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

Ladies and gentlemen, good day, and welcome to the Q2 FY '23 Earnings Conference Call of Dwarikesh Sugar Industries Limited, hosted by Dolat Capital. [Operator Instructions] There will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Tejas Taramani from Dolat Capital. Thank you, and over to you, sir.

Thank you, Fazan. Good afternoon everyone. On behalf of Dolat Capital, I would like to thank the management of Dwarikesh Sugar Industries Limited for giving us the opportunity to host their Q2 FY '23 Earnings Call. From the management team, we have with us today, Mr. Vijay Banka, their Managing Director. Without further ado, I would like to hand over the call to the management for their opening remarks, post which we will open the forum for a Q&A session. Thank you, and over to you, sir.

Very good afternoon to everyone. I invite you all to the earnings call of Q2 FY '23. Our results are already in public domain. The quarter was -- I mean, the quarter which went by, has seen contraction in the earnings. When we had a good turnover, turnover was INR 542 crores with INR 506 crores as compared to the corresponding quarter last year. But our EBITDA, et cetera, have been on the lower side. And I'll explain the reasons for that as we go along. So we had EBITDA of INR 31 crores approximately. We've had some good savings in the finance cost, which is about INR 6 crores, but profit after tax was INR 7.84 crores which is compared to INR 39.63 crores during the corresponding quarter last year. And we have sold -- let me brief you about the sales numbers. So during the quarter, we sold about 11.49 lakhs quintals as compared to 12.06 lakh quintals in the corresponding quarter last year. The entire sales during this quarter, as well as the corresponding quarter last year was domestic sales. And in the H1, we have sold about 26.78 lakhs quintals of sugar, which includes 5 lakh quintals of sugar that we exported as compared to 21.7 lakh quintals of sale that we had in the corresponding half year last year, that was all domestic sales. If you see the export number, sales number both for the quarter and for the half year, they looked very similar. We have had a stock of miniscule stock of 1.8 -- 1 lakh from this on the 30th of September, which is obviously has been sold in this month of October. Insofar as the Industrial Alcohol is concerned, we have sold about 233 -- 22,257 kilo liters in Q2 and 37,892 KL in the half year. So again, this number as insofar as the quantity is concerned is better as compared to what we did in corresponding quarter last year. The reason being we have been able to commission our Dwarikesh Dham distillery project, which commenced commercial production on the 7th. Now of course, both the distilleries got closed around the first week of September because we had exhausted the B heavy molasses stock, which was with us, and then we had to open the plant for service, et cetera. And in case of Dwarikesh Dham, obviously, there were no repairs, but we had to make good all the -- whatever the learnings we have had, we have to set the plant correct. So our term loan profile is about INR 309 crores. All our loans, as I have repeatedly mentioned, they are all at set at subsidized rate of interest. We have one term loan of UP state government, which is -- where the outstanding amount is INR 47 crores, and the rest for the distillery project, all the installments whenever due has been paid on time. I must mention -- I mentioned about the contraction and the profitability. The main reasons are -- I'll talk -- first talk about the non-recurrent expenses that got appointed in this quarter. One is relating to the wage board [indiscernible], which had to be accounted for -- of course it will be paid in due course of time, it has to be accounted has to be accounted retrospectively from 2018. So that entailed an amount of INR 9.77 crores. Then for the entire season 2021-2022, the levy obligation of molasses from 18% to 20%, so which means we effectively lost an opportunity to convert about 34,000 centers of molasses into ethanol and then sell it. This molasses, of course, we had to sell at a nonviable price of INR 210 a quintal. So then the third reason also was that during this quarter, when we started our distillery - DD distillery plant, obviously there were some PPE issues. So the yield was not as per our expectation. So now all the corrections that are required at the plant have been made. So now going forward, we should get as we yield as we are getting now in the distillery business. So these are one-off factors, but more important to you, that we have -- we had to, in the season 2021-2022, our cost of production went up, INR 2 a kg, went up on account of increase in the raw material price, which was increased by INR 25 a quintal and there was approximately INR 1 increase on account of lower recovery. So I must mention here that we have already started the season 2022, 2023 at 2 of our units. And the third unit, we will be able to start our crushing on the 8th of November. As per the trends available, in spite of the rains and seasonal rains in October, the recovery should be better than what it was last year. We hope that we will be able to make some lost ground that we -- some ground that we lost in the last sugar season. And well, we are going to give changes directly for making ethanol during the duration of the season in the DN and DP distillery unit. And across all 3 units, we will be producing and generating and storing the B heavy molasses, which will be used for making ethanol during the off season. So the entire dynamics of our working will be undergoing a change, but for the first time we will be using changes for making ethanol. In the process, of course, we will be sacrificing fuel production substantially. If you recall 2 years ago, of course, in the last few years, we have been generating B heavy molasses and this year ago, last year, we generated B heavy molasses in two units, this year we will be generating B heavy -- sorry, last year, we generated B heavy molasses across 3 units, this year we'll be reducing that to 2 units. So the entire dynamics will undergo change and then we'll cut on the production of sugar by about 20%. So depending on sugar revenue to come down, this will broad-base our revenue. So that's about it, and I would now open the floor on to the question-and-answer session. Please joins us and ask some questions.

