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

Ladies and gentlemen, good day, and welcome to the Dwarikesh Sugar Industries Q3 FY '25 earnings conference call hosted by Dolat Capital Markets Private Limited. [Operator Instructions] I now hand the conference over to Mr. Krushna Parekh from Dolat Capital. Thank you. And over to you, sir.

Thank you. Good afternoon, everyone. On behalf of management of Dwarikesh Sugar Industries for giving us the opportunity to host this Q3 FY '25 earnings conference call. From the management team, we have with us today, Mr. Vijay S. Banka, Managing Director; and Mr. B.J. Maheshwari, Managing Director and Company secretary cum Chief Compliance Officer. Without further ado, I would like to hand over the call to the management for their opening remarks, post which we'll open the forum for Q&A session. Thank you, and over to you, sir.

Yes, very good afternoon. This is Vijay Banka speaking on behalf of Dwarikesh Sugar Industries Limited, I welcome you all to the Q3 9 months FY '25 Earning Call Conference. Our results were published yesterday, and let me take you through with our -- the highlights of our results. During Q3 FY '25, we have reported profit before tax of about INR 16 crores and profit after tax of about INR 11 crores. This is as compared to profit before tax of INR 14 crores and profit after tax of INR 10 crores that we had in corresponding quarter last year. So there is a modest improvement in the PBT numbers -- PBT and PAT numbers. Now to talk about the total income, et cetera. The total income during the period was INR 316 crores, almost similar to the income -- total income we had clocked in the corresponding quarter last year. However, during the 9 months period, our total income was INR 906 crores vis-a-vis INR 1,339 crores in the last 9 months period. So insofar as 9 months results compared, we -- our results for this 9 months pale in comparison to the 9 months results of the corresponding period last year. So let me take you through the macro numbers of the sugar sector. So ISMA had last come out with and they had estimated that the gross sugar production will be 33.3 million tonnes and they factored for a diversion of about 4 million tonnes of ethanol production, so which means ISMA was estimating net production of 29 million tonnes. Now however, this number has downward bias as of now because as per the recent reports, which have come out indicate that UP will we clock lower than expected production because of lower yield as well as lower recovery in that state. One welcome development that has happened in this in the last few days is that the Government of India has approved the export of 1 million tonnes of sugar. So we will have the flexibility to either export directly or to swap our quota with the mill which is exporting directly. Typically, mills in Uttar Pradesh exchange their quotas. We normally don't do direct exports because of the logistic advantages which mills in Maharashtra and Karnataka enjoy. So we swap our quota with them. And this development is positive in the sense it will improve the cash flows of sugar mill as well as it will give a boost to the sugar crisis, which have been in muted state for the last quarter. Sugar prices were around well below the INR 3,800 mark in the last quarter. However, have since rebounded and presently sugar prices are in the range of INR 3,950-or-so. So well, we sold about, during this quarter, Q3 '25, we sold about 4.99 lakh quintals as compared to 4.94 lakh quintals of sugar sold during the corresponding quarter last year, a marginal improvement. Average realization though has come down, it is 3,772 per quintal vis-à-vis 3,852 per quintal that we had realized in the corresponding quarter last year. And I mentioned earlier, Sugar prices were muted and subdued during the last quarter -- during the entire duration of the last quarter. So for 9 months period, we sold 17.71 lakh quintals, as compared to 21.83 lakh quintals of sugar sold during the corresponding 9 months period. Average realization though has been marginally better. Average realization for 9 months period is 3,793 vis-a-vis 3,692, so almost better by about INR 100 a quintal. We were carrying a stock of 8.27 lakh quintals as compared to on 31st of December as compared to 7.71 lakh quintals we carried out in the 31st December 2023. During -- industrial alcohol sales, during Q3 FY '25, we saw about 14,958 kiloliters of industrial alcohol compared to 14,172 kiloliters of industrial alcohol in the same quarter last year. However, on a 9 months basis, our quantity that of industrial alcohol that we sold was only 30,570 KL as against 73,262 KL sold in the corresponding 9 months period last year. So whatever industrial alcohol that we sold during this quarter was produced directly from sugarcane juice, and -- so we have been running both our distilleries on sugarcane juice directly since the start of this season. However, going forward, we'll take a call on this at the right time. So the results of this Q3 and 9 months were impacted by several factors. The volume of sugar sold was higher in Q3, but if you have seen significantly lower in 9 months period, it was about 17.71 lakh quintals vis-a-vis 21.83 lakh quintals. More than that, the bigger drop came actually in the same so far as sales of ethanol is concerned over the 9 months period. Because of our crushing of season '23-'24 having come to an end early in the month of March 2024 itself, our -- there were virtually no activity in the distilleries during the first 2 quarters. However, we have now resumed, with the start of the season, sugarcane crushing is also resumed and so also the industrial alcohol production in both the distilleries. So Q3 '25, as we have seen, there has been some improvement in the profitability. We have had -- our loan profile continues to be lean and trim. We have loans of INR 162.58 crores term loan and they all are at subsidized rate of interest. And going forward, we are making all the efforts to improve the varietal mix because the setback that we suffered was -- in the last season was huge because our crushing truncated early also the quantity of sugarcane crush was substantially lower which in turn resulted in lower availability of molasses and therefore, lower ethanol production. So it has had cascading effect on all the profitability parameters. And we are making a lot of efforts to improve our varietal mix so that we overcome this menace of Red Rot, which has impacted and devastated the entire state of Uttar Pradesh. Not all at the same time, Eastern UP was impacted earlier and then came the impact on the Central UP and now it's spread to the Western UP as well. So we remain committed to improving our varietal mix. We remain committed to improving, exercising a lot of financial discipline, and we remain committed to ensuring the cost controls that have a possible cost controls wherever possible, cost rationalization wherever possible. Like I said, the silver lining is the announcement of export. So this should augur well for the future. Secondly, there is -- on the [ annual ] is also the increase in the ethanol procurement price. So that will also boost the profitability of sugar companies. Thank you very much. I open the house for question-and-answer session. Please feel free to ask me any kind of questions.

