AVADH SUGAR REPORTS Q1FY23 NUMBERS

News: Avadh Sugar reported Q1FY23 results with revenue growth of 11.2% & in earning growth of 3.9%. Consolidated sales grew by 11.2% to Rs 688.1 crore led by 10.1% growth in Sugar & 47.3% growth in distillery segment. Sugar sales volume dipped by 6.6% to 1.38 lakh tonnes on account of lower sugar exports during the quarter. Sugar realisation was up by 6.4% to Rs34.7/ kg. The company is holding sugar inventory of 2.4 lakh tonnes as of June 2022. Distillery revenue growth of 47.3% was led by 41% increase in distillery volumes & 4.5% increase in distillery realisation. Distillery volumes were 2.7 crore litres, which included 0.5 crore litre ethanol produced from sugarcane juice. Average distillery realisation was up 4.5% to Rs 60.5 / litre. Operating profit declined by 8.3% to Rs64.2 crore given cost of production in 2021-22 sugar season was higher by Rs3/kg due to increase in sugarcane prices & lower sugar recovery rate. Interest cost dipped by 23.4% to Rs21.4 crore mainly on account of Rs277 crore reduction in debt in last one year. Net profit witnessed a growth of 3.9% to Rs19.7 crore.

View: Sugar industry saw higher cost of production in 2021-22 sugar season owing to increase in sugarcane prices & lower sugar recovery due to adverse weather conditions in UP. Moreover, sugar prices have risen ~6-7% covering the increase in cost of production partially. This has resulted in dip in sugar segment margins. However, we believe sugarcane availability is likely to increase in UP & sugar recovery is expected to improve in 2022-23 season given introduction of newer sugarcane varieties & expected favourable weather conditions. Further, Sugar companies are increasing their ethanol capacities significantly, which would accelerate sugarcane diversion towards ethanol. We expect 34% jump in distillery volumes for Avadh in FY23. Further, with the strong free cash flow generation, the company would be able to significantly repay its debt. We remain positive on the company’s ethanol revenue growth as well as debt reduction possibility in medium term.

Impact: Positive.