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Dwarikesh Sugar- Powered by Ethanol?

Here’s our analysis of the company, it’s financials, future prospects, risks and more!

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About-

Dwarikesh Sugar is a multi-faceted, diversified industrial group engaged in the manufacture of the finest grains of sugar, as well as allied products.

It has strong presence in fields such as sugar manufacturing, power & ethanol/ industrial alcohol production.

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The Backdrop:

The push by the GOI towards Ethanol Blending has been a game changer for the Sugar Industry.

In short this policy will not only reduce dependency on oil imports but also help sugar sector to find a strong alternative source of income, consistently.

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Quick look at Sugar Industry-

1. Largely controlled by Govt Policies so far

2. High pricing control lies with the Govt

3. Without Govt subsidy, Indian sugar exporters are in Blackfoot as the cost of producing sugar is way above the international sugar price

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4. India following the footsteps of Brazils Ethanol blending program.
Which has been a success story

5. Aims to be the leading sugar export country without the help of Govt subsidy.

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Let’s look into Dwarikesh-

They are based in UP with sugar crushing capacity of 21500 TCD, distillery capacity of 163 KLD & co-generation capacity of 91 MW.

It is undertaking a distillery capacity addition with capital of ₹230Cr. This will be commissioned by June,2022

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Huge increase in Distillery Capacity

DSIL until FY19 were solely focused on pure sugar business. But EBP came as an opportunity for them & they grabbed it with both hands.

The company is all set to increase distillery volumes to 11Cr Ltr in FY24 from 3.2cr ltr in FY21

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Integrated Business Model

DSIL’s integrated operation provides alternate source of income & protects its profitability when the demand for sugar is down.

Expanded distillery operates for around 325 days in the year which reduces the seasonality aspect of sugar business

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DSIL was the first to use high yielding sugarcane variety in its catchment area which has helped the company to keep the per kg raw material for the company lower than its peers.

With every 1% increase in the sugar recovery rate, the cost of production falls by ~8%

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It has the highest recovery rate amongst its peers who are based in Uttar Pradesh with the likes of Balrampur Chini, Dalmia Bharat.

This improved from 9.4% to 11.9% in a decade.

High recovery rate helps them to overcome rise in cane costs.

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Let’s look into it’s Financials (Q3)

• Sales was up 57.8 % YoY, on high sugar & ethanol volumes & realisation

• EBITDA was at ₹55.1 crore, up 137.8% YoY, with margins at 9.2%

• PAT was at ₹28.9 crore
(up ~4x YoY)

• Distillery volumes grew to 2x to 1.13Cr Ltr

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• DSL is working on new sugarcane varieties, which is expected to improve yield as well as recoveries

• Total debt as on Dec 2021 is ₹190 cr, which includes ₹30 cr
debt for new distillery. It will take further ₹150 cr debt for the new
distillery by May,22.

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• DSILs interest cost is come down from ₹9.6 cr to ₹3.9 cr

• The company is entirely producing B-Heavy ethanol given higher prices (B-heavy prices
prevailing at ₹59/litre compared to ₹46.6/litre for C-Heavy ethanol)

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Key Risks:

• Fall in global sugar prices could impact sugar exports from India as our production cost is very high.

• Too much dependence on Govt policy is a negative.

• Delay in Distillery expansion

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Shareholding Pattern-

Promoter- 42.1%
FII - 4.1% (vs 2.8% in Q2, FY22)
DII - 4%
Others - 49.8%

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Conclusion-

Dwarikesh Sugar is one of the most efficient sugar companies with abundant sugarcane availability & distillery expansion.

The increase in distillery volume & higher sugar prices would result in jump in operating margins & earnings for DSIL

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Do you think Dwarikesh Sugar would be one of the biggest beneficiary in the sugar industry?

@caniravkaria @ArjunB9591 @ishmohit1 @AvadhMaheshwar2 @datta_arvind @mehrotra_saket
@Anshi_________ @kuttrapali26

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