IGI Logo

Strong cash flows; deleveraging balance sheet

Dhampur Sugar reported strong Q4FY21 results with 33.7% growth in operating profit. Revenue remained flat given sugar sales volumes fell 4.2% on account of lower domestic sales quota & delay in export subsidy announcement. Moreover, domestic sugar prices also remained subdued during the quarter given peak sugar crushing season & low winter demand.

Distillery sales was up 23.6% mainly on account of 13% increase in volumes in Q4. The company contracted for ~9 crore litre of B-heavy ethanol for 2020-21 ethanol season (December 2020- November 2021). Power volumes and realisation remain flat. The company sold 2.48 lakh tonnes (lt) of sugar during the quarter.

Out of this, domestic sales quota was 1.42 lt and remaining were export quantities. Distillery volumes increased 13.1% to 2.7 crore litre led by higher contribution of B-heavy ethanol. With strong operating profit growth & 21.8% dip in interest cost, PBT witnessed growth of 67.7% to | 128.6 crore. PAT declined 14.6% to | 91.5 crore due to tax write back in base quarter & | 16 crore exceptional expense.

Global, domestic sugar prices inching up

Domestic sugar prices have increased 7-8% in last one month mainly due to high summer demand & crushing season getting over reflecting no surprises on sugar production front. We believe domestic sugar prices would remain above | 34/kg given aggressive exports & diversion of sugarcane towards ethanol production. Global sugar prices are also on rise (~15% in last two months). The current raw & white sugar prices are above cost of production for Indian millers. We believe global raw sugar prices can easily cross 20 cents/lb in the next six months given Brazil is expected to witness 20% production decline in 2021-22 season. This would ensure sustainable export dynamics in the next season as well. We believe India’s sugar inventory levels would come down to ~7 million tonnes (MT) by September 2022.

Strong cash flow generation; significant decline in WC debt

The company generated huge operating cash flow of | 800 crore in FY21 resulting in repayment of ~| 600 crore of debt (including WC). Despite 100 KLD distillery capacity addition, the company would be able to repay ~| 400 crore of debt with strong cash flow generation in the next two years.

Valuation & Outlook

Dhampur would be commissioning a new 100 KLD distillery by NovemberDecember 2021. After the capex, the company would have total 500 KLD distillery capacity, which would result in ~16 crore litre of distillery volumes. This capacity addition would eliminate dependency on sugar exports. Further, diversion of sugarcane towards ethanol would keep the sugar prices above | 34 / kg & aid earnings for the company. We maintain our target price of | 260/share & BUY rating on the stock.

To Read Complete Report & Disclaimer Click Here

https://secure.icicidirect.com/Content/StaticData/Disclaimer.html

Above views are of the author and not of the website kindly read disclaimer