Thank you very much. [Operator Instructions] This is the operator, Mr. Banka, while giving the opening remarks, the audio was slightly muffled.

Okay.

Yes, sir.

So I'll make effort to increase my -- I'll talk a little bit louder.

We'll take the first question from the line of Resham Jain from DSP Investment Managers.

So a few questions, sir. So the first one is on sugar season '23, how do you -- how should one see the overall sugar production? Because you mentioned you'll be making -- sacrificing some sugar for juice. So based on what you mentioned just now, how much will be the sugar production? And how much is the expectation for the ethanol as well?

Okay. I'll talk about the country's production first, because, yes, a lot of progressive companies are going to use sugarcane juice directly for making ethanol, but we see ahead a bumper sugar production season 2022-2023. If you had read [indiscernible] remarks, they are talking about a number of 36.5 million tons of production for '22, '23, which is after sacrificing 4.5 million tons of sugar production in favor of ethanol, which means the country's gross production will be 41 million tons. Now coming to our production, we expect a similar or slightly more crushing numbers, because the area under sugarcane has been a little better. Well, the impact of rainfall during the October, late rains in the month of October, it doesn't seem so treating as it was in the last season. So we should be able to see some improved crushing numbers. Insofar as production is concerned, when -- if we think about similar crushing number 390 lakh quintals and if we talk about a recovery of 12.25% gross. So there will be a sacrifice of nearly 13%. So I think anything between 30 lakh quintals to 35 lakh quintals is what we think will be our sugar production in the coming season. And about -- if you talk about sugar season per se, we should be producing and selling about 11 crore liters of ethanol.

Okay, understood. And in terms of profitability, how will it change once you sacrifice sugar for ethanol, because ethanol is more of an assured margin business compared to sugar, where the prices can see some amount of volatility. So how would you look at the overall profitability with this shift from sugar to ethanol?

Obviously, making ethanol is more profitable than making sugar, at least at the current price, market price level. So we have a very flattish year so far as sugar prices are compared. So even if we have seen that there is some improvement or, let's say, about INR 200 improvement in the profitability, INR 200 improvement in the sugar prices on an average for the entire field, for the entire year, still our renewal prices ended by expected increase in the price of ethanol, making ethanol will be obviously more profitable. It's going to be our first reason insofar as making ethanol from juice is concerned, so we are yet to discover which is -- on paper, yes, of course, this looks more profitable, but how much more profitable considering the fact that we always got better recoveries, so whether how will they get reflected in the numbers, we will have to wait and see in a matter of 1 or 2 months, it will be done and be clear.

Okay. And sir, just to understand the equation compared to B heavy, if you will be manufacturing through juice, how much better it will be in terms of the overall economics?

See B heavy juice availability is limited. So here we should not compare the B heavy vis-a-vis juice. We have to compare sugar vis-a-vis juice, so it's definitely more profitable, because B heavy generation will continue as it was in the last year. So during our period, we will make use of B heavy molasses or reduce the economics.

Okay. And sir, my last question is on CapEx. Any ongoing CapEx and any future plans, if you can just --?

We are evaluating a couple of proposals. By January 2022, you will be ready to hear as to what all we are going to do.

So currently, there is no projects which are going on even in your factory?

You see our focus is now on the start of the season, which has not now commenced. So, now we'll start working on the project related work.

Okay. And this new proposal, is it related to...

Like small increases in the capacity that are DN and DP unit and then there is a refinery tower in one of our units. So these are the proposals that we have in mind.

Okay. Understood, sir. And all the best.

