IGI Logo

Strong ethanol sales improve profitability…

Dwarikesh Sugar (DWL) reported strong results with 29.9% revenue growth led by 25.6% growth in sugar revenues & 100.5% growth in distillery sales. It sold 1.52 lakh tonnes (lt) of sugar in Q4, including 0.8 lt of exports. Domestic realisation was down 2.5% to | 31.2/kg mainly due to peak crushing season & low winter demand. Distillery volumes grew 75.3% to 1.28 lt on the back of smooth offtake by OMCs & ramping up of utilisation of 130 KLD distillery. Moreover, distillery realisation increased 13.6% to | 57.6 /litre given the company has sold only B-heavy ethanol during the quarter.

Operating profit increased 47.3% to | 82.4 crore with strong sales of B-heavy ethanol, which fetches ~25% more realisation compared to conventional Cheavy ethanol. With strong growth in operating profit & stable interest cost, PBT increased 70.5% to | 63.3 crore. PAT grew slower at 8.8% due to tax write back in base quarter. DWL generated | 295 crore of cash flow from operations in FY21E mainly due to strong profitability & inventory reduction. Further, it has been able to reduce total debt by ~| 230 in the last one year.

High global sugar prices to drive exports

Global raw sugar prices have increased ~20% in the last six months, which resulted in acceleration in India sugar exports programme. Out of the 6.0 million tonnes (MT) of export quota, the industry has contracted for ~5.5 MT. We believe entire 6 MT of exports would be contracted by May end. Moreover, with expected lower Brazilian sugar production, sugar prices are likely to move up above 20 cents/lb in the next six to eight months. We believe the industry would be able to further export in next one year under open general licence (OGL) without any subsidy. We expect DWL to export ~80,000 tonnes in FY22E, which would further rationalise sugar inventory & considerably reduce working capital debt in the next one year.

Distillery volumes to drive earnings

DWL sold 3.2 crore litre of distillery volumes in FY21. It would be only producing B-heavy ethanol in FY22E, which would improve its capacity utilisation. The company would be able to produce 5.5 crore litre in next sugar season. Moreover, it is contemplating capacity greenfield distillery at one of its plant to utilise the sugarcane juice route to produce ethanol. We expect distillery volumes of 4.9 crore & 6 crore litre in FY22E & FY23E, respectively. This would result in 43.4% revenue CAGR in distillery sales.

Valuation & Outlook

With expected exports, DWL would be able to substantially reduce its sugar inventory in the next one year. Further, increasing distillery volumes through B-heavy & sugarcane juice route would drive growth in operating profit. We expect | 485 crore of operating cash flow generation in the next two years, which would fund capex for new distillery and also result in debt repayment to the tune of | 260 crore. We expect 30% earnings CAGR on the back of strong operating profit growth & interest cost reduction. We change our rating from HOLD to BUY with a revised target price of | 62 (earlier | 36).

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