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

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 Q4 FY '23 earnings call. From the management team, we have with us today, Mr. Vijay Banka, Managing Director; Mr. B J Maheshwari, Managing Director and Company Secretary, Company Compliance Officer; and Ms. Priyanka Morarka, President of Corporate Affairs. 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.

Yes. Very good afternoon. I welcome you all to our Q4 FY '23 earnings call conference. I'm very happy to be back among -- amidst you. We have announced our results yesterday. So the results are already there in the public domain. I'll quickly run through the results. In this particular quarter, we have had a turnover of about INR 534 crores, which is -- as compared to INR 476 crores turnover that we clocked in the corresponding quarter last year. For the full year, we have clocked a turnover of INR 2,117 crores vis-à-vis INR 1,982 crores in the last financial year. Our profit before tax is INR 70 crores approximately, as compared to INR 86 crores in the corresponding quarter last year. And on full year basis, we have clocked a profit before tax of INR 152.5 crores against INR 218.67 crores. Profit after tax is INR 46.75 crores vis-a-vis INR 59.61 crores. And for the full year, the profit after tax is INR 104.81 crores vis-a-vis INR 155 crores last year. So you will find there is a decline in the profits in the quarter as well as in the full financial year, which is mainly attributable to the -- to a couple of factors. I'll deal them immediately. The first one is -- because in the last year -- financial year, we had the benefit of selling sugar which was produced in season 2020, '21, wherein the SAP was INR 25 lesser. So in a sense, we've had benefit selling lower cost -- I mean sugar where the cost of goods sold was lower. Secondly, we have had a dent in our recoveries. Our recoveries have been lesser, which was mainly because of the red rot infestation that has happened in the command area of our Faridpur unit, which is in the Bareilly district. And thirdly, the sugar prices throughout the year remained absolutely muted. They were range bound between INR 3,400 and INR 3,500. So in a sense, there has been no commensurate increase in the selling price of sugar as compared to the cost of sugar sold. ISMA has yesterday -- sorry, day before yesterday come out with their latest estimates. They now estimate that the sugar production in the country is going to be approximately 32.8 million tonnes, which is after considering sacrifice of about 4 million tonnes. So if we gross this up, that means the total production in the country is going to be 36.8 million tonnes, and -- which is significantly lesser than what gross level production we have had in the last crushing season, which was almost 39 million tonnes. The main reason for the revision -- downward revision in the estimated production is because Maharashtra and the Karnataka, they have been -- the mills have concluded their crushing operations. They closed in the month of March itself, and there has been lesser production and lesser recovery across. So I'll quickly go through the numbers. Total income, as I mentioned, is INR 534 crores. EBITDA of about INR 88 crores vis-a-vis INR 103 crores in the corresponding quarter last year. On full year basis, our EBITDA is INR 229 crores vis-a-vis INR 294 crores. So these are the main numbers. We have already gone through the PBT and the PAT number just when I started my conversation with you. So -- well, some highlights. During this quarter, we sold 8.75 lakh quintals of sugar, which included export of about [ 66,000 ] quintals of sugar, as compared to 10.11 lakh quintals sugar that we sold in the corresponding quarter last year. So there has been a reduction of -- in the domestic market, there has been a reduction of about 2 lakh quintals of sale in the domestic market, which is obviously because of lower releases that we have received for the government, which again is attributable to the lower carried forward stock that we have had. We have -- during the full year, we have sold 42 lakh quintals of sugar, which includes export of about 10 lakh quintals, so which means in the domestic market, we have sold 32 lakh quintals vis-a-vis 46 lakh quintals almost, which included 2.5 lakh quintals of sugar that we exported. On 31st March, we were carrying a stock of 10.61 lakh quintals as compared to 19.63 lakh quintals. So we have been able to moderate our stock by about 9 lakh quintals. And as far as industrial alcohol is concerned, we sold 202.95 crore liters in this quarter as compared to 101.65 crores in the corresponding quarter last year. On a full year basis, we have sold 8.42 crore liters vis-a-vis 5.57 crore liters that we sold in the full year last year. And nearly -- out of 8.42 crores, nearly 4.6 crore is what we have -- 4.6 crore liters, what we sold is -- which was mainly from juice as the feedstock. So during the season 2022, '23, we have been using cane juice at both our distilleries to produce ethanol. B-heavy molasses, whatever we have generated, that is being generated across all our 3 units, whatever B-heavy molasses is generated is stored after -- and it will be used during the off-season for making ethanol in 2 of the distilleries. We have -- I mean the B-heavy molasses that we have generated has also been given for levies -- to fulfill our levy sale obligation. So that has been done. And both our distilleries are now optimally working at their rated capacities. To begin with, when we started our season, when we, for the first time, used juice as feedstock for making ethanol, we had some teething problems, but we have overcome them all. And now the production -- we are optimally producing and we are getting the best efficiency parameters achieved also. And during the ongoing season so far, till 31st March, we've produced about -- we crushed about 302.71 lakh quintals and produced 24.02 lakh quintals of sugar. So up till 31st March, we have used 60.69 lakh quintals of sugarcane. I mean this quantity of sugarcane crushed was -- the juice was diverted for making ethanol. So if you see, nearly 20% juice has been used for -- 20% cane crushed has been used -- diverted for making ethanol. So this is an addition to what B-heavy molasses we are generating. So in a sense, we are taking -- we are sacrificing sugar production there also. So as per the -- our crushing at the DD plant, which is in Bareilly district, that has been concluded, and our crushing in both the other units is going on, and we expect to crush till the third week of May. And we should have similar crushing numbers, around 380 lakh quintals, for the full season with that. Our clean payment track record is exemplary. We have cleared cane price payment dues up to 17th April, including full and final payment for our DD cane unit. So we are paying ahead of schedule. This is another important thing that I would like to highlight is the year-end -- that results in -- the final results also captures the extra cost of INR 8.95 crores that we incurred for retrospective -- or in respect of retrospective revision of wages payable to employees under the wage board. So that has been one-off feature for the year. And we have received a quota of about 86,000 metric tons, out of which 50,000 metric tons we have exported. Rest, we have swapped with domestic quota. We have started getting benefit of additional releases from April onwards. And our loan profile is lean and clean. We have term loans of INR 283.5 crores. All the loans are under -- have been negotiated and at subsidized rates because of the government subsidies involved. We have -- our account has been -- long-term loans have been upgraded by [indiscernible]. As far as rating is concerned, we are now rated AA minus. We were stuck at A plus for 5 years almost. So our rating has received a flip. So we upgraded now at AA minus. I would also like to talk about the sugar sector scenario, how it's panning out across the globe. I'm sure you must be aware that the sugar prices -- international sugar prices are at their highest now. Raw sugar prices have gone beyond [indiscernible] white sugar prices are also at an all-time high. But the higher sugar prices internationally have gone, no respondence in the domestic market because of the restriction on quota -- restriction on export. So domestic prices were muted throughout the year, but from April onwards, the prices are -- there has been a rebound in the domestic price. Last -- in the month of April, we have seen an average realization of INR 3,600 a quintal -- a little more than INR 3,600 a quintal. And we expect that this trend should continue. We should have higher realization in the next 6 months at least. To talk about the next crushing season, it's too early to talk about the next crushing season, but we do expect that crushing numbers may not be all that big because there is this lurking fear of El Niño factor impacting the second half of 2023. So we will have to wait and watch. Once the sugar season starts, only then there will be clarity. And so far as UP is concerned, UP has been -- production has been steady. UP should end up with a production of 10.5 million tonnes for the ongoing season. So there's been -- lot of mills have been using sugarcane juice to make ethanol. So we look forward to the year 2023, '24 with a sense of optimism. Thank you very much. I would now invite questions from you. I would be very happy to answer them all.

