Sugar: Ethanol Story Intact Sugar Prices To Move Up

Sugar
July 8, 2021
Ethanol story intact; sugar prices to move up…

In our March 2021 Sector Report, we had reiterated our positive stance on
sugar sector along with an imminent re-rating. It is important to note that
sugar stocks have seen 2-4x run-up in four months while valuation multiples
Sector Update
have been re-rated from 3-5x to 8-10x PE. The sector has seen a turnaround
from being a cyclical to a structural growth sector backed by government’s
aggressive ethanol blending programme. In the current ethanol
procurement cycle, OMCs would be procuring more than 300 crore litre of
ethanol vs. 180 crore litre last year, which is closer to ~8% blending levels.
We believe more than 15% blending levels would help the sugar industry to
divert 6 million tonnes (MT) of excess sugar produced every year. With
aggressive distillery capacity addition in India, our coverage sugar
companies would see strong earnings growth over the next three years.
Clear roadmap for 20% ethanol blending

In June 2021, the government released a roadmap for ethanol blending
programme that clearly set forth all important factors & guidelines for OMCs,
auto OEMs, sugar and other related industries. We believe this depicts the
government’s seriousness to implement the programme. With increasing
molasses & grain based ethanol capacity, 10%, 20% ethanol blending by
2022, 2025, respectively, is achievable. The industry would divert 6 MT of
equivalent sugar toward producing ethanol. This would reduce the sugar
ICICI Securities – Retail Equity Research

inventory to rational levels and drive domestic sugar prices upwards. We
expect sugar prices to move towards | 36-37/kg by September 2022.
Increasing global sugar prices to smoothen exports
Global sugar prices have moved up 50% in last one year on the back of two
consecutive years of lower sugar production by Thailand (major sugar
exporter). Moreover, despite ongoing Brazilian crushing season, sugar
prices have been firm considering expected 5-6 MT sugar production
decline due to severe drought & crop destruction due to frost in many areas
in south central Brazil. We expect global sugar prices to cross 20 cents/lb in
the next one year, which would help the Indian sugar exports to the tune of
6 MT in 2021-22 season. Sugar exports are important given industry wise
distillery capacities would take two years to get commissioned.
Improving profitability; attractive multiples
With the massive increase in distillery capacities by sugar companies,
ethanol sales are likely to double for most of our coverage companies. We
believe ethanol sales would contribute 25-30% to revenues of major sugar Research Analyst
companies by FY24. Moreover, reducing sugar inventories in the system are Sanjay Manyal
likely to push domestic sugar prices upwards. Both these factors would sanjay.manyal@icicisecurities.com
boost earnings for sugar companies in the next three years. We estimate 15-
40% earnings growth for our coverage companies. Despite, the huge run up
in the sugar stocks, valuation multiples are still 5-10x FY23 PE. Given the
strong earnings growth visibility, sugar stocks are likely to command higher
valuation multiples. We remain positive on the sector.
Valuation matrix
CMP TP M Cap EPS (|) P/E (x) EV/EBITDA (x) P/B RoCE (%)
Sector / Company
(|) (|) Rating (| Cr) FY21 FY22E FY23E FY24E FY21 FY22E FY23E FY24E FY21 FY22E FY23E FY24E FY21 FY22E FY23E FY24E FY21 FY22E FY23E FY24E
Balrampur Chini (BALCHI) 339 515 Buy 7,115 22.8 27.1 36.7 42.3 14.8 12.5 9.2 8.0 11.5 10.0 7.5 6.6 2.7 2.4 2.1 1.9 16.4 18.1 23.1 23.8
Dalmia Bharat Sugar (DALSUG) 452 650 Buy 3,657 33.4 38.5 46.5 51.5 13.5 11.7 9.7 8.8 9.5 8.3 7.0 6.2 1.7 1.8 1.5 1.3 13.3 14.5 16.3 17.2
Triveni Engineering (TRIENG) 195 270 Buy 4,716 12.2 16.7 20.7 24.8 16.0 11.7 9.4 7.9 9.9 9.0 7.3 6.1 3.0 2.6 2.2 1.9 19.4 19.8 22.8 25.3
Dwarikesh sugar (DWASUG) 74 110 Buy 1,402 4.9 7.1 8.1 11.8 15.3 10.6 9.2 6.3 9.7 7.5 6.9 4.6 2.4 2.0 1.7 1.4 14.4 18.0 18.0 24.6
Dhampur Sugar (DHASUG) 366 500 Buy 2,433 34.4 44.9 53.1 57.6 10.7 8.2 6.9 6.4 7.4 6.2 5.1 4.7 1.6 1.4 1.2 1.0 14.8 16.8 19.1 18.9
Avadh Sugar (AVASUG) 478 685 Buy 955 38.8 66.5 94.9 106.7 12.3 7.2 5.0 4.5 8.3 6.1 4.0 3.0 1.4 1.2 1.0 0.8 11.5 14.7 20.6 23.3
Source: Company, ICICI Direct Research
Sector Update | Sugar ICICI Direct Research
Sugar inventories to further decline in next one year

