Dhampur Sugar’s distillery expansion to help earning prospects

The Dhampur Sugar Mills Ltd is betting big on the distillery segment to drive growth, and continues to expand its capacities. The company’s announcement on distillery capacity expansion by 100,000 LPD (litre per day) at Asmoli unit will take total distillery capacity to 500,000 LPD from earlier 400,000 LPD. Asmoli unit capacities will rise from 150,000 LPD to 250,000 LPD.

With capacity utilisation at 85% already, this is a positive development for the company and it will boost the overall revenue growth significantly going ahead, according to Amarjeet Maurya at Angel Broking Ltd.

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The prospects of distillery segment remain strong with the government keeping focus on achieving ethanol blending target of 10% by 2022. The measures on making ethanol production more attractive too have continued and will benefit sugar producers having adequate distillery capacities in place. The increasing demand for Ethanol as a product used in sanitisers augurs well. Moreover, encouraging ethanol production from B-Heavy molasses and cane juice will further lead to the liquidation of surplus sugar inventory in the future.

India has continued to see a sugar surplus over the past few years putting pressure on sugar realisations. The surplus is likely to continue in the sugar season this year. The sugar season in India is October to September. Starting with 10.8 Million Tonne of opening inventory ( carried forward from the previous year, sugar production is estimated to be at 31.5 MT in the current sugar season against the demand of 26 MT. Clearly, supplies are outpacing demand putting pressure on sugar realisations. Meanwhile, there are concerns about rising sugar cane procurement pricec. The State Advised Price (SAP) for U.P is yet to be announced for current sugar year and any upside will lead to rising production costs too.

Not surprisingly the investments in Ethanol capacities is looking more optimistic. The company derives better realisations too. For Ethanol (B-Heavy and C-Heavy derived), the company had seen average realizations at 50.47 per barrel in Q2 FY21 as compared to 40.69 per barrel in Q2 FY20 Average realizations for chemicals stood at 57.58/Kg in Q2 FY21 as compared to 54.74/kg in Q2 FY20

The company had sugar crushing capacities of 45,500 TCD (tonne of cane per day) during the first half FY21. It still derives 79.5% revenues from sugar segment. Nevertheless, Ethanol and chemicals segment contributed 45 per cent to profit before interest and tax (PBIT) higher than 39% contributions to PBIT by sugar sales.

Investments in Ethanol segment are expected to drive earnings. The stock ended 4.14 % up on Wednesday at 170.95 levels and is trading at 4.86 times one-year forward earnings estimates. Meanwhile, all eyes will also be on debt reduction. Net debt to equity stood at about 1.3 times at the end of FY20. The reduction in debt is crucial to lower interest outgo, driving earnings further.



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