[Operator Instructions] Take our first question from the line of Rajesh Majumdar from B&K Securities.

So I had some questions. I'll just ask you one by one. My first question was that the total sugarcane crushing volume you guided as 3,800 quintals, is about the same as last year, right? So there is no growth in the cane volumes this year?

No. No. No, there has not been any growth, sir. I'll tell you the exact numbers for financial year. Last financial year, we -- 2021, '22, we crushed 374 lakh quintals of sugarcane. And this financial year, we crushed 382 lakh quintals of sugarcane. So there has been about 8 lakh quintals of increase in the sugarcane crushed. I'm talking about the financial year, not the season.

Right. Right. And what is the gross recovery...

2.2% increase in the sugarcane crushed.

And what is fall in the recovery rate? The gross recovery rate Y-o-Y also?

It's 2.15%. Gross recovery rate is 11.83% vis-a-vis 12.09%, so -- which is about 26 bps reduction in the recovery.

Okay. Sir, so my follow-up question is we are looking at ISMA data saying that the UP production will be an increase over last year. But from the data that you are suggesting, if the recovery is falling for everyone, I mean it's much more in Maharashtra probably than in UP, but even in UP, if the gross recovery is falling and there's no diversion, the -- how will the production in UP overall increase? Or is there a difference in the areas?

No. No. No, there's difference in the areas. You will have to look at UP, all the 3 regions, on stand-alone basis, West UP, Central UP, and then the Eastern UP. So there is some increase expected in some of the regions, as a result of which the crushing numbers and, therefore, the production number should be a little more than what it was for the last season. So it's not uniform across all the 3 regions.

So Eastern UP is where the increase is, I'm told. Is that correct?