[Operator Instructions] First question is from the line of [ CA Garvit Goyan ] from N-vest Analytics Advisory.

Sir, I just want to understand from you like the outlook in the upcoming quarters, particularly on the domestic production for sugar, sir?

Domestic production for sugar, like I said, ISMA's estimate is now due for revision. ISMA is, in fact, meeting on the 31st to have a relook at the production estimate. So -- but as I mentioned in my opening remarks, there is a definite downward bias because UP has not been reporting encouraging production numbers because the yields of -- the yields at the farm level is also lower and so also the recovery levels are also lower. So we definitely expect a downward revision to the production numbers. So we expect reasonably -- reasonable levels of stock to be maintained at the end of this particular season '24, '25, which will be on the 30th of September.

That I understand, sir, like you mentioned in your opening remarks, [ PVC ] is on lower levels. But what is the underlying reason for the same? Like is it continuing to be so in FY '26? Or what's the exact picture of it?

It's in UP, perhaps the weather has played throughout, which is why the yields are lower and yields are lower also because of the Red Rot attack. And there is a talk of downward revision in the production estimates of Maharashtra and Maharashtra also, which is because of, again, excessive rainfall the street had received in the monsoon months.

The next question is from the line of Dan Savla from Savla Family Office.

My question is -- How can we look at the crushing season, which is currently going on?

It continues to be challenging, sir, because there are lingering problems. This varietal replacement is a 2 season phenomenon. So we have suffered in the last season and we don't expect any substantial improvement in this season as well. But season '25/'26, we should get back our momentum, sir.

The next question is from the line of Sanjay Manyal from DAM Capital.

Sir, I just had a few questions on the sugarcane variety front. What would be 00238 in our catchment area. And how it would change, say, for next season? Yes, that's my first question.

Yes. Let me talk unit-wise. You see, in Bareilly unit, which is in Faridpur. So this season, we expect about supply of about non-238 variety of about 64%. 36% to 38% will be 238 variety. But in the coming season, we will have 0 supply of 238 variety. But we have 2 of our units there. So there, the Red Rot actually struck late, while in the coming season, we will see the entire plant cane to be non-0238 variety, but [ Ratol ] cane will be still 0238 variety. And the season thereafter, we will have absolutely low 0238 in these 2 units as well. Now varieties are being propagated. There is 118 variety, which is being propagated. There's 15023, 14021. So this time, there is a conscious effort not to depend on a single variety. And all these varieties are good, reasonably good. So going forward, we want to have a mix of the early maturing varieties.

