Dwarikesh Sugar Q3 Results Review - Sugar Profits High, But Low Distillery Margins Hurt Earnings: Systematix

Systematix Research Report

Dwarikesh Sugar Industries Ltd.’s Q3 FY24 revenue fell 18% YoY to Rs 3.1 billion due to 24%/16% YoY lower sales volumes in sugar/ethanol, respectively.

Consequently, revenues in sugar too fell 12% YoY to Rs 3.3 billion (6% below estimate), with distillery seeing a 17% YoY fall to Rs 916 million (18% below estimate). Ebitda tripped 2% YoY to Rs 260 million but was 20% more than our estimate. Ebitda margin expanded ~140 bps YoY to 8.3% (we estimated 7%) due to healthy profitability in the sugar segment.

Finance cost decreased by 29% YoY as the company repaid its term loans and under-utilised its cash credit limits. Other income fell by 23% YoY to Rs 60 million, resulting in profit after tax sliding by 7% YoY to Rs 98 million (but 85% more than our estimate of Rs 53 million).

PAT margin expanded 39 bps YoY to 3.1%. We have trimmed our FY24E/FY25E Ebitda by 5%/1% to factor in the lower profitability in ethanol, given the higher levy obligation for country liquor and likely lower production of juice and B-Heavy-based ethanol.

We have cut our EPS by 6%/1% for FY24/FY25E. We roll forward valuations to FY26E. Our SOTP-based target price of Rs 110 (Rs 112 earlier) implies 10 times FY26E price/earnings and seven times FY26E enterprise value/Ebitda.

We have assigned an FY26E EV/Ebit of 10 times to distillery, seven times to sugar and four times to the power co-generation business; reiterating 'Buy' on Dwarikesh Sugar.

Key risks:

• Lower-than-expected,

• recovery rate, and

• domestic sugar prices.

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