Yes. Yes. Yes, absolutely.

My last question is that in the alcohol business, what is the transfer pricing of molasses? Because we've seen a sharp jump in the numbers, but the EBIT margins have fallen sharply.

See, sir, it's like this -- I mean as far as B-heavy molasses is concerned, the transfer price that we assign to B-heavy molasses is based on the -- it's a derived price essentially, derived from the price prevailing for B-heavy molasses, okay? But in this particular quarter or at least from the start of the season, we have not been using B-heavy molasses. Whatever B-heavy molasses is being manufactured is stored -- is produced and stored for use in the off-season. As far as juice is concerned, our valuation is per quintal about INR 1,075 per quintal. So essentially, it translates to a cost of around INR 50 a liter or so.

INR 50 a liter? Okay.

Yes.

So the margin would be much lower compared to B-heavy?

Absolutely. Absolutely. No doubt about it. But between the 3, let me put it like this. The most profitable is B-heavy molasses. The second profitable is -- second in terms of ranking is juice, and third would be sugar at the given prices of sugar today.

Okay. So the entire alcohol sold in the fourth quarter is from juice. Is that what you're telling me?

Absolute. Absolute. Absolutely...

Going forward, we'll see more -- okay, so going forward, we'll see more B-heavy and better margins. Is that a correct assumption?

Correct. Correct. Absolutely.

We take the next question from the line of Nitin Awasthi from InCred Equities.

So a few questions from my side. Firstly, what is the carrying stock value for PC?

It's INR 3,172 a quintal, sir. We are carrying about -- how much did I say? About 10 lakh-odd quintals of sugar as on the 31st March, 10.11 lakh. And it is valued at, if you ask me per tonne valuation, it is INR 31,723.

Okay. And the same figure last year?

Sorry?

The same figure as on last year?

Offhand, I don't remember the figure, what it was. But I can get back to you quickly on that. That is absolutely no problem.

Okay. Was it substantially lower?

No, it wouldn't be substantially lower. It was definitely lower, but not so much lower because -- yes, it would be lower because the recoveries have fallen in this particular financial year. So it would definitely be lower.

Okay. Got it, sir. As per your presentation, the sugar you have sold during the quarter, you've gotten realization of approximately INR 34 a kg. Is that correct?

Yes. Yes, absolutely. Absolutely. Sugar price very muted, sir. Very muted throughout the quarter.

Understood, sir. And you said in April, they were INR 36. Now my question here is, we saw government intervening in April, the government of India, and releasing additional sugar into the market. Your comments on that move of the government? Do you think the government is on its toes or it is not wanting the sugar prices to go up or -- was it a planned release [indiscernible] release because of some of these...

See, it's a combination of all the factors that you have spoken about. Number one is a hot month. So I think they had to increase the releases because the prices were going up. So additional releases pumping into the market, it does have a dampening effect on the sentiment. But nonetheless, one should look at the macro picture that we can see thereafter. We have -- we estimate the production of 32.8 million tonnes, opening stock of 7 million tonnes. This number -- opening stock number has been recalibrated by the government. So 7 million tonnes plus 32.8 million tonnes is 39.8. million tonnes; 6 million tonnes of export, 27.5 million tonnes of consumption. So we're looking at a number of only 6 million tonnes and all factors are in favor of price rise. Number one, the international prices seem to be very good. And there is little uncertainty over the prospects of sugarcane and sugar production next year -- next season as well. So I think -- and the - and see, I have also told this in my earlier conferences that I don't think price up to INR 40 should be of any discomfort to the government. I mean we have seen in 2016, '17 when the prices have gone up to INR 38, and yet, there was no government intervention. Well, measures like pumping in some additional releases into the market, they are always in the government hand, but the macro picture states that, yes, there is scope for price rise.

Understood, sir. Sir, like you mentioned about the international prices being high, there has been a revision or there was not some clarity from how much Brazil would actually produce and how much it would put it -- put out in the market. Do you have any clarity on that front? How much could be the production in Brazil and how much -- what effect that would have on the international prices?

See, if we talk about season 2022, '23, okay, the downward revision in the world production estimate has come mainly from the Asian countries, that's India which has contributed largely for the downward revision. See, when the season began, it was estimated that in 2022, '23, globally, there would be 4 million tonnes of surplus, assuming 37 million tonnes of production [indiscernible] Brazil. So -- but there has been a reduction in the production estimate from Asian countries, which has brought about this lowering of the production numbers. And we see 2022, '23 being virtually balanced. The talk is that the next season, Brazil may see some increased production, but it's difficult to prophesize at this point in time because it will all depend on the tax. How does Brazil tax gasoline, whether it makes sense for the Brazilians to move a little more towards ethanol. So there are a host of factors which will be -- which would play a critical role for the next season.

