Dwarikesh Sugar Q1 Results Review - Weak Quarter Marred By Nil Crushing, Lower Sale Volumes: Systematix

Systematix Report

Dwarikesh Sugar Industries Ltd. Q1 FY25 revenue dropped 40% YoY to Rs 3.4 billion (21% below our estimate of Rs 4.3 billion) marred by higher cane cost and 30%/59% YoY drop in sales volumes of sugar/ethanol, respectively.

Sugar segment revenue dropped 44% YoY to Rs 2.7 billion (30% below our estimate) and distillery revenues declined 61% YoY to Rs 755 million (49% below our estimate). Gross margins contracted 906 bps YoY to 14.9% (below our estimate of 27%) due to lower sale volumes and an increase in sugarcane prices.

As crushing operations terminated in March, there was no production in Q1 FY25 resulting in lower fixed cost absorption. Ebitda dropped significantly by 97% YoY to Rs 23 million, (96% below our estimate) as the sugar segment reported a loss of Rs 81 million and distillery profit dropped significantly by 93% YoY. Ebitda margin contracted sharply by 1,282 bps YoY to a meagre 0.7% (versus our estimate of 14%).

Finance cost increased marginally by 1% YoY and dropped 19% QoQ to Rs 56mn while depreciation dropped 4% YoY to Rs 123 million. Other income jumped 84% YoY to Rs 6 million. As a result, company has reported profit after tax loss at Rs 97 million versus profit of Rs 406 million in Q1 FY24. We have cut FY25E/FY26E Ebitda by 15%/7%, respectively, to factor in the higher cane cost.

We have also cut earning per share by 19%/9% for this period. Our SoTP-based target price of Rs 86 (Rs 96 earlier) implies 11 times FY26E price to earning and 8 times FY26E enterprise value/Ebitda.

We have assigned FY26E enterprise value/Ebit of 10 times to distillery and 7 times to sugar; reiterating 'Buy' on Dwarikesh Sugar Industries.

Key risks: Lower-than-expected

1. recovery rate, and

2. domestic sugar prices.

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