And how is the recoveries being in these varieties? Is it better than 00238 or...

They're comparable. They're comparable. Actually this season, we aren't able to get a good idea because even in 238 the recoveries are lower.

[Audio Gap] Mr Wasi.

A few questions from my side. The downward diversion that you're talking about, any quantum in mind?

No, sir, actually, representatives of all states will be meeting -- in the ISMA meeting. So -- well, I may have some idea about the UP state, but I wouldn't have more idea about the Maharashtra State or the Karnataka state or the other states. So we will have to wait till the meeting gets over. You see, this sugar estimates are estimates basically. Even world over, if you see, every fortnightly, every monthly, the do happen. So I'm sure ISMA will come out with the credible number this time.

For UP itself, where you could have some idea, how low...

It was 10.5 million tonnes last time. So this time, we expect it to be around 10 million tonnes or so.

Got it, sir. Sir, next question was the carrying cost of the sugar inventory as of now. If you could point out the figure of that?

Yes, we are carrying inventory at 3,764...

Come again, sir?

INR 3,764 a quintal.

Got it. Got it. And you have the figures for last year, this time?

No, I don't have the figures of last year this time.

No, why I was trying -- I think this number has been constantly rising because of the way, of course, the sugar cycle works.

The cost of product -- you see, because of the recovery having come down and the procurement cost -- you see between last year, last year, around the same time, maybe we were carrying some stock of the earlier season where there was no increase in the sugarcane price. And the last season, the sugarcane prices went up. This year, so there will be a full impact of whatever sugarcane price was announced last season. Plus, of course, there has been a dent in the recovery, like I said. So because of that, the cost of production is higher, which is the reason why the valuation rate is also higher.

Understood. On this point itself, there's again a talk about the revision also, the accounts have -- given in the notes of accounts, you have said that SAP revision is due for this season. Any thoughts on that?

See, SAP revision is due every year, but it's not been announced. And because there has been so much of delay, we don't expect any increase in the SAP.

That's fair, sir. Sir, lastly, as of now, what is the cash on the books?

No, we are utilizing our credit limits now, but there's been a marginal utilization of the credit limits.

No, no. As of now, the cash amount on the books.

You mean cash and cash equivalent, is it?

Yes, yes, yes.

I don't have the number right now. I can get back to you. I have to get back to you on 2 points, right? One is from the inventory valuation on the same date last year and the cash and cash equivalents on the books on 31st December, right? I'll get it back to you.

Because if I remember correctly on September of the last quarter ending, the value was about INR 216 crores.

Yes. You see what happens at that point in time, there are no cane dues on time so now we have paid all our cane dues on time, in fact, ahead of schedule, we have paid. So typically, our working capital requirement builds up -- starts building up from November onwards from the time we start crushing. And it peaks during March. So in that sense, we will not have any FDs in our books as on 31st December.

Understood. So basically, the previous cycle, so the normal business was run by...

So we will have cash surplus between the period July to October.

Understood. That's because you're not taking up the short-term borrowings, which normally is what is used for the working capital.

Yes, yes. We don't have any short-term borrowings on those dates. And whatever surplus money is there is parked by way of FD.

The next question is from the line of Sanjeev Damani from Skdconsultants Private Limited.

Sir, my first question is regarding the export quota that we will be entitled out of 10 million tonnes and has...

Our quota is 10,444 metric tonnes, sir. It works out to roughly 3.23% of the average production that we have clocked in the last 3 seasons.

Okay. Okay. Got it, sir. And second question is would it be somewhat gainful -- I mean will we be getting a better price than the domestic market when we sell our entitlement?

