Dwarikesh Sugar - Q4FY20 First Cut - ICICI Securities

CMP: Rs. 24 MCap: Rs. 450 crore

Dwarikesh Sugar reported strong sales & earnings growth in Q4FY20 led by higher monthly sales quota & sugar exports during the quarter. However, we believe March domestic volume would have been adversely impacted in last 10 days of March 2020 due to lockdown across country.

Q4FY20 Earnings Summary

- The company reported revenues of Rs. 461.8 crore which is more than double that of the corresponding quarter largely on the back of higher domestic monthly sale quota & sugar exports during the quarter. Domestic quota for the Q4 was 63000 tonnes & initial export quota was 78000 tonnes, of which 26000 tonnes were sold in Q3. In that respect, our estimates suggest sugar sales volume of 1.5 lakh tonnes during the quarter. Sugar prices were also marginally up (3-5%) during the quarter.

- The company commissioned its 100 KLD distillery in December 2019, which resulted in jump of 3x jump in ethanol sales. However, power revenues declined by 50% to Rs. 25 crore (net of intersegment) mainly due to downward revision in power tariffs in July 2019.

- Operating profit grew by mere 5.5% mainly due to higher transfer pricing of molasses due to diversion towards B heavy molasses. We believe a large part of profits in sitting in inventory which would be realised when the inventory is liquidated in next two quarters. The company is holding Rs. 912 crore of inventory as on March 2020.

- Net profit grew 37% to Rs. 44.3 crore mainly due to tax reversals with reassessment of deferred tax liability after the change in Income tax rate earlier this year.

The impact of Covid-19 on the sugar industry would be minimal with 1.0-1.5 million tonnes reduction in demand. However, export incentives, introduction of MSP & ethanol policy of government have changed the fundamentals of the industry. We believe export incentives would continue even in Next crushing season and there is possibility of further increase in MSP of sugar. We believe sugar companies would continue to remain profitable. Dwarikesh sugar has best sugar recoveries in UP, which makes it lowest cost producers in the industry. It has also increased its distillery capacity last year, which would result in higher revenues from the segment FY21 onwards. We remain positive on sugar stocks in general & Dwarikesh Sugar, in particular.

We would be coming out with the detailed update post the conference call with the management.

Shares of DWARIKESH SUGAR INDUSTRIES LTD. was last trading in BSE at Rs.23.9 as compared to the previous close of Rs. 21.8. The total number of shares traded during the day was 511336 in over 1188 trades.

The stock hit an intraday high of Rs. 23.95 and intraday low of 21.75. The net turnover during the day was Rs. 12042425.

Source : Equity Bulls

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