Dwarikesh Sugar - Q3FY21 First Cut - ICICI Direct

(CMP - Rs. 29, MCap - Rs. 546 crore)

Dwarikesh Sugar reported disappointing set of results with 9.2% decline in operating profit

Q3FY21 Earnings Summary

- Consolidated revenues witnessed a growth of 19.3% to Rs. 381.2 crore led by higher sugar & distillery sales during the quarter. Sugar sales was up by 12.5% mainly on account of higher sugar volumes. The company was allocated 1.04 lakh tonnes of domestic sugar sale quota during the quarter however, we believe sugar realisation (sugar prices were prevailing at Rs. 31.5-Rs. 32.0 / kg) would have been lower with delayed announcement of export subsidy & higher sugar production compared to last year. Distillery sales was up from Rs. 2.4 crore to Rs. 25.9 crore with commissioning of new 100 KLD capacity in January 2020, start of 30 KLD capacity in November 2020 & increase in ethanol prices from December 2020.

- Operating profit declined by 9.2% to Rs. 23.2 crore mainly on account of increase in sugarcane cost due to lower recovery rates in UP in current sugar season. We believe recoveries in UP are lower by 30-40 bps due to cutting of sugarcane before maturity, which would have increased the cost of production by Rs. 1/kg. However, we believe plantation sugarcane crushing (Usually starts in January) would improve the recoveries for the rest of the crushing season.

- Despite lower operating profit, net profit increased from Rs. 4.5 crore to Rs. 7.5 crore on account of reversal of tax liability.

In the current sugar season lower sugarcane yield & subsequent lower sugar recovery has resulted in increase in sugarcane cost. Moreover, sugar prices declined during the quarter due to delay announcement of export subsidy & no decision on hiking MSP (Minimal selling prices) for sugar. However, after the announcement of sugar export subsidy for 6.0 million tonnes, the industry has already contracted for 2.5 million tonnes of sugar exports in last 1.5 months. Further, revision of sugar production from 31.0 million tonnes to 30.2 million tonnes & aggressive sugarcane diversion towards ethanol would result in reduction in sugar inventory by 2-3 million tonnes by September 2021. In the anticipation of lower sugar inventory & peak summer season demand, sugar prices are likely to move up from March-April 2021, which would improve the profitability for sugar companies in FY22. We will review our rating & target price after the interaction with the management.

We will be coming out with a detailed update soon

Shares of DWARIKESH SUGAR INDUSTRIES LTD. was last trading in BSE at Rs.29 as compared to the previous close of Rs. 28.95. The total number of shares traded during the day was 34703 in over 231 trades.

The stock hit an intraday high of Rs. 29.95 and intraday low of 28.9. The net turnover during the day was Rs. 1015923.

Source : Equity Bulls

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