Sir, when we will swap our export quota with the domestic quota, there will be a consideration. So we will -- for us, it doesn't make enormous sense to export directly because mills closer to the ports are the ones who benefit most by exporting directly. So we swap our quota. We will be entitled to domestic quota in the -- so for example, 10,444 metric tonnes, we will have additional domestic quota divided in 5 equal months starting from March to July.

Okay. And sir, this export has been notified or not because it was announced...

Yes, already notified. Already notified, agreements have started happening.

Started happening already.

Yes.

So do we foresee to get it completed in the next 15, 20 days? No?

No, we will be done with our swapping agreement within the next 15 days. The government has given -- for the physical exports to happen, government has given time till 30th September.

Okay. Got it. Just one more thing...

Our obligation ends when we sign the agreement for swapping of quota and submit it to the department.

Okay. Okay. So it is sort of a premium that we will get when we give this entitlement to someone for some consideration.

Yes, differential as we may call it.

Right, sir. And now I'm coming to 1 more question that -- I mean, we are having an installed capacity of 21,500 metric tonne per day crushing, so are we running at full right now or we are not able to utilize it.

No, we are running at our full capacity. The only thing the number of crushing days will be more or less that is how it works.

And will it be less than last year or will it be better than last year?

See, there are challenges. We don't know. Still we are some distance away from the closure of the season. So in the coming days, we will come to know how much we will be open to crush.

Okay. Sir, can we use rice also to make ethanol in case of need? Are we having extra capacity in...

No. We don't have -- we -- actually, our plants are not equipped to use rice. They are not multi-feed plants that we have. But our model that we are going to follow is that we will use juice during the season and during the off-season, we would have generated B-heavy molasses, which we are storing. So we'll use B-heavy molasses for production of ethanol during the off-season.

And then we do not have any extra capacity -- in a good sugar season, we will not have any extra capacity...

In a good sugar season, yes, we will not have extra capacity. You're right, absolutely.

Okay. So are we planning to have that facility on...

No, sir. Our first target is to get back to our regular crushing activities. We are grappling with the problem of Red Rot menace. So our...

Yes. Sir, are we persuading Government of UP to give us a somewhat better price for [ heavy ] molasses. Is that...

That effort is on, sir. Always on.

It is such a low price, sir. Even -- I mean, we not -- we are very, very small shareholders or least concerned. But we also feel very bad that in these times, why we are so much penalized. I mean any industry should not be penalized like this.

Sir, for your kind information, UP is the only state where there is a country liquor obligation on the part of sugar mills. No other states -- and somebody who drinks -- if he buys country liquor, let's say, for INR 70, you wouldn't mind paying INR 75, INR 80. So there is absolutely no problem. Why should there be reservation at all. It's a multi-pronged battle, which we have been fighting for quite some time, sir. So we -- I'm sure sometime in future, we'll be able to break the ice and...

Sir, certainly. Last opinion of pricing that do you see sugar prices go to INR 41, INR 42 in near future?

I think they'll hover around INR 40, sir. It's very difficult to talk about how the market reacts. Once the quota was announced, the prices touched 4,000, but then again, they subsided a little. So presently around 3,950. But yes, I'm with you when I say that why shouldn't sugar prices cross the barrier of INR 40? Why should there be a barrier at all?

For 2 reasons, I'm thinking. Cost of production has also gone up. And secondly, some sort of less production is going to come which may give some comfort.

Absolutely. We in the industry feel that sugar prices should also go up and sugarcane prices also should go up so that it's a win-win situation for the sugar mills as well as farmers.

Sir, last question about the syrup prices, many talks are going on that only INR 2 will be revised for syrup. So I think that will not be very economical. I mean with this...

Yes. But whatever -- after not getting anything last season, whatever little we will get, we will accept it with humility, sir.

The next question is from the line of [ Ritesh Kolhadia ] from Girik Capital.

Sir, just 1 question. Sir, will we cross average crushing this time of 375 lakh quintal?

No, sir, last season, we crushed 268 lakh quintals. And like I mentioned, we are still dealing with the challenges of Red Rot. So 375 seems very far fetched as of now, but more clarity will come in the next 1 or 2 months, sir.

Okay. So do you think crushing will go beyond 31st March?

