DWARIKESH SUGAR REPORTS DISMAL SET OF NUMBERS ON PROFITABILITY FRONT

News:

 Dwarikesh Sugar reported a dismal set of numbers on the profitability front. Revenue witnessed a growth of 6.8% to Rs 540.1 crore led by 40.8% jump in distillery sales. The company has commissioned new 175 KLD distillery in June-2022, which has taken its annual distillery capacity to 337.5 KLPD (11 crore litres pa). We believe the growth is largely contributed by higher ethanol volumes. Sugar sales dipped by 1.2% to Rs 403.4 crore on the back of decline in sugar volumes & marginal uptick in sugar realisation. The company witnessed a sharp decline in gross margin mainly on account of increase in sugarcane prices and lower recovery rate in 2021-22 sugar season. Employee spends increased by 65% to Rs33.5 crore, which includes one-time deferred wage payment of Rs 8.9 crore. The higher cost of production & increase in employee spends led to the 62.1% de-growth in operating profit during the quarter. Net profit de-grew by 80.2% to Rs7.8 crore

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 Domestic sugar realisation has remain stable at ~Rs 35/ kg in last one year. However, cost of production has increased by Rs3/kg on the back of higher sugarcane costs & lower recovery rate in 2021-22 season. We believe domestic sugar prices would remain stable between Rs34-36/ kg given expected higher sugar production even in 2022-23 season as well. However, we believe cost of production is likely to go down by Rs1/kg with the expectation of improvement in recovery rate in 2022-23 season. Moreover, expected increase in ethanol prices by Rs1-1.5 / litre & higher ethanol volume would aid earnings growth in FY23 & FY24. We believe Indian sugar industry is required to export 8-9 million tonnes of sugar in 2022-23 season to keep industry wide closing inventory at 6 million tonnes by September 2023. We also believe sugar mills exporting refined sugar would benefit from higher global sugar white sugar prices. Though, dwarikesh may not benefit from higher white sugar prices given limitation of refined sugar capacity but higher distillery volumes would boost profitability going forward

Impact:

Neutral