DSL is one of the most efficient sugar companies with lowest cost of production given more than 12.2% sugar recovery. The company only has | 218 crore of term loan at a concessional interest rate. With strong possibility and small inventory reduction, DSL would be able to generate | 126 crore and 193 crore of cash from operations in FY21E & FY22E, respectively. We expect ~| 200 crore working capital debt reduction in the next two years. We value the stock at 1.1x FY21 book value with a target...

Stepped up exports to bring down inventory Dwarikesh sugar has aggressively exported sugar in 2019-20 sugar season. In the third tranche of re-allocation, the company received ~20,000 tonnes for export quota. In the full year, the company will be exporting 1.4 lakh tonnes. However, it has crushed 20% higher sugarcane in current season due to early closure of small scale Jaggery units in surrounding areas, which has led to the higher sugarcane availability for its units in Bijnore'. We estimate sugar sales volume of 4.65 lakh tonnes (including exports of 1.4...

The industry has seen some impact of lockdown in terms of 1-1.5 million tonnes (MT) sugar demand destruction due to adverse impact on carbonated drinks & ice-creams. Moreover, Dwarikesh has produced 22% higher sugar in 2019-20 crushing season (some impacted by closing down of jaggery, khandsari units in March due to lockdown). Given lower demand during lockdown, the company received reduced quota of 55,000 tonnes in June quarter. However, we believe sugar demand is back on track in June 2020 and for rest of the year, the company is expected to receive average...

Newly installed 100 KLPD distillery plant to perk up earnings With the commissioning of 100 KLD new distillery, the company has the capacity to sell 4.0-4.3 crore litre of ethanol to OMCs. Moreover, it would be able to divert ~33% of its sugarcane to B heavy ethanol. We expect distillery volumes to increase from 0.9 crore litre in FY19 to 4.0 crore litre in FY21E. Average distillery realisation would also improve to | 47/litre given higher proportion of B heavy ethanol. We estimate | 53.3 crore & | 191.2 crore revenues from distillery operations in FY20E & FY21E, respectively....

Expansion of distillery capacity in H2FY20 to augment topline Though distillery volumes declined 30% YoY to 38 lakh litre in H1FY20, we believe commissioning of new 100 kilo litre per day (KLD) capacity at an investment of | 146 crore in November 2019 would result in multi-fold increase in volumes coupled by higher realisation. We expect its distillery volume to increase from 90 lakh in FY19 to 3.5 crore by FY21E. Increase in B heavy and C heavy ethanol prices would benefit the company in terms of higher distillery revenue from | 36 crore in FY19 to | 67 crore in FY20E and...

Slowdown in global economy intensified further, with lower industrial production in US, China & Germany. However, optimism over US-China trade deal, delay in Brexit and anticipation of a pause by US Fed in CY19 led to decline in global yields. Equity markets went up. Despite higher than anticipated CPI, domestic yields were lower. With resurgent FII inflows, Sensex went up and INR rose. The deceleration in IIP and non-oil-non-gold imports is symptomatic of...

The government has revised ethanol prices upward with effect from Dec'18 to Rs 43.46/ltr (vs. Rs 40.85/ltr), the benefit of which will be partly seen from Q4FY19 and fully during FY20. DSIL has tendered for ~7.5mn litres...