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

Sir, I had some doubt on this export extraction. So then our industry is to be back at a similar closing stock of like 5.8 million tons to 6 million tons to meet about 8 million ton to 9 million ton export. So now this restriction that has been expanded, where do you see what's going to be the outlook scenario for it? That's my first question. And second is Dwarikesh being this quarter with such a low inventory, and do we fulfill our quota for the third quarter in terms of sugar, as well as how much can we do ethanol in the third quarter, being -- you also mentioned that September the distillery were gone for maintenance because of run out of molasses. So that's where it is, if you can mention, throw some light on it, sir?

Okay. Talking about your first question. Well, there is a bit of a scare which has been created by this news report which came that there is going to be a restriction on export of sugar. Now by restriction they mean regulation, they mean regulation, not ban on export. So they mean that export will be regulated. Now so far as our informal talks with the government officials are concerned, and as you may have read in various newspaper reports, the first tranche of export quota of 6 million tons that is expected to be announced, maybe announced today or maybe tomorrow. We were expecting announcement on this for at least a week ago, but then for some reason or the other, it's got postponed. But 6 million tons announcement is expected any time, and that will be [indiscernible] based announced so far. So under that quota, we expect that about -- it will be tradable quota, we expect about 80,000 metric tons of export allotment for us. Now 3 more million tons, maybe 2, maybe 3 million -- 3 more million tons of export quota has been expected to be announced sometime in Jan, February. Because 8 million to 9 million tons, as you rightly mentioned, has to move out of the country, we have to maintain similar closing stock levels. So this being a bumper sugar production year, the numbers speak for themselves. Now, a opening stock of 5.5 million tons production of 36.5 million tons, so which makes sugar availability of 42 and then we deduct from that about 27.5 million tons of consumption, 9 million tons goes out, 8 million tons to 9 million tons goes out, we are back to the number of 5.5 million tons at the close of the season 2022, 2023. So I mean the official, the government are very positive, but it's all -- I mean, whatever delays that we are seeing is all very procedural. Okay. What was your next question, sorry?

Sir, your inventory being so low, can we fulfill our -- yes, third quarter quota?

Yes. Now -- you see our distillery at DN unit sugar plant has commenced and our distillery will also commence operations in a day or 2. We are awaiting for a few approvals to make juice for maybe ethanol. Just about -- it's a question of just about a day or 2. And in DD already the approvals are in place, so DD Distillery is going to commence. So far as our ethanol quota is concerned, we will be fulfilling. We have a balance of about 50 lakh liters to be supplied under the contract that we have entered into with the OMC. So we expect not just shifting, more quantity to move out in this month of November. Insofar as sugar sales is concerned, well, we have had a minuscule quota for the month of November, because our stock actually -- as on date is 0. And -- but well we have contracted to sell about -- to export about 5,000 -- 50,000 metric ton of sugar in anticipation of the export policy. So we will -- we are making raw sugar at 2 of our units where will be making in 1 unit, it's already commenced in the other unit, raw sugar will start from the 8th of November. So we're going to sell about 5,000 -- 50,000 metric tons of raw sugar during this quarter. And of course, whatever further domestic release orders we have, we will of course be able to do that.

Okay. Okay, sir. Sir, I'll join back in queue.

Thank you. [Operator Instructions] The next question is from the line of [ Ambar T from Geomatrix ].

I'm little surprised at the results, so I actually have several small questions, which shouldn't take long, mostly around the factors that you mentioned in the opening. So this -- I'm trying to understand this change that happened from the governments from 18% to 20% for the molasses. The reason why this happened? And can it keep repeating? And also, what was the extent of the loss financially? If you had 34,000 tons -- or quintals, sorry, molasses that you had to sell at INR 210. And what was the loss of the ethanol? That's my first question.

Okay. So can we answer one by one.

Yes, one by one. I think one by one is better, yes.

So you see this contract percentage, which was increased from 18% to 20% for the entire molasses that we generated during season 2021-2022, most of which was in the last financial year, and a part of it was in the current financial year. So we have been additionally give about 34,000 metric quintal, 34,000 quintals of sugar. Now if you consider a yield of about 30, if not more, we could have perhaps made about 10 crore -- 10 lakh liters of ethanol, which would have got sold at approximately INR 60. So which means we could have generated about INR 6 crores of revenue from that with no incremental cost. Whereas this 34,000, we have been able to sell a INR 210, so INR 70 lakhs is what we have got out of that. So that will explain the financial impact of this particular policy measure. Now why this percentage has increased is because I mean there are reasons which are, number one, the contributor consumption has gone up in Uttar Pradesh. Now whether it has really gone up in Uttar Pradesh or it is moving away from Uttar Pradesh, we don't know, because we are in a neighboring state where there is prohibition. So I wouldn't rule out if some amount of contributor from UP is going out of UP to Bihar. Because otherwise, this percentage should not have risen at all. I mean when the government…

This means that molasses is something that you need. And without any clue, the government can just take -- they could make a 22, 24 tomorrow, they could make it anything.