Let's wait and see, sir. It's all plant -- what is the yield that one gets in the plant crop because the [ Raton ] crop has now stopped coming. So it's the planted crop. It's a different perspective insofar as the plant crop is concerned. So once the plant crops comes -- started coming already, but there will be more clarity on its yield in the times to come, sir.

The next question is from the line of Riya from Aequitas Investment.

Yes. Sir, I just wanted to know given the current dynamics, how is the profitability looking. Earlier, we used to say that the molasses ethanol was the most profitable and going forward then sugar and then syrup, so what is the current profitability and how do we see each segment?

See, ma'am, actually, the making ethanol from the B-heavy molasses is still the most profitable thing. But in the last 15 days, the total dynamics have undergone a big change. Sugarcane prices have gone up reasonably well. So we will have to wait and see. We are just looking at our numbers and we will arrive at right mix for our production of our ethanol as well as sugar.

Got it. And what would be the breakeven which we would be okay with either B-heavy or sugar that we would not sacrifice sugar?

Sorry?

What would be the breakeven price at which we would be okay to produce either sugar or produce ethanol from B-heavy molasses?

So that was around INR 38.50. So like I said, in the last 10, 15 days, the total dynamics has undergone a change. So we'll wait for some kind of certainty insofar as the sugar prices are concerned. So we will take a call on that very shortly, ma'am.

So what are the current prices like?

39.50. Whether that is sustainable are not is the question.

Got it. Generally, the prices tend to move ahead at the end of the season around October, November if I'm not wrong.

Yes, it does tend to move up. It does tend to move up, but as the season -- you see, there is never any certainty. For example, there was no reason why the prices were so much subdued and muted during the last quarter. So we'll have to take a call how much the prices are sustainable and accordingly take the decision.

Got it. What is the take on the incremental 1 million tonnes, which the government has allowed for exports?

Ma'am, sorry, what is your question?

What is the take on the incremental 1 million tonnes which...

It's a very positive step. It was long awaited and it's a very positive step. The reason why you're seeing increase in the sugar prices is because of that because -- which means that we will have reasonably decent -- we will not have a overhang of big stock situation as of the 30th of September 2025. The stock level will be reasonable enough to take care of 3 months of consumption requirements of the country, but reasonable enough to support our decent sugar price.

[ Reasonable ] stock level will be around 6, 6.5 million tonnes?

6 million tonnes is -- 5.5 to 6 million tonnes is a reasonable stock level.

Got it. What current international prices?

Current international prices for raw sugar, it's around $0.18 a pound. And for -- it has gone above $0.18. And for white sugar, it is around USD 480, USD 485 per metric ton.

Got it. And how is the outlook for Brazil for the current season?

Ma'am, [ ISO ] has projected a deficit season '24-'25. So the prices should remain firm. There is no reason why there should be -- just because the price seem low because of the appreciating dollar all across vis-a-vis other currencies. But if you consider -- if you look at it in real terms or in INR terms, the prices are reasonable.

Got it. And sir, export [ over there ] dedicated quota to the same, right?

Yes, yes, we've got a quota of 10,444 metric tonnes, ma'am.

Okay. Got it. And what is the current recovery level on an industry because you said that there has been lower yields going...

The recovery is lower by about 50 basis points as compared to the last season, the gross level. But still, there is plant supply, which is coming now. So there could be some improvement there. Maybe sugar mills are able to make up for some lost around in the coming months.

Got it. So 50 basis points across UP and Maharashtra both?

No, no, I'm talking about UP.

Maharashtra, do you see further reduction in recovery rates or on yields.

No, Maharashtra, we have not heard of any lower recoveries in Maharashtra.

Okay. Just to ask further couple of point questions. For [ grain-based ] ethanol, we have been hearing that they have not been profitable. Do you see any closures of distilleries or something like that?

Grain based ethanol, yes, ma'am. Actually, the government, [ OMC ] are paying a higher price for that. So from their perspective, it's a costly procurement. And insofar as the current prices of rice as well as maize, there's not much of margin. But anyway, since we don't make, I'm not an expert to comment on that.

Got it. Talking in terms of grain based ethanol, distillery is closing down. I think it gives government more impetus to increase the prices for molasses-led...