In the last two years, sugar inventories have come down from 14.5 MT in
September 2019 to ~8 MT (estimated) in September 2021. The industry has
exported ~7 MT (including 0.5 MT under OGL) and sacrifice 2.2 MT of sugar
for ethanol production in ongoing sugar season. Despite huge inventory
reduction, domestic sugar prices have remained at ~| 33/kg, mainly due to
lower consumption in summer month due to second wave of Covid-19. We
believe global raw sugar prices would cross 20 cents/lb in the next one year,
which would help the Indian sugar industry to further export 6 MT in 2021-
22 sugar season with either minimal or no export subsidy. We believe sugar
consumption would also go up to ~27 MT after two consecutive years of
muted demand adversely impacted by Covid-19. We believe sugar
inventories would decline to ~7 MT by September 2022, which is likely to
push domestic sugar prices to | 36/kg.
Exhibit 2: Sugar inventories rationalising to comfortable levels (in million tonne)
16 14.5
Sugar inventories are expected to come down to ~8 MT
14
by September 2021 after 6.8 MT of exports & 26 MT of
12 10.6 10.6 consumption
10 9.2 9.0
8.3
7.4 7.7
8 6.6 6.8
5.9
6 5.0
4.1
4
2
0
2009-10 2011-12 2013-14 2015-16 2017-18 2019-20 2021-22E
Massive distillery capex to leverage ethanol opportunity

In June 2021, the government released a roadmap for ethanol blending
programme, which clearly set forth ethanol capacity requirement, raw
material availability, planned storage capacity by OMCs and change in
engine, components requirement among other important factors. We
believe this depicts the government’s seriousness in implementing the
programme. With the increasing molasses & grain based ethanol capacities,
10% and 20% ethanol blending by 2022 and 2025, respectively, is
achievable. Out of the total requirement of 1350 crore litre (ethanol & ENA)
by 2025, sugarcane based ethanol is expected to contributes 684 crore litre
while grain based ethanol would contribute 666 crore litre. Ethanol blending
at 20% would create massive 1000 crore litre of annual ethanol demand
every year by 2025. Currently, OMCs are procuring ~300 crore litre (9% out
of this is grain based ethanol). With the huge opportunity in the ethanol
space, sugar & other agri-based companies are undertaking huge capacity
expansions. The sugar industry has added ~100 crore litre of distillery
capacity in the last two years. Moreover, another ~300 crore litre of capacity
would be commissioned in the next three years.
ICICI Securities | Retail Research 2

Exhibit 3: Expected cumulative distillery (Ethanol + ENA) capacities by 2025-26

1600
1400 Sugar companies are undertaking massive distillery
capacity expansion over the next three to four years to
1200 leverage the opportunity in ethanol blending programme
760
730
1000
800 725
625
600 519
426 450
400 740
700
200 350 450
258 260 300
0
2019-20 2020-21 2021-22E 2022-23E 2023-24E 2024-25E 2025-26E
Grain based Molasses based
Source: MPNG, Niti Aayog, ICICI Direct Research
Most companies in our coverage universe are doubling their capacity.

Currently, B-heavy & sugarcane-juice ethanol prices are far more
remunerative compared to C-Heavy ethanol prices. We believe sugar
companies would divert ~75-80% of their sugarcane towards B-Heavy
ethanol & 5-10% towards sugarcane juice ethanol. C-heavy ethanol/ENA
would only be produced for mandatory levy requirement for country liquor
in UP. This would result in 20% or 6 million tonnes sugar diversion towards
ethanol production, which would absorb the entire excess sugar production.
Exhibit 4: Ethanol blending requirement for 10% & 20% by 2025-26
12.0 25.0
10.0 Ethanol blending requirement for 10% by 2022 & 20% by

10 billion litre demand at 20.0 20 20.0
20% blending level 2025
8.0
15 15.0
6.0 12
10.0 10.0
4.0 9.0 7.0
5.0 4.4 5.4
3.3 10.2 5.0
2.0
9.9
1.7
0.0 0.0
2020 2021 2022E 2023E 2024E 2025E 2026E
Ethanol blending (bn litres) Blending rate %
Source: MPNG, Niti Aayog, ICICI Direct Research
Increasing global sugar prices to smoothen exports

Global sugar prices have moved up ~50% in the last one year on the back
of two consecutive years of lower sugar production by Thailand (major
sugar exporting country). Moreover, despite ongoing Brazilian crushing
season, sugar prices have been firm considering expected 5-6 MT decline in
Brazilian sugar production in the 2021-22 season. Brazil is facing a severe
drought, which has reduced the water availability for the ongoing sugar
crop. Further, recently frost has also destroyed the sugarcane crop in many
areas in south central Brazil. Sugarcane output is expected to be below 540
MT (605 MT last year) in sugar season 2021-22. Further, ethanol prices have
risen 3x in the last one year, which is also likely to change the sugar-ethanol
mix to 44-56% against 47-53% last year. This would result in 5-6 MT decline
in sugar production to 32 MT (38 MT last year) in South Central Brazil. We
expect global sugar prices to cross 20 cents/lb in the next one year, which
would help the Indian sugar industry to export 6 MT easily.