Absolutely, absolutely, they could make it. They can make it. They can make it. It's just that our request and our repeal to the government is whatever you do, you do it upfront, you don't give us surprises later on. So of course, for them, the exchange of the state is very important. So we are, in a way, subsidizing the liquor trade -- continue that trade in Uttar Pradesh or maybe in the neighboring states. So that's the reason why it's gone up.

Second question is, sir, this yield reduction -- sorry, not -- from the new plant, the one that you saw from your new 175 KLPD, was this expected? Or was it because it's a new plant? Was it because of --?

It's a new plant.

So how much of that was expect?

So we have -- had a need of about 28 liters per quintal of molasses, similar molasses, we have recovered about 30 liters per quintal. So that again translates to about 5 crores to 6 crores. So this is very typical, sir. Yes, yes, of course. Now everything is stabilized and I mean the trial, the period of trial simulation is all over now.

Understood. Understood. Sir, you mentioned exports for the next year, approximately what price do you -- would you have built in, this...

We have contracted exports of about 50,000 metric tons at INR 36,000 metric ton in for Kandla. So if you take away INR 2,000 logistic cost of transporting sugar from our units to Kandla, so our expected realization is approximately INR 34,000, which is for raw sugar. If you consider the advantages of lower cost of production, faster movement, faster rotation of flow.

Right, right, no doubt, yes, you've mentioned that many times. Just correct it to me, had this been refined -- had this been refined, what would have been the net impact?

That realization would have been much more higher and fortunately, we don't have a refinery.

You don't have the refinery. Okay then next…

That realization, I'm aware, sugar mills have contracted to sell -- refinery at a factory realization of INR 38,000 a quintal.

Okay. Next quickly, my -- one of my last questions is, cane diversion from the industry, is it closer to 4.5? Or do you think it can touch 5?

For the next coming season, sir? Which could touch higher, sir, this is just a random number, I don't know how this number has been completed. It could be higher, because we are going to see very enthusiastic participation of sugar mills insofar as moving juice for making ethanol is concerned.

Right. Right. Sir, last question, what have you done to your balance sheet? I found it very hard to understand with all the cash and you suddenly become a cash-rich company and the inventory is down to 0. Could you just walk us through what exactly has happened this quarter, so much debt has been higher --?

Sir, we have had a good releases. So therefore, our stock levels are the lowest, all thanks to our focus on ethanol and exports. So the weightage insofar as the domestic releases is concerned is that much more higher. The production of sugar also has been lower. So this has all resulted in building up of cash and cash equivalent. So going forward, our requirement of working capital is going to be substantially less than what it was in the coming season because the last season, our requirement was after factoring for 14 lakh quintals of opening stock. So yes, going forward, our working capital requirement will be so much more lesser.

And do you see any substantial improvement in the amount of gain that you can crush this year or it will be marginal, 3%, 4%, 5%?

3%, 4%, 5%, not more than that, because in other states, we are more or less saturated. So whatever increase we're going to get, we're going to get it from our unit in Bareilly district.

Okay. All the best. I will e-mail you privately some other questions.

The next question is from the line of Rajesh Majumdar from B&K Securities.

Sir, I just have 2 questions. I mean, most of my questions are answered. That this UP increase in wages, was it not accounted for earlier, because we did make a provision for this and suddenly it comes out of the blue, this INR 9 crore odd.

No, no, it was on the card, but it was not -- the quantum was never known. And it was the Gazette notification only came during this quarter. So it was -- it's there, it happens. I mean, it's a once in 5-year phenomenon. So it happens. It does happen.

The INR 9 crores is a 5-year kind of impact? Is it so? Annualized impact…

2018, I think we mentioned the date also, from the 1st of October, 2018 till date.

And what's the annualized impact of this?

Annualized impact will not be much, annualized impact will be about -- in percentage terms, hardly anything, but maybe about INR 1.5 crores, INR 2 crores.