Yes. See, molasses-based distilleries are the natural distilleries, if you ask me. Because molasses distilleries, the feedstock is not a problem at all. The feedstock come from within. Whereas in case of grain, you are dependent on external feedstock. You have to buy rice, sometimes from FCI. Last year, there was ban on procurement of sale of FCI rice. Then maize, which is being encouraged to be grown, but -- I mean, once again, the prices keep varying. When there are more number of buyers, when there is more demand, the prices go up suddenly. So an external feedstock is always a dicey proposition to be dependent on.

Got it. In terms of ethanol for us, how much liters do we estimate for current year?

Sorry, ma'am, I didn't get your question.

How much the current estimation of ethanol production for us?

For us, we have bid for about INR 7 crore [ litres ] of ethanol. So we expect our production also to be in the same region.

And there is no problem from the OMC for procurement of the same.

Yes, yes. There is no problem.

And if at all we see at an industry level increase in the prices of ethanol from sugar, when that would be around? When do we anticipate this increase?

Sorry, ma'am, your voice is not clear.

Yes, sorry. So when do we expect the industry to increase the prices for sugarcane-based ethanol?

Yes, we do expect increase in the price. It's on the annual. We do expect an early announcement of the increase in price.

So that will be around within 1 month?

We hope so, ma'am. It's been there on the cards for quite some time. But yes, I think it should happen any time now.

The next question is from the line of Giriraj Daga from Visaria Family Trust.

So one clarification. As already mentioned that, let's say, last year, we did about 268 lakh quintal of crushing. Will we, let's say, reach like about number 10% growth, similar number. Or like what kind of number we are looking this year for crushing number?

Sir, last season challenges, whatever we face, those challenges still continue to haunt us. So this year, it's very difficult to forecast a number as of now. Plant -- much will depend on the plant yield and the plant supply of sugarcane. But yes, since we would have made big changes in our varietal mix in the coming season, so we expect '25-'26 numbers to be impressive.

And that impression is like last year -- previously, I'm talking about, not the...

Not 401. We did 401 lakh quintals in '22-'23. But yes, a substantial rebound from the numbers that we are experiencing now.

Okay. Secondly, you mentioned about the ethanol -- 7 crore liter ethanol we did. So this year, probably we'll close about 5, 5.5 in the current year. And if crushing is similar to last year, are we confident to supply 7 crore liter ethanol in the...

As of now, we are confident, sir. We will have to wait and see. As of now, we are confident.

The next question is from the line of Krushna Parekh from Dolat Capital.

So with the improved crushing figures and potential upward revision in MSP for sugar, what are our key performance expectations for FY '25 and beyond?

Sir, FY '25, I can talk season-wise, you see, because fiscal performance, it all depends on the prices that are prevailing, et cetera, et cetera. Insofar as the crushing numbers are concerned, I can comment that, yes, '24-'25 season is going to continue with the challenges that we have had last season, but '25-'26 should be a substantial bounce back.

Okay. And how are we balancing that...

And typically, howsoever the performance of the season is, a portion of it gets reflected in that particular fiscal and a portion of it gets reflected in the subsequent fiscal.

Okay. Got it. And how are you balancing between the sugarcane juice syrup and the B-heavy molasses, the mix?

We are doing -- during season, we do sugarcane juice. And we are also -- while we are generating -- while we are doing this, we are also generating B-heavy molasses and it will be used during off-season for making ethanol.

Okay. And coming on to the export front, what is the realization difference between the exports and domestic?

So the price differential is INR 4,000 a metric tonne-or-so for the coastal states.

[Operator Instructions] As there are no further questions from the participants, I now hand the conference over to the management for closing comments.

Thank you very much. Thank you, friends. It's been a lovely interaction, where I was able to answer your questions and also share our company's thoughts and perspectives. We once again would like to take this opportunity to thank you all for the confidence that you have reposed in us. We will try and improve our performance wherever possible in whatsoever manner possible. Thank you very much. I'll hand over to my colleague, Mr. Maheshwari, for any comments that he may have.

Thank you all for your active participation and encouragement, and we look forward to the same in future also. Thank you.

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