Dwarikesh Sugar Q4 Review - Sugar Beat Estimates; Weak Distillery Drags Overall Profitability: Systematix

Systematix Research Report

Dwarikesh Sugar Industries Ltd.’s Q4 FY24 revenue fell 29% YoY to Rs 3.8 billion (in line with our estimates) due to 35%/28% YoY lower sales volumes in sugar/ethanol, respectively. Sugar segment revenue fell 30% YoY to Rs 3.7 billion but was 17% above our estimate, and distillery revenues declined 34% YoY to Rs 1.3 billion (9% below our estimate).

Despite an increase in the Uttar Pradesh-State Advised Price of cane by Rs 20/quintal, gross margins expanded 615 bps YoY to 33.5% (below our estimate of 34.4%) as raw material costs decreased 35% YoY due to 18% lower cane crush.

Ebitda dropped 15% YoY to Rs 732 million (17% above our estimate) as 46% YoY drop in distillery profit was partly offset by 4% YoY growth in sugar segment profitability. Ebitda margin expanded 303 basis points YoY to 19.3% (estimate of 17.3%).

Finance costs rose 16% YoY to Rs 69 million with depreciation flat YoY at Rs 126 million. Other income surged 12% YoY to Rs 21 million. Profit after tax fell 51% YoY to Rs 229 million (27% less than estimated) on higher tax.

We have cut FY25E/FY26E Ebitda by 16%/12%, respectively, to factor in the lower profitability in ethanol, given the higher levy obligation for country liquor.

We have also cut earnings per share by 22%/18% for this period. Our SOTP-based target price of Rs 96 (Rs 110 earlier) implies 11 times FY26E price/earning and eight times FY26E enterprise /Ebitda.

We have assigned FY26E EV/Ebit of 10 times to distillery and seven times to sugar; reiterating Buy on Dwarikesh Sugar.

Key risks:

Lower-than-expected recovery rate, and domestic sugar prices.

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