Understood, sir. Understood. Sir, last question from my side. As per the presentation, we have seen very low margins compared to last year in the ethanol segment. And you have mentioned that this is because last year you had ethanol which was made from molasses, whereas this year you had ethanol made from juice.

Correct.

Now given that a lot of capacity of juice has come up and the government did want, at some point of time, that is juice to become a main route. And companies have also set up substantial capacity, including [indiscernible]. Do you see any price increase -- any scope of price increase in the juice route?

Yes. Yes. Yes. See, there is no denying the fact that at the given price of ethanol, the margins come -- it's profitable, but the margins do come under pressure, number one. Number two, the margins appear to be lower also because the recoveries have been lower. So eventually, it is -- what is the fermentable content in the molasses or the juice which is what matters. So there is lesser content of sugar -- fermentable content in the sugar, obviously, the ethanol recoveries also are going to be lower. Number three, yes, we have represented to the government in various forums that if you want a bigger sacrifice of sugar production to happen in favor of ethanol, now this is the area which needs to be focused upon. This is -- ethanol price of -- using sugarcane juice as the feedstock, that needs to be increased. And we strongly believe that our request should be considered by the government favorably.

We take the next question from the line of Nikhil Gada from Abakkus Asset Management.

Yes. Sir, I had a couple of questions. Firstly, could you help us with current year, FY '23, how much of crushing was done through the B-heavy and how much was done through the juice route?

See, the entire -- in this season -- okay, let's talk about the...

For this fiscal year.

Yes. FY, we crushed 382 lakh quintals of sugarcane, okay? And we started making use of juice only from the current season onwards. And I have given that number, 60.69 lakh quintals of sugarcane juice -- sugar was diverted for conversion to ethanol via the juice route, okay? So 382 minus 60, which is about 322 lakh quintals was what was crushed. And on the entire 322 lakh quintals, we have generated B-heavy...

Around 16% only -- 15.5%, 16%.

Yes. Yes. And the -- so far as fiscal year is concerned, yes, this is the number. But if you talk about the season per se, up to 31st of December, we've done 20% on juice and the rest is by generating B-heavy molasses.

And by 31st of March, so then -- for the season?

Yes, I'm talking about 31st of March. Sorry to interrupt -- up to 31st March, in this particular season, we crushed 302 lakh quintals, and we have diverted 60.69 lakh quintals of sugarcane for making ethanol, so which means roughly 20%. But on the entire season, it may not be 20%. It will be lesser because our DD plant has closed crushing operations on the 14th of April, where we were generating -- we were -- where we were using juice for making ethanol. So -- whereas in the DN plant, we are still continuing. Until the end of the season, we will be using juice for making ethanol in the distilleries there. But in the other 2 plants -- I mean in the third plant, we are generating only B-heavy molasses. So this number of 20% would come down, it would be somewhere around 18% or so -- 18% or 19%.

Understood, sir. Sir, just an extension to this question. So for FY '24, because now that the overall inventory that we have of sugar has seen a sizeable reduction, how do you think this number will vary for us for FY '24, assuming that government does not change the rate for juice?

No. You see, the government -- let me tell you, we are optimistic. We are hopeful that government will change the rate for the cane juice. But, well, if your question is, what if the sugar prices go very high and the ethanol prices remain the same? The juice to ethanol prices remain the same, well, what will be our strategy? Now insofar as season '22, '23 is concerned, it's all over. I mean whatever -- because if at all there is going to be any increase in the juice to ethanol price, it will be only from the next year onwards, from November onwards, okay? So whatever has been done in this season has been done and over. Okay, assuming the same scenario next year, that sugar prices, let's assume, are more than INR 3,700 or INR 3,800 or so, whereas ethanol prices remain the same, but we would like to take a very holistic picture. We would like to go -- we would like to take a very macro stance on this, in the sense that we would still continue with juice because if all of us think alike and start making -- stop using juice for generating -- for making ethanol, I think there is -- we will have -- end up with surplus sugar production in the country, and then that will trigger a downfall in the sugar prices.

Understood. So basically sugar is 18%, 20% crushing through juice is something which you...

Absolutely. Absolutely. Absolutely.

Understood. And sir, my next question is in terms of the availability of B-heavy molasses. If I compare from '23 to '24 perspective, can you help us with what kind of increase we have seen in the molasses availability and what kind of a -- we are valuing that molasses at?

See -- sorry, your question is, how do we foresee for '23, '24, is it?

No, sir. Currently -- sorry, my question was versus '22 to '23, how has the molasses inventory changed?