INR 2 crores, all right, okay. And secondly, sir, my question is how confident are you about the recoveries being 12.2% plus, given the fact that we are just into the present season, and we still don't know whether there will be other situations like red rot, et cetera, which has happened in the past and recoveries have been impacted. So how confident are we of recoveries in this sugar season?

The last 2 years also we had this phenomenon of late rainfall in the month of October. So we have had similar phenomenon this time. The only good thing is, last year the rain was followed -- the rain was accompanied by heavy winds, I mean heavy winds, which resulted in lodging of sugarcane in many areas, which was obviously tampering the growth of sugarcane, lower the yield of sugarcane. So this year, we have not seen any such phenomenon. And I'm expecting improved recoveries based on our lab results, because the kind of sugar content that we now see is a little better than what it was on the correspondingly last season. And after that late rain fall, there is -- subsequently there has been no rainfall. So the water from the fields, which had got accumulated has repeated. I mean, in UP we had achieved much better recovery numbers in the past. So there's reason why we should not at least make up for little of the last ground last season.

Sir, the late rain impact of maybe 3, 4 days is marginal rain in your opinion, right?

No, I mentioned there are 2, 3 reasons. One is the wind which accompanied the rains in the last season, which was not much, okay? And as on date -- and thereafter, the rains came and the rains halted, and thereafter the water has got pre-treated from the cities now. We don't -- we now don't see any water accumulation in the cities.

Okay. And I think last year, the crushing was delayed much further, right, crushing -- you started crushing this year much earlier compared to last year?

No, no, no, no, no. I think around the same time, in fact, a day or 2 before. I'm not -- I don't remember the date when we had started. In fact, this year, we are planning to start crushing at our Bijnor units on the 18th of October, but unfortunately, because of the rains, it got delayed by 10 days.

Right. And sir, my last question is on this blending. Our current run rate, as I understand, as of data given is 10.7%. And going by the additions and capacity, et cetera, is coming in, what is the realistic time frame to even achieve the 20% blending target is? And second question is, new players have given a 50-50 kind of ratio between sugar and grain to achieve this target. How realistic is this? And will we see some change in this going forward?

So you see, we had crossed the 10% blending target in the month of July, as well as in the month of August. But September, October, November typically are very lean months. So all the efforts are on to increase the ethanol supplies and my own guess is that we may not end up with 10% blending. So how good we are to go to 20% within the announced time frame? I think the blending numbers will be substantially better than the season because we are going to see very enthusiastic participation of sugar mills and making ethanol directly from cane juice. So the number is -- obviously the production number of ethanol is going to be a lot better. But then capacities are coming up further. Of course, government is making all the efforts to ensure that even the weaker sugar mills are able to set up capacities. They have been extending their time lines to our putting up the ethanol projects so that the units are available for availing the subsidized rate of -- loans at subsidized rate of interest. So all those efforts are on. So we will have to wait and see, but sugar mills would -- they are doing whatever is within their capacity to increase the ethanol price. Now talking about your question on whether we will have a 50-50 kind of a ratio between ethanol made from sugarcane and then ethanol made from grain, a lot of ethanol capacity based on grain has come up, but I think a little bit we got thrown off-guard because of the war situation and consequently rise in the price of grains. So I mean it's a difficult question to answer of how good we are to [indiscernible] in 2 years' time.

No, my actually, like related question was that sugar mills do more CapEx in the juice side in case the grain equation is unfavorable and as you see most of the suppliers that are playing out?

Well, yes, that's a good question. See it's like this. Presently, there is a particular price to ethanol, which is made from juice directly. We have been clambering, we have been talking to the government to increase the price of ethanol based with sugarcane use as the feedstock. If there is an increase in price, I'm sure many sugar mills will be able to meet their sugar assets redundant, in the sense that, for example, like I said, we are going to cut down on our sugar production by about 30%, which means we're going to make our sugar assets redundant by 30%. So if the prices go up further, I'm sure, sugar mills will be able to add up more capacity and they will be able to focus on more generation of ethanol and lessening their sugar production.

Is there any pinpoint in terms of the juice section that we have in terms of whether it's INR 3 or INR 5 increase, where this kind of a major change in the CapEx structure may happen? Any kind of ballpark figures on this?

We have been asking for a -- from the existing level about INR 4 increase, so that there is a decent IRR after considering for the redundancy in the sugar assets.