Exhibit 5: Brazil sugar production expected to decline (in million tonne)
40
Brazilian sugarcane output is expected to come down from
605 MT to below 540 MT due to one of the most severe
35
droughts in 90 years
30
38
25
32
20
15
2015 2016 2017 2018 2019 2020 2021 2022E
Source: UNICA, ISO datagro, Company, ICICI Direct Research
Demand to outpace supply even beyond 2025

The government has set a target of 20% ethanol blending by 2025. Along
with the ENA and rectified sprit, total distillery demand is likely to be 1350
crore litre by 2025-26. The government is also encouraging usage of flex fuel
vehicles (can run on both petrol & ethanol). Guidelines for flex-fuel vehicles
are likely to be issued by October 2021. Though wide usage of flex fuel
vehicles is going to take longer, we believe moderate usage of flex-fuels
cars/bikes is going to increase ethanol demand even beyond 2025. India is
following ethanol blending model of Brazil, which has increased the ethanol
demand beyond 27% mandatory blending by encouraging usage of flex fuel
vehicles in last two decades. Overall blending level in Brazil is above 50%.
Why incorporating FY24 numbers are important?
We are incorporating FY24 numbers for sugar companies given these
companies are undertaking massive capacity expansion in the next two
years. Most of the distillery capacity would be commissioning in July-
December 2022 with full impact of expansion being realised in FY24. The
capex would result in 15-40% earning CAGR for sugar companies during
FY21-24E. Moreover, distillery segment (ethanol, ENA) would start
contributing more than 25% to revenues. We believe earnings of sugar
companies have become much more stable compared to pre-2018 period.
Sugarcane prices expected to increases by | 20/ quintal
Given sugarcane is most remunerative agri-crop, support prices have
remained stable in last four years. We expect UP state advised priced (SAP)
for sugarcane to increase by | 20/quintal (6% increase) for 2021-22 sugar
season given state elections in UP in February 2022. However, we believe
minimal selling prices (MSP) for sugar would also increase by | 2/kg.
Moreover, we believe domestic prices are likely to increase to | 36/kg given
sugar inventories are expected to decline below 7 MT in the next one year.
This would offset the increase in sugarcane prices (FRP / SAP)
Expansion in ethanol volumes to aid margins
Our coverage universe sugar companies are doubling ethanol capacities in
the next three years. Moreover, current proportion of B-heavy ethanol is
closer to ~60%, which would increase to ~80% in next two years. Further,
with the expansion of distillery capacities, the companies would be able to
divert ~10% of the sugarcane towards sugarcane juice ethanol. This would
aid operating margins by ~300 bps in the next two to three years.
Sugarcane availability to be key
Given the B-heavy & sugarcane juice ethanol margins are much more
remunerative compared to existing sugar margins, it is given that the
company with higher sugarcane availability along with sufficient distillery
capacity would benefit from the most entire ethanol blending programme.

Balrampur
TAT Chini (BALCHI)
CMP: | 339 Target: | 515 (52%) Target Period: 12 months BUY
July 8, 2021
Sugarcane availability to improve with variety change

Balrampur Chini (BCML) is the second largest and one of the most efficient
sugar companies in India. It has announced a 320 KLD distillery expansion,
Company Update
which would increase distillery volumes to ~30 crore litre. Out of total
volumes, ~6 crore litre would be produced through grains (broken rice). We
believe the company could further increase the capacity by expanding its
existing distilleries to produce higher output through sugarcane juice & B-
heavy molasses. We believe with the diversion of 82% of its sugarcane
towards B-heavy, sugarcane juice molasses & ~20% sugar sacrifice, the Particulars
company has the sufficient feedstock to produce ~28 crore litre of ethanol Particulars (| crore) Amount
from sugarcane (B-heavy, C-Heavy & Juice). This, along with 6 crore litre of Market Capitalization 7,114.8
ethanol from grains could result in total 34 crore litre of distillery volumes. Total Debt (FY21) 1,134.6
Cash and Investments (FY21) 2.8
Distillery volume may double in three years
EV 8,246.6
Though BCML has announced 320 KLD distillery expansion with capex of 52 week H/L (|) 370 / 122
| 425 crore, we believe it would further increase its distillery capacity by Equity capital 21.0
expanding its existing units to utilise sugarcane juice & B-heavy route to Face value