Okay. So molasses inventory has obviously gone up because we are generating molasses across the 3 units. Last year, in fact -- in the last crushing season, we were -- we had only that much molasses generation of B-heavy which was required for our one distillery and for the start-up of the second distillery. But now we are generating B-heavy molasses, so obviously, the stock -- I'll just tell you, one moment. Give me a moment, how much molasses we were carrying. Just a second. So we were carrying -- one moment, I'll tell you. Closing stock of molasses. So we had lot of molasses stock, but very -- we're carrying a stock of nearly 7 lakh quintals of B-heavy molasses. And the number was significantly lesser the last -- on the same day last quarter. Now going forward, our strategy will be the same, but what we do expect some changes is that as compared to 380 lakh quintals of sugar that we crushed in the last fiscal, in the coming fiscal, we should be crushing more. I mean -- not in '23, '24, but definitely, yes, '24, '25, we should be targeting a crush of about 400 lakh to 425 lakh quintals. And when we do that, our B-heavy molasses generation will also be higher, and we will be -- instead of 320, 325 days of distillery operation, we should be running the distilleries for 350 days at least.

Understood, sir. The reason to ask that number because I wanted to understand the change in inventory just because of the molasses from '22 to '23 because that would be significant, if I'm not wrong.

I offhand don't have the number of molasses stock for '21, '22, but I can get back to you on that separately.

We'll take the next question from the line of Shailesh Kanani from Centrum Broking.

Sir, one thing on sugar volumes front, how -- we have done around 0.42 million tonnes in FY '23. How would you see numbers for FY '24 and '25? And where do we see growth on the volume front for sugar division?

Sir, '23, '24, because -- let's talk about -- hello? Hello?

Yes. Yes. Yes, sir.

Yes. Yes, let's talk about the fiscal. Fiscal, there may not be any significant increase in the number -- crushing numbers. And therefore, since we are diverting more juice for ethanol, the production number, obviously, they will -- production numbers will come down. And -- but '24, '25, when -- fiscal '24, '25, where we will have the benefit of larger crushing in the season '23, '24 also and '24, '25 also, we should see increased production numbers as well as increased sugar -- I mean sugarcane number. So if you look at it -- for example, I'll tell you, in this particular season, we have up to 31st March, okay? We have produced only 24.02 lakh quintals of sugar. We crushed 302 lakh quintals of sugar, we produced only 24.02 lakh quintals of sugar. So obviously, this number is -- progressively, there is reduction in the production -- sugar production number and, hence, the sugarcane number as well.

And sir, wouldn't our '25 estimate would be depending upon good monsoon or better release and recovery because actually we are seeing this red rot diseases and UP had seen effect of that for nearly 2 years, in the yields and recovery. So are we expecting better yields and recovery going ahead?

See, my optimism comes from the fact that in our Bareilly unit where we have seen crushing of only 110 lakh quintals in this season, and the season has concluded already. Here, we've had -- as far as supplies are concerned, we had more than 96% of that variety about 2, 3 years, a substantial part of which was red rot infected, okay? So obviously, farmers have also suffered insofar as unit is concerned and the dent in the recovery that we have seen is also predominantly because of this reason, okay? Now we will see this 90% number we expect and we've worked on that -- and we will -- and on the basis of the data that is already available with us, we see this number coming down from 96% to about 66% to 70% maximum. So we will have new varieties in place. And additionally, we are also -- we have intensified our efforts to protect this variety. So wherever -- there -- we are applying some new fungicides, and the benefits seem palpable. And we do expect that both in terms of yield and both -- and also in terms of recovery, we should -- we -- there wouldn't be any kind of disappointment.

And sir, what is the time frame when you said this 96% will come down to around 66%, that is 30% improvement? That is for next year, you're saying?

Next season supplies. I'm talking about next season supplies.

So not for the current season, starting from October? For the next year, you're saying?

Yes, I'm talking about October to -- October to...

Okay. Okay. So that would be a decent improvement? Yes. Yes.

96% to about 70%, or 66% to 70% on one hand. And secondly, our efforts are on to protect this 238 variety in whichever or whatever manner possible.

Fair enough. Sir, my second point -- second question was with respect to margins. When you said the profitability in B-heavy molasses is raised, can you just give us some ballpark number, what kind of EBIT margins we are talking about here for B-heavy versus juice?

See, I would say collectively for the distilleries, we should have an EBIT margin of around 18% to 20%. This is around -- I mean, here, we have had a margin of about 12%. So there the margin is at least 23%, 24%.

So that should be on an ideal year when we have found good recovery levels, that is what you're saying, 18% to 20%?

Yes, 18% to 20%. Yes. When we have recovered the lost ground, then we should have 18% to 20% margin on the distillery segment.

And on -- if -- when there's a combination between juice and B-heavy, right? So it is 18% to 20%?

Yes. Nearly INR 6 crores of juice and INR 4 crores or INR 5 crores of B-heavy. Yes, INR 6-plus crores of juice and INR 4 crore-plus of B-heavy.

