ICRA Press Release-Sugar Sector-July 18, 2024.pdf (283.6 KB)
@Aarti Ma’am: I believe the downgrade has happened due to working capital constraints which resulted from December onwards due to the ban. However don’t you think the sector will show slightly better performance for integrated mills on account of lower sales as compared to production quota last quarter?
Working capital increase has been substantial - which will lead to jump in interest cost. this will be the case for all sugar companies. Sugar sales will be higher due to higher prices as volume increase is only marginal. Impact of huge drop in ethanol sales will be very negative… again for all sugar companies.
Maize based ethanol plants are even worse off. pl see interview of BCL. I have been highlighting these challenges for many months.
https://www.youtube.com/watch?v=oBs0c7CckFk
The only way forward for ethanol plants (sugar and grain based) is closure of a few plants as the industry is not sustainable anymore.
The companies focusing on other products based on sugarcane will do much better in the future - like Balrampur (bio plastics), Triveni (IMFL), etc.
Sugar/ ethanol companies like Dhampur Bio, Dhampur Sugar will have to focus on reducing production costs to increase margins.
So is it the time for revisiting any optimistic take on Dhampur Bio Organics??
Q1 and Q2 numbers of all sugar companies will be bad. However from Q3 onwards it is expected to improve if the Govt. allows ethanol from sugarcane or sugar export ban is lifted - if not allowed then mills will reduce crushing as all off them are sitting on huge sugar stocks. Distilleries will run on maize at very low margins. All in all industry will face challenges due to Govt. policies which will most likely continue to be adverse as the Govt. is not able understand how to regulate this industry - the huge increase in farmer dues says it all !!
Dhampur Bio - while short term it could underperform but medium term it will outperform peers only to catch up to their valuation - that too when it reduces stock levels and starts grain based ethanol. While financial strategy is poor - which reflects in the rating downgrade for increasing stock level - long term rating downgrade for short term reasons - unheard of. CFO should do a better job or replaced. the increase in operational margins (increase in recovery rate) will lead to better financial performance / turnaround.
Long term - sugar companies using cash for buyback / dividend should be the only company to invest (like Balrampur, Dhampur sugar, Triveni). Companies going for expansion should be totally avoided.
PS - if Government policy on ethanol, FRP / SAP, exports become better and stable then the industry and grow multiple times from here like it has happened in Brazil.
Hi all, I just did a deep-dive on EID Parry in a new thread, as it is more of a agri holding company than a pure-play sugar co, please go through and let me know your feedback: EID Parry - an agriculture titan disguised as a sugar business
Thanks,
Sharad
OpenSourceInvestor @ Substack
Heard concall of Dhampur Bio. Key points:
However ethanol from juice/ b heavy is highly likely to be allowed - as expected sugar production is going to be about 32 mn ton next year and high inventory expected of 9 mn ton in Sept 30, 2024.
Apart from this exports of 1mn ton can be expected. There is no benefit of such huge inventory - even international prices are coming down.
Positives:
Entire industry is waiting for some positive announcements from the Govt.
No policy change in sugar sector before maharashtra election is expected due to political reasons
interesting interview on CNBC by DG of ISMA, Roadmap for Sugar , Ethanol, Bio, Policy changes
https://x.com/CNBC_Awaaz/status/1816742037258915892?t=nR9b-Nz3K5t2p5JGJonfEQ&s=08
Also as per Financial Times todays article MSP hike soon
PONNI SUGAR ERODE cmp 525, perfect Breakout Retest and now Bouncing
Promoter holding Up 5% Last Qtr
Retail holding Up by 4 % Last Qtr ( HNI likely )
Gothic Corp last 158473 Sh pending = 1.84 % Eq
almost 10 % Eq Selling Absorbed and Stock made ATH !!
Mcap Rs 450 Cr, Reserves 543 Cr, DEBT FREE Sugar Company
Investment : PONNI HOLDS
Seshasayee paper 88 LK Shares cmp 345
High Energy Battery 14 Lk Shares cmp 790
i had heard Sugar Sector has a history in new Breakout Cycle
NEW Stock gives biggest returns
this time likely PONNI , first sugar stock which touched Life Highs
Small Mcap + Small Equity + Low Float perfect Sweet Recipe
are the prices given on this site correct?
Results of most sugar companies were bad - as expected
Dhampur Sugar and Dwarikesh were surprisingly much lower than expected.
Balrampur is expected to be better than others.
Govt has successfully killed a sector which is globally competitive, environment friendly and also helping import substitution (petrol) !!
As expected, Balrampur results were good and thats why the stock has run up.
With expected announcement on ban on sugar ethanol being removed, the sector will be re-rated.
Some people deliberately set fire in sugarcane farms in Brazil. The cases of fire have risen significantly this year pointing that it was deliberately done.
Finally it happened.
But what is equally bad is the draft Sugar (Control) Order, 2024. It looks like bureaucrats (babus) are going to run the sugar industry henceforth - from sugar, ethanol and everything… instead of freeing the sector they are bringing more control… its bad for long term.
I maintain that stay investors should stay away from any sugar company going for expansion. Only those focusing on existing capacity - increasing efficiency, recovery, etc will do well. Balrampur is perfect example.
Why Bagasse Saving is important in the sugar industry:
Understand from the example:
A. Sugarcane crushing 100T
B. Steam Consumption 50T
New technologies and advanced version saving in Steam is possible 15T
Now Steam requires 35T (50 minus 15)
For every 1T of steam reduction results in 0.5 T of Bagasse saving
C. Saving in Bagasse 7.5T (15 X 0.5)
D. Bagasse Price per T = 2600/-
E. Saving 2600 x 7.5 T = 19500/-
Now this bagasse is used for captive consumption in distillery running.
Some of the interesting facts is identifying on Uttam Sugar:
ACQUISITION:
The company proposed acquiring a majority stake of 58.33% in Uttam Distilleries Limited (UDL) which operates 40 KLPD grain-based distillery, for around Rs.35 crores. Rs. 13.10 crores were invested in FY24 and the remaining Rs.21.90 crores will be infused in FY25 from internal accrual. The acquisition will be concluded by October 2024 and UDL became a subsidiary later…
Brownfield expansion:
Khailkheri Unit existing capacity 4700 TCD
Utilization 100%
Proposed addition 800 TCD
With an excellent location, one of the highest capacity utilization, scope for further expansion, full steam saving technology, expansion in distillery capacity, one of the most significant branded sugar players, diversification in high margin pharma sugar,65% of production comes from high margin refined sugar.
This is very good analysis of important metric in sugar industry. Only companies with low cost will survive in sugar industry. which is not revenue driven but cost driven. Companies have to focus on efficiency and not increasing capacity. Any company planning to increase capacity should be exited. leverage should be less than 0.5x.
The main problem with the industry is Govt. control due to which selling price is lower than it should be and cane costs (FRP) are higher than it should be. The industry will never make good margins so only operating efficiency will matter. Reiterating that any company adding capacity will be reducing ROCE.
Totally agree on your observation
Bagasse and Steam … already discussed another aspect is Sugar recovery
The sugar recovery rates in the country are low when compared to many other sugar-growing countries.
Every 10-bps improvement adds 2-4% PAT without incremental Capex.
Share your opinion
When can we know about government decision for Sugar exports to be allowed for this new season. OR are they going to continue with the export ban?
