Sugar Cycles: 7-8 years of losses followed by 2-3 years of super gains!

Red rot disease catching up again in Uttar Pradesh. This time in Bijnor(Dhampur Sugar Mills) 1500 plots are affected out of 30k plots inspected. Need to see if other mills are also facing same issue.

Sugar quotas for all quarters have been slightly higher than last year - so sugar sales will be ok. Sugar stocks have built up due to ethanol ban. Ethanol sales will come down a lot. Even grain based distilleries didnt work for sometime as maize prices had shot up and maize-based ethanol price was increased only later (that too with a lot of uncertainty and delays).

Performance of all sugar companies will be lower - some will be less affected than others. Companies which have dual fuel ethanol will be affected lesser.

20% target cannot be met without sugarcane based ethanol - more than 60% of ethanol is from sugarcane. Many cane based ethanol plants are being converted to dual fuel. I dont know what will happen to maize prices - and whether maize based ethanol prices will be increased further to accommodate high maize price. Prices of all grains are going up due to maize going up.

For keeping the price of sugar low (which is not good for health !!) prices of all grains are going up.


CARE has downgraded credit rating of Dhampur Bio from A+ (Stable) to A (Stable).
India Ratings had upgraded rating of Dhampur sugar from A+ to AA-

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.

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

OpenSourceInvestor @ Substack