So is it fair to assume that this quarter EBIT margins of around 10% for the distillery division is primarily due to lower recoveries as in juice per se, right?

Absolutely, sir. Absolutely. Absolutely.

See -- yes.

Yes, it's absolutely that. It's because of that.

We take question from the line of Prashant Biyani from Elara Capital. you how are you doing?

Sir, for the current crushing season, till when do you think can the crushing continue?

One unit is already concluded on the 14th of May. The other 2 units in Bijnor district, they will continue their crushing operations till the third week. Maybe around the 20th of May or so is the indicative, that date, that we have got when they will close their crushing operations.

And sir, what would be our closing ethanol inventory at the end of FY '23?

Not much. We've been going hand-to-mouth, selling it immediately. Less than 5 lakh liters.

And sir, could you...

You want the exact number? I'll tell you, one moment.

Yes.

So we will have something in the process also. So if you add all together, it will be about 10 lakh liters.

And sir, could you repeat the number for molasses inventory, please?

I told it's about 7 lakh quintals.

And sir, for next year, how much crushing would we be targeting? If some color can be shared on that?

Fiscal?

Yes.

Fiscal should be around the same, but season should be more. '23, '24 should be the same because you see the -- we concluded our crushing operations around the same time as we have been -- in '21, '22 season also, we concluded our crushing operations in the -- sometime in the third week of May. So we will have a similar date this time around. So April onwards, the crushing numbers will be more or less the same. And from the start of the season to March 31,, you get the same number of days, so same amount of crushing, but we have -- there is one difference this year. We have -- we will have increased crushing capacity at our DN plant, so -- which is about 500 to 600 metric tons. So we should have some improvement in the crushing numbers.

Sir, about 400, can we reach by next year?

Yes. Not fiscal.

Yes. Even sugar season-wise?

Sugar season, yes, 400-plus. Yes.

And sir, if we are targeting around 11 crore liter of ethanol, then, sir, just for the sake of discussion, moving aside the government control on sugar export, but would we be in a position to export sugar? Won't this be a position of stock-out next year?

Isn't that to be a -- is very happy position to be in?

Yes, that's true.

Well -- yes. We will have to wait and see how much government decides. Now for example, when the quota for the current season was announced of 60 lakh tonnes, initially, we had contracted to sell about 50,000 metric tons, which we did. We produced raw sugar and we exported. But for the balance quantity, we swapped it in favor of domestic quota. So we will wait and see which is more profitable, what is -- I mean does one get any kind of a premium in swapping the quotas. So those are the factors which we will see and we'll accordingly take a call.

But, sir, government typically will want companies to keep minimum quantity of sugar. So -- I mean what will typically happen if some company don't have any sugar left, maybe if there is only 1 month of...

It's not like that, you see. They will decide on a countrywide basis. Now for example, if next year we assume, after diversion, the production is going to be -- let me be very pessimistic in the sense, let me say after diversion for ethanol, the production is only 31 million tonnes, yet you have about 3.5 million tonnes of surplus sugar in the country. So we're always looking for exports. And at such given small surplus coming from India, international prices should be good. And whatever we export, we should be able to make good money out of it.

And sir, on this juice-based ethanol, over and above the transfer price of INR 50 per liter, how much could be the conversion cost?

You see, it's about INR 7, INR 8 a liter, that's the conversion cost.

So net-net, the costing should be around INR 57, INR 58 for this?

INR 55. INR 55, optimally. INR 55 is what we should be targeting.

And next year, we should target around 11 crore liters of ethanol?

Absolutely. Yes.

And sir, what would be the plans on capacity expansion? And how much do we plan to invest?

No, we have already done -- we are doing small fixes which will result in increase in our crushing capacity at our Dwarikesh Nagar unit. That is where we see the crushing operation going on till the end of May. So we will be crushing at kind of faster pace. And -- presently, we see more scope in increasing the cane availability. And our target is that -- for example, the DD unit -- Dham unit in Bareilly district, it closed crushing operations on the 14th of April. Here is where we are targeting additional cane -- mobilization of additional cane. And there is where we think we can get more cane. And we can run this unit from the present middle of April till at least the end of April or the first or the second week of May. So we have capacity available at our Dwarikesh Dham unit. All we need to do is mobilize more cane for our -- that particular unit.

And sir, how much are we investing for expanding the crushing capacity at BN?

Not much, about INR 25 crores, INR 30 crores. That's it, not much.

And sir, what would be the maintenance CapEx?

It's -- look -- I mean every year it's about the same actually. We end up incurring about INR 20 crores, INR 25 crores of maintenance CapEx. So you don't need to really call it maintenance CapEx. It's mostly for enhancement of efficiencies, debottlenecking operations wherever required. General maintenance is, of course -- so it's a combination of both the regular maintenance, the preventive maintenance, plus for efficiency enhancement, altogether about INR 29 crores, INR 30 crores or so.