The next question is from the line of Nikhil Gada from Abakkus Asset Manager.

Yes. Sir, my first question is on the sugar production numbers. So when you say that we are going to do this 38 lakh metric tons of crushing, is this for the sugar season '22-'23, you're saying? So what would be that number for FY '23, if you can sort of guide for?

It will be more or less the same actually, because our start date is, in fact, maybe we are late or early by about 2 days, 3 days, so it will not make any kind of a difference. So if it is [ 380 ] for the season, it should be [ 380 ] also for the financial year.

Understood, sir. And sir, when we say that we are going to get our sugar production down by maybe close to 30%. So then that -- in that context, we are saying that the total sugar produced by us would be closer to -- close to around 3 lakh sort of metric tons.

Yes, 3 lakh metric tons to 3.5 lakh metric tons.

Okay. So in that case, if you can help us, what would be the ethanol produced through the juice route and what would be through B heavy in terms of percentage if it's possible?

See, we're going to run the sugar distilleries on the juice during the season 2 of our plant. So we should -- out of 11 crore liters, maybe 5.5 crores, 6 crores from juice and the balance from the B heavy molasses.

And sir, sorry, just asking regarding this economics because if I understand, even at current prices of sugar through B heavy route, I believe that it is the most profitable, right, and then it will, juice route. So are we fixated on this or we are going to be very flexible whenever there are new prices for ethanol get announced and if it's not as much as we want for juice, then we will sort of go back to more B heavy and less juice?

No. See, if you want to optimize or maximum -- maximize our production numbers, this is the model we have to focus. We cannot make a bigger deviation, there can be a small deviation, but there can't be a bigger deviation.

Understood. Understood. And sir, just on this 38 lakh metric ton of sugarcane crushed. So compared to our FY '22 number, then there is no major jump in terms of the availability of sugarcane...

See, even if there is an increase in the cane availability that will get reflected in the numbers of '23-'24, because the start crushing date is the same as it was the last season -- as it was the last season. So the number of days we get to work the sugar plants during the season is going to be the same as it was in the last financial year. So, for example, if instead of [ 380, we do 390 or maybe 400 ], the -- that part of -- the incremental part is going to be reflected in the working of '22-'23 -- sorry, '23-'24.

Understood. So, in that case, sir, because we are completely shifting more towards juice and more towards ethanol route, would you sort of mind giving some kind of guidance in terms of what kind of EBITDA we can achieve in '23 and specifically in '24 operating at peak optimization?

That's very difficult actually, I cannot give any guidance on that. Yes, all I can say is the numbers are going to be definitely better.

Got it, sir. And just one last question, you mentioned that for the upcoming quarter, the sales volume for sugar would be somewhere around 50,000 metric tons, right?

50,000 metric ton is export. We will, of course, sell whatever quota we get for the month of -- for October, we sold whatever balance of sugar was there, which was about 18,000 metric ton. November, the releases are very less because we have no sugar stock. So we're going to be producing sugar stock only in one of the units because in rest of the 2 units, we're going to be producing raw sugar for exports, okay? So in the month of December, we have -- we would have production of white sugar, because in both the units up -- in 2 units, so you're producing raw sugar up to December and if not -- maybe a little early also. But in December, whatever quota we get, we'll be able to produce and sell white sugar as well as the domestic market.

Understood. And this 11 crores for ethanol, which we're targeting. So then it's safe to assume that from the current quarter onwards, we will be operating at sort of on a quarterly run rate on a peak?

No, no, no, no, no. Because in this quarter, we're going to get only 2 months.

Understood. Got it.

November and December, yes.

The next question is from the line of Shailesh Kanani from Centrum Broking.

Sir, a couple of questions from my side. One question is on long-term capital allocation. As you have also mentioned that we will be working low and lower working capital, and as we keep on diverting towards ethanol, our need for funds would be lower. And I assume that given the balance sheet, we would be having good amount of capital getting generated. So any plans on FY '24-'25? I know you mentioned that there are a few things on the drawing board, but can you just a little elaborate on what kind of quantum we are looking at?

Sir, these increased incremental cost capacity building, incremental refinery -- adding up refinery, they all will involve a outlay of at least about INR 100 crores to INR 150 crores. So we will -- I cannot spell out the number right now. We will first freeze our plan, we'll provide whatever CapExes that we have in mind. And then we will decide and take the next step.

