Dwarikesh Sugar – Ethanol power play

Overview :

🔅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.

Govt Push :

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

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🔅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. https://t.co/sIjcmquffu

Sugar Industry outlook :

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
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.

Capacity:

🔅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

🔅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

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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Financials (FY22Q3)

• 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

• 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,2022.

• 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)

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

Management Recent interview statement :

“In FY2021-22 we should be supplying between 5.4-5.5 crore litres of ethanol to the OMCs. In the next fiscal we will not have the full benefit of the new plant because it will become operational only in June. We should be able to supply 8 crore litres of ethanol in the coming financial year and from 2023-24 onward we should be able to manufacture and supply 11 crore litres of ethanol,” – Mr.Vijay s Banka

Disc – All views expressed are personal and only for educational and study purpose. Consult your financial advisor before investing or taking any position based on above article.