not see the quarter results in isolation.

Yes, yes, obviously. But sir, on your...

The sugarcane prices have gone up by INR 250 per metric tonne.

Okay. And what will be the -- your gross margin sustainable for the year if you can guide -- give a guidance on that?

Ma'am, I will not be able to give any guidance on this. But yes, the fourth quarter is typically a better quarter for all of us. And based on the trends that we have seen so far, we have already -- in the 9 months period, we've already exceeded the profit for the full year of 2020, '21. So the trend seems encouraging. We are optimistic for the fourth quarter as well, so let's wait and see.

Okay, sir. And sir, my next question was, as you said, third quarter -- the quarter 3 number represent some of your export of sugar. So how can this volume for sales can be considered sustainable based on the seasonal nature, I also understand the seasonal nature. But again, this 14 lakh quintal can be a proper sustainable number or we can expect a lower number because exports of quarter -- exports are included in quarter 3?

Absolutely. You're right. As for the presently prevailing international prices, I don't see any possibility of signing export -- further export contracts unless the export prices improve -- international prices improve significantly. So that's when -- otherwise, the domestic quota we should be getting sugar -- domestic quota of sugar, we should be getting as usual. So definitely, we will not be able to has the same kind of volume numbers for fourth quarter, which we had in the third quarter, unless we signed some export contracts.

Okay. And sir, last question was on since the extended capacity of distillery that we have. So sir, is that capacity fully sufficient for the sugarcane that would be crushed and recovered? Or can we -- even if we set up extra mill for crushing sugarcane, so will this distillery capacity suffice that?

I think I've answered this question. Our distillery and sugar capacity, they complement 1 another. So with the kind of crushing capacity we have and with the kind of cane which is presently available to us, we should be able to run the distillery plants, both the distillery plants on -- for at least 320 days in a year, which is based on the model that during off-season -- during season, we run it on sugarcane juice directly. And during off season, we run it on -- we run the distilleries on B-heavy molasses. So this complement 1 another. And in a situation like this, we will neither have surplus molasses nor we will be deficit on molasses.

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

Sir, any update on the new variety of cane that we were using? Any update on that?

Yes, we've embarked upon a program to propagate that variety in a big way. So the method is to firstly, to get seeds to the multiplication of seeds planted in cooperation with the farmers, use the variety in some plots, which are on the main roads. So they act as demonstration plots. So with some things being available for the coming seasons, obviously, multiplication will happen. And we are sure the demonstration plots will -- the farmers will be able to see good results in those demonstration plots, and there will be introduced enthusiasm in times to come. And as I mentioned, it's a 5 years program. So we can bring about our decent varietal mix in our sugarcane availability in the command area. We can have all the variabilities even 0238 continues to be a study variety, except that in East UP and parts of Central UP it has been tested with Red Rot. Otherwise, in West UP, we have seen no problem and so far as this variety is concerned. But yes, going forward, we will be -- we would like to have a healthy mix of all the varieties.

This new variety does it have a higher recovery rate or just study...

It's got both. It depends so far as recovery is concerned, and it's also different so far as yield is concerned.

Okay. Okay. And sir, 1 thing you mentioned that will be fulling your alcohol molasses maybe that is by the UP government. Why is it with the B-heavy and not C-heavy because I wanted to understand you will get the same price as C-heavy molasses?

No, no, no. Number one, the quantity will be lesser. The formula that will be applied is if you are -- for example, if your B-heavy molasses obligation is X, then your B-heavy obligation would be -- that X multiplied by 22.5 divided by 31. That is the yield that you have. So number one, your quantity that you are required to give will be less. And number two, the price also as against INR 140, the size of B-heavy molasses will be INR 210 a quintal.

Okay. Okay. And what's the C -- INR 210 you mentioned, right?

Yes, for levy obligation purposes.

Right. And what was C-heavy earlier?

C-heavy has been -- I mean, there is no fixed price as such but the indicative price is INR 140 a quintal.

The next question is from the line of K. Mohan, an Individual Investor.

Sir, do you expect that the exports being low in the fourth quarter and the production is being the highest in the fourth quarter. Do you expect carryforward stock in the next season will be much higher than the last year carryforward stocks in the whole country as a whole?

No, sir. No. Let me talk about our company first. We have been -- on 31st December, we are having a stock of about 11 lakh quintals, which is 8 lakh quintals, 8 to 8.5 lakh quintals less than what we were carrying on the same date last year, okay? As it is, if you see with the entire country, we -- I have already explained that we should see some moderation in the stock -- closing stock of 2021, '22. From 8.2 million tonnes, we should come down to about 6.5 million to 7 million tonnes of closing stock. So I don't see any problem there, sir.

So do you -- you don't expect that there could be because of the higher stock there would be a price drop in the market at the sugar price?

No, no, no. Sir, market works on perception. So the perception is that the closing inventory levels may be lower. So the prices will be in middle. So whereas these various phases, sir, when the prices swing either way. So we've seen these winter months and the prices are a little low on the lower side, they remain subdued. And also because of the fact that Maharashtra mills have commenced production. So this could -- they're a little more eager to drop prices. So -- and then just before the start of the season, the prices get better. So we see -- in the summer months, the prices are all -- always better. So I don't see any challenge to the selling price of sugar in the coming months.

Do you think that the -- I hear that this year, again, Brazil is having a drought, and therefore, the crop -- Brazil crop comes in only after June, July and estimate of what Brazil can supply. If there is a drought again, do you think international prices are going to go up from the current level of 18.5 cents to 19 cents a pound?

Sir, Brazil last year, I mean because of the drought season 2021, there was a deficit of 2.5 million tonnes. '21, '22 again internationally is expected to be a deficit year with the deficit of 2 million tonnes in spite of better crop and better sugar production in Thailand, India. But in rest of the world, the gains are limited. So we are seeing these deficits of international prices had touched a high of 21.5 cents a couple of months ago. But then India participated very enthusiastic getting in export. So maybe that has had some effect on sobering down the international prices. But then there is general news is that sugar production internationally is going to be deficit. So we should see some rally in the sugar prices, both internationally as well as in all the domestic markets of the world.

Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to the management for closing comments.

Thank you, friends. Thanks a lot for being with us. I mean, it's always very interesting and very encouraging to have a conversation with you all. Thank you very much for reposing trust and confidence in us. And as I keep repeating after the end of every conference call that we'll try to do our best. We've been efficient in our operations outlook. And so far as recovery is concerned, and even other parameters are concerned. So we will continue to do so, we'll try to do better and better as much as is possible. Thank you very much. I look forward to your support and guidance for all times to come. Thanks.

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