Okay. And so we are not looking anything on increasing the capacity on the ethanol front, I mean, right? On molasses base, I understand you've already guided we are maxed out as per our catchment area or as per our production facility, crushing facility. But are we looking at grain as an option which many of the companies are looking at or are still be skeptical on that?

No, see, our ethanol generation will go up if we are able to increase our crushing in our units. So as I mentioned earlier, we are planning some increase in the capacity at 2 of our units, which are in the Bijnor district. So whatever the increases there, whatever additional or incremental crushing number we have from those units, we will obviously be generating B heavy molasses and we'll also use some amount of juice from there to make ethanol. So 11 crore liters can be made from our units in about -- some of our distillery in about 320 days' time. So we will have -- there is already some additional inbuilt capacity in our distillery. So I mean if there is more cane available, more crushing, 11 crores can easily go up to 12 crores also.

I think my question was more on grain front, are we looking at that as an opportunity...

No, no, we are not -- as of now, we are not contemplating.

Okay. And we -- it's not on the drawing board as well, right?

No, not at all, not at all.

Okay. Okay. I think -- sir, one more question, when you said that you have contracted export of 50,000 metric tons, you said the realization of 36,000 per ton. Did I -- sorry?

[indiscernible].

Yes. So that was raw sugar, right?

Yes. Raw sugar.

So that means that we have got a good polarization premium as compared to the U.S. cent rate, right? That is what I need to understand on that?

Yes, yes, yes. Presently, Indian sugar commence premium, polarization premium.

So what is that percentage would be?

You see, we contracted when the price was around $0.186 or so, okay? So typically, to convert...

$0.18?

$0.186 per pound, okay?

So that was some time back, I guess because that rates have not been therefore locked because they have crashed very quickly, they have come down very quickly. So we've been able to catch the top, I guess?

$0.186 into 22.97 is the factor, 22.97, then multiplied by INR 83 as the dollar price. So...

Okay. To the extent, there is a...

If I have to go by this, I would have got about 35,500, I've got 500 extra by way of premium.

Okay. So we got good rate on the raw price front as well and actually get -- INR 83 we got. Okay, okay. Fair enough. Fair enough.

Exchange rate is going to be good, raw prices will be, of course, dependent on the crude prices. So...

Right, right, right.

I mean if you see the trend of the prices, see, there are occasional parts. So you -- all you need to do is remain vigilant and whenever those occasional parts and the prices, international prices were to happen, so that's the time when one should be looking to contract the export contract.

Okay. Great. Great.

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

Can you hear me?

Yes.

All the best for the coming season. I think many of the assets are in place. I have 2 clarifications that I need to ask. I couldn't hear the closing stock number. You said you had 18,000 tons of closing stock. Is that correct?

Correct. Correct.

And what is the value of that per kilo?

So that value -- that value is obviously higher, that's about [ 3,490 ] plus. So anyway, there's going to be...

So around INR 35. Okay. Fair enough.

Yes.

Second is, when are you starting crushing at your 3 units?

We have already started crushing at 2 of our units on the 28th of October.

Okay. One is on the 9th or 8th?

8th of November, we're starting.

So all conversations in the course of the Q&A, but I missed a few. And if I recall in the last con call, you had mentioned about the need for a refinery, which is what you don't have.

Correct.

So -- and I think you mentioned you're planning to put up a refinery and you would have some projects in mind. So has anything been finalized or...

By January, we will finalize that.

Why are we delaying it? How long does it take to set up a refinery?

No, we will be -- see, once we take all the calls in January and once we place order for machineries, et cetera, immediately thereafter, we will -- finally, we will be up and running for season '23-'24.

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

Sir, my question is that, sir, at 11 crore liters that you're looking at, sir, does it take into account the extra 2% levy molasses?

Yes. Yes. It takes into account. It takes into account. Yes.

Okay, sir. And sir, you said that roughly the blend will be like 5.5 crores from...

Yes, 5.5 crores, 6 crores from cane juice and about the balance from the B heavy molasses.

Yes. So it's almost a 50-50 balance that we're looking at?

With upward bias for juice.

With upward bias for juice. And sir, my question was that, sir, like you just explained so many times in the last few questions that, right now, we're not looking at any other ethanol expansion. But the crushing that we are looking to increase, after that is it possible to increase this?

Yes, of course. If our crushing numbers go up, obviously, our ethanol production also will go up. Even within the same -- even within the -- with the same assets, let's say, instead of 380 -- 38 lakh tons of sugarcane crushing, if you do 39 lakh tons, obviously, that will result in more generation of ethanol molasses and juice and more production of ethanol.

