Dwarikesh Sugar - Q1FY22 First Cut - ICICI Direct

(CMP - Rs. 78, MCap - Rs. 1471 crore)

Dwarikesh Sugar reported strong set of number with 16.7% growth in operating profit & 49.7% growth in net profit.

Q1FY22 Earnings Summary

- Revenue saw a de-growth of 10.9% during the quarter mainly on account of lack of exports. The company received additional export quota in base quarter due to the re-allocation. In last sugar season, the company exported 1.2 lakh tonnes of sugar whereas in the current sugar season (2020-21), it has exported 0.8 lakh tonnes, which was exhausted in last quarter

- Sugar segment sales declined by 22% due to lower exports. Domestic sugar sales quota was 96,380 tonnes in Q1. Distillery sales grew to 3x with the scale up capacity utilisation, higher proportion of B-heavy ethanol. The base quarter also saw lower off-take by OMCs due to lockdown (lack of storage capacities of OMCs during lockdown)

- Operating profit increased by 16.7% to Rs. 58.5 crore with the substantial increase in distillery volumes & higher proportion of B-heavy ethanol volumes. The company is going to sell only B-heavy ethanol given better realisation for the same. Interest cost reduced by 9% mainly on account of considerable debt reduction over the last one year

- Net profit grew by 49.7% to Rs. 27.1 crore led by higher operating profit, lower interest cost & lower tax provisioning

- The company has announced a capex of Rs. 232 crore for 175 KLD distillery expansion, which would be commissioned by November 2022. The capex would be funded by debt (available at 50% interest subventions) & internal accruals

With the announcement of distillery capex, the company would scale up its distillery volumes from 3.2 crore litres in FY21 to 10-11 crore litres in FY24E. Most of the other sugar companies would witness 2x jump in distillery volumes in next three years. We believe the company would be able to able to divert 10% of the sugarcane towards juice ethanol & rest towards B-heavy ethanol. This would significantly improve the distillery realisation. With the surge in global prices, sugar industry would be able to export 6 million tonnes in 2021-22 season. With the aggressive exports & significant sugarcane diversion towards ethanol, the industry would be able to reduce the sugar inventory below 7 million tonnes by September 2022. We believe expected 3x jump in distillery volumes, highest recovery rate in the industry & abundance sugarcane availability in the company's catchment area, Dwarikesh is likely to witnessed highest jump in profitability in next three years in our coverage universe. We remain positive on the sector & the stock.

Shares of DWARIKESH SUGAR INDUSTRIES LTD. was last trading in BSE at Rs. 77 as compared to the previous close of Rs. 78.4. The total number of shares traded during the day was 124684 in over 1238 trades.

The stock hit an intraday high of Rs. 79.15 and intraday low of 76.8. The net turnover during the day was Rs. 9692536.

Source : Equity Bulls

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