We take the next question from the line of Rajesh Majumdar from B&K Securities.

Sir, just a follow-up question. Do you see the fall in the crop as a threat for the blending program because the government has already cut down the blending volumes from 4.5 million tonnes to 4 million tonnes? And going forward, if there is an El Niño impact this year as well, is there a serious threat of the blending program and subsequent alcohol volumes for all companies thereof?

Sir, it's a catch-22 situation. I wouldn't like to be in the government shoes to visualize this kind of a situation. But well, see, in a worse situation also, the production wouldn't fall substantially. Maybe 1 million tonnes or 2 million tonnes of production fall can be expected, not much, if El Niño really does impact. In fact, there's another -- metrological department has predicted normal monsoon. But assuming the worst, there could be a reduction of about 1 million tonnes or 2 million tonnes. So this ethanol blending program is irreversible. I don't think -- and -- once in 5 years, these kind of swings -- downward swings are expected and to be factored for.

We take the next question from the line of Sanjay Manyal from ICICIdirect.

Just one thing. Your current inventory is somewhere around 1.06 lakh tonnes. And I believe from first April till the end of season, you, at best, will produce somewhere around 60,000 to 70,000-odd tonnes, I believe. And so given -- so given the fact that your inventory will be 1 lakh, say, 80,000 tonnes, this is -- at best you will exhaust your inventory by August or maybe mid of September. So in the peak -- I mean in the time when probably country level sugar inventory would be the lowest or the prices would be the best, you might be sort of exhausted with the inventory. Am I right in my assessment over there?

Sir, no. I'll tell you -- you see -- if there is a drive in our reproduction and there is a drive in our inventory, they will obviously [indiscernible]. And you see the price rise, the benefit of increased prices available mostly till the month of September. There is an overhang of the crushing operations starting for the next year. So already, we've seen in the past, from October onwards, the prices are always really depressed, and they start getting better only after the month of March. So I don't think we will be in a situation where we will rue the fact that we don't have stock and the prices are very good. I don't see such a situation arising.

Sir, just one more thing on the gross recovery front, so what would be the -- how much it is down from the peak level [indiscernible]?

So from the last fiscal to this fiscal, the recovery is down by 26 basis points. So we are actually working very hard on this. We are trying to see that we recover the lost ground, and we make up -- we right the balance is one thing which we are working upon. And so we -- I think in the next crushing season, we should see some rebound.

Sir, the 26 basis points is this year, but I think we lost somewhere around 15, 20 basis points last year as well?

Sorry. So if you compare it with the previous financial year, yes, the down -- the decline is almost 40 basis points. Yes.

40 basis points?

Yes.

Understood.

We will not be happy with recovering only 26 basis points. We'll be working towards recovering the -- to get back to our days of glory when we clocked our best recovery.

Sir, but with the change in the variety, do you think that those newer variety can match the recovery of 0023?

Yes, absolutely, sir. The results are fantastic. Those varieties are as good as 238 or maybe better than 238. But we are also simultaneously -- I explained to one of the participants that we are also working towards protecting the 238 variety. I mean it's just not that we have given it up that, okay, this variety is red rot infected, nothing can be done, so this 66% to 70% will continue to be that variety and it will be red rot infested. We are trying to educate the farmers. We are trying to tell them to apply fertilizers in the right doses. We are trying to guide them, educate them on ratoon management. We are taking various steps to see that we recover our lost -- I mean we recover our recovery.

We take the next question from the line of Riya from Aequitas Investment.

My first question is in regards to ethanol. So what would be the breakeven price that we decide for sugar versus juice?

[indiscernible] price, anything above INR 37 is profitable...

Sir, your voice is breaking.

Hello?

Mr. Banka, sir, your -- I'm sorry to interrupt, this is the operator. Sir, your audio is not coming very clear.

Yes. Yes. Can you hear me now?

Yes. Yes. Please, go on.

Yes. So what I was saying was INR 37 is the threshold price -- sugar price at the given ethanol price from juice to ethanol. And anything above that, sugar is profitable. Below that, juice to ethanol is profitable.

And in terms of government increasing the release quota, I think, for May also, just 24 lakh tonnes, so do we expect that the consumption to be higher than 27 million tonnes, which is estimated in the sugar balance sheet -- domestic balance sheet?

I think we should have a production of -- consumption of about 27.5 million tonnes. Typically, April, May, June, these are very hot months. So I don't see the -- it will have any kind of pressure on the sugar selling prices. Temporarily, yes. On a sustained basis, no.

Okay. And in terms of smaller mills and -- is it a possibility that sugar is exported through illegal means for an early arrangement?