Okay. And sir, the surplus cash that we are looking to build now and that we built now, any potential uses of that other than the CapEx that we are planning?

We will see -- I mean, of course, the -- once we're ready with our Q3 results, I think that time, we will have more clarity. And I'm sure whatever is the most productive way of utilizing the money, we will do that, sir.

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

Sir, I have 2 questions from my side. What is the costing of ethanol derived from B heavy over C heavy?

Sorry, sir.

What is the costing of ethanol derived from B heavy and C heavy?

The costing more or less, there isn't much difference. But why B heavy molasses is more attractive is because of the selling price of B heavy molasses. The selling price of B heavy molasses is almost INR 59, whereas in case of C heavy molasses is substantially different.

And what about the costing perspective?

Costing, there wouldn't be much difference, sir, because -- I mean, typically, we take INR 10 a liter as the cost of conversion. So B heavy could be INR 10 and maybe C heavy could be a little lower.

Okay.

Yes.

Another question is related to met out the levy obligations. What are the plans that you have met out your levy obligations to B heavy or C heavy molasses?

No, B heavy, sir, we're going to -- because the policy whatever be the percentage, the policy will be fair in the sense that new factoring will be done for the yield coming out of B heavy molasses. And accordingly, the quantum of B heavy molasses that will have to be offered for levy purpose will be lower. So it will take into account the relative yield of both C heavy molasses as well as B heavy molasses and accordingly. Yes, the base is going to be C heavy molasses and B heavy molasses levy obligation will be a derived number from the obligation in terms of C heavy molasses.

And what is the percentage of levy in case of B heavy?

So this -- in case of C, it is 20%, so in case of B heavy closer to about 15.4% or something like that.

Okay. So it...

Yes. It's -- in case of B heavy, it is -- C heavy, it is assumed that the yield is 22.5 and in case - sorry, in case of C heavy, it is assumed that the yield is 22.5, and in case of B, it is assumed that the yield is 30 liters -- so it's accordingly, the numerator is 22.5 and the denominator is 30.

The next question is from the line of Ashish Pandey, an individual investor.

Sir, I have 2 questions. I can see your balance sheet on 30th of September, you have got INR 103 crores of inventory. And out of that, [ INR 60 crores ] will be tied up in your sugar stocks. Is that understanding correct?

Sorry, sir, what's your question? Can you repeat?

On total inventory you have...

Mr. Pandey, the audio is breaking from your line, sir. Please check.

Now is it clear?

Yes. Please go ahead, sir.

So -- yes. So, sir, the inventory figure on 30th of...

Your voice is still breaking, sir.

Hello? Now is it clear?

For a moment, it becomes clear, sir, but then again, it starts breaking.

Sorry, I'll try my best, sir. Sir, how much is the inventory tied up in sugar stocks as of 30th of September? I think it's INR 63 crores.

Yes, 18,000 metric tons multiplied by 35. So that is what it is.

Okay, sir. And second question was, sir, how does the sugar selling price you're getting in this quarter so far, I mean, what's your expectation for full quarter?

Sir, I think we have given it in our investor presentation. Let me tell you, in this quarter, we got a realization of close to 3,000..

No, sir, I'm talking about Q3. I'm talking about Q3...

Q3 so far is about INR 3,550 crores plus, sir. INR 3,550 crores.

INR 3,550 crores.

Thank you. As there are no further questions from the participants, I would now like to hand the conference over to Mr. Vijay Banka for closing comments.

Thank you, friends. Thank you for your active participation in this conference call. And I must say it's a very interesting set of questions from your side. And I hope that I've been able to answer you all satisfactorily. Yes, the results for the quarter have been under-stressed. There have been contraction of profitability, but, yes, this has been one-off kind of a quarter with some non-recurrent kind of expenditure happening which got factored in the results. Going forward, yes, in Q3, we will have 2 months of working for the distillery, so which you should -- we should see ethanol production accordingly in these 2 months. Third -- fourth quarter, of course, we'll see brisk activity insofar as sugar as well as ethanol production is concerned. So we do hope and expect that the recovery trends for the coming season will be better. Let's wait and see. We are optimistic about that. Thank you very much. Thanks a lot for imposing confidence in us. We are extremely delighted to be participating in this conference call. Thank you once again so much.

Thank you.

Thank you, sir.

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