Dwarikesh Sugar - Q2FY21 First Cut - ICICI Securities

(CMP - Rs. 28, MCap - Rs. 529 crore)

Dwarikesh Sugar came out with a strong set of results with 137.3% revenue growth & 142% growth in operating profits.

Q2FY21 Earnings Summary

- Revenue witnessed a strong growth of 138.3% to Rs. 417.4 crore mainly on account of higher domestic sales quota & export of ~19000 tonnes. Further sugar prices remained stable above Rs. 32.5 kg during the quarter. Sugar sales was up 123% to Rs. 384.4 crore & distillery sales was up from Rs. 4.9 crore to Rs. 39.6 crore. The distillery sales was led by higher volume from new distillery commissioned in December 2019 & higher proportion of B heavy ethanol

- Domestic sugar sales quota was 93,000 tonnes whereas export volume were 19000 tonnes during the quarter. UP based sugar mills are getting higher sugar quota mainly due to sugarcane diversion towards B heavy molasses. We believe the company is holding 1.7 lakh tonnes of sugar at the end of September 2020

- Operating profit increase by 142% to Rs. 44.2 crore. Led by strong operating profit growth, Net profit increased from Rs. 4.7 crore to Rs. 16.5 crore in Q2

Sugar industry is likely to benefit from recent changes in B heavy ethanol & sugarcane juice to ethanol prices (increase by ~Rs. 3/litre). We believe the higher ethanol prices would encourage the sugar millers to divert more sugarcane for producing ethanol. Further, we believe sugar companies would come up with addition distillery capacities to utilise the sugarcane juice to ethanol route. This move would result in 2.0 million tonnes sugar sacrifice in 2020-21 season & even higher sugar sacrifice for ethanol next year. However, there is uncertainty over MSP (minimal selling price) & sugar export subsidy. Sugar export subsidy is necessary for reducing surplus sugar from the system at least for the current year. This makes us cautious in medium term.

We will be coming out with a detailed update after the conference call with the management.

Shares of DWARIKESH SUGAR INDUSTRIES LTD. was last trading in BSE at Rs.28.35 as compared to the previous close of Rs. 28.1. The total number of shares traded during the day was 106182 in over 657 trades.

The stock hit an intraday high of Rs. 29.1 and intraday low of 27.2. The net turnover during the day was Rs. 2988533.

Source : Equity Bulls

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