I am not aware of any such thing, ma'am. I'm not aware. So something I'm not aware, I would not be able to comment.

Okay. And in terms of number of days of crushing, this sugar season is higher as compared to last sugar season, if I'm not wrong?

No, it's going to be more or less the same because we're going to crush the same quantity, and there has been no increase or decrease in the -- there has been no increase actually in the crushing rate. So we will have similar number of working days.

Okay. And in terms of the monsoon, which -- the untimely monsoon that has happened lately, what is the impact? And in which parts of UP do we see this impact being more prevalent?

No, it impacted the entire UP. Actually, the October rains have not been good for the sugarcane crop, which is why we have seen some drop in the yield as well as the recovery. So unfortunately, anything -- any rains after the month of -- maybe towards the end of September or in the month of October is not good. What is really good is the June, July, August rains for the sugar crop.

Right. And currently, I think, even in the month of February, March, there was a short span up rain, so -- or does...

Yes, that's good. That is good. That's encouraging, actually. If this is right -- yes. Yes, the right amount of moisture goes into the soil, so it's generally good.

And in terms of ethanol, so juice based -- since you explained that the total cost for us on an overall basis, the procurement, the transfer price plus my conversion cost is around INR 57. What would be the same for B-heavy molasses? The transfer price...

It will be less than INR 50, ma'am. I mean the cost -- total cost would be less than INR 50, INR 48 to INR 50. So there is -- it all -- again, it all depends on the kind of fermentable sugar that is contained in the molasses. But this will be definitely less than INR 50.

Okay. And based on the current prices, based on basically Q4, what was the proportion of B-heavy and what was the portion of juice based?

Everything was juice. Everything was juice to ethanol. See -- like I explained the model that we follow is, we do juice to ethanol during season and during off season, we do ethanol from B-heavy molasses.

And crushing numbers for next year would be more or less same, right?

Yes. Yes, more or less same. More or less same.

This is financial year or...

I'm talking about financial year. Season should -- numbers should be much better.

Okay. Okay.

Yes, because season -- a part of the season is going to fall into -- spill over to the next financial year. So there, we expect some improvement in the numbers. But fiscal year, yes, more or less the same numbers.

And going forward, since you mentioned that the 238 cane variety would be almost around 60%, do we see that this red rot thing could extend over the next 1, 1.5 years?

It's already there, ma'am. It's -- red rot menace is already there. So it's -- I mean it's become a -- it's assumed the form of an epidemic. So it's there all over and more prominently in the East and the Central UP. So we have not seen the impact of red rot in our command areas of DN and DP unit, but it is very much there in the DD unit. So we see it across all the supplies. So we've been educating the farmers to uproot the clumps wherever there is red rot affected cane grown. We are trying to educate them for the ratoon management. We are trying to make them use the right quantity of -- there are some new fungicides which have come into the market. So we are helping them apply all that. And we are trying to protect variety 238 also as far as possible, but replacement plan is definitely on.

And in terms of recovery next year, do we expect it to improve more than 50 basis points, which you have lost?

No. No. No, not 50 basis points. There will be definitely improvement, but we will have to wait and see that. We are targeting significant improvement in the recovery, but we'll have to wait and see. I cannot immediately comment on what recovery -- what improvements do we get.

Right. And in terms of international markets, what is the current situation in Brazil, Thailand, Pakistan?

International market is very good. The prices are beyond $0.26 a pound.

Production, sorry.

So -- well, '22, '23 season is a virtually balanced season with no surplus and no deficit. '24, '25 -- sorry, '23, '24 is expected to be a surplus season, but not a substantial surplus. If at all there is surplus, it will be around 2 million tonnes of surplus. Now this surplus can swing -- these numbers can swing either way. So it will all depend on how much Brazil will produce and India. These are the 2 key geographies which produce sugar. So eventual number will -- it's very difficult to talk about it right now. But as of now, the experts, the trade houses, et cetera, they predict and estimate -- I mean they forecast an estimate of production surplus of about 2 million tonnes.

Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would now like to hand the conference over to Mr. Vijay Banka for closing comments. Over to you, sir.

Thank you very much, friends. Thank you for participating in this earnings call conference. The questions that you have asked, it encourages us to improve our performances. We challenge ourselves to see that there is improvement so that we can [indiscernible]. Not that we have spoken on the back foot, but yes, we can talk more about improved recoveries, et cetera, in the future earning calls. But I thank you very much for the trust and confidence that you have reposed in me -- reposed in our company. We look forward to engaging with you in the times to come. I would request my colleague, Mr. Maheshwari, to say a few words.

I thank all the participants for joining the earnings call and then involved -- active participation in the call. We look forward to you meeting again in the next earnings call. Thank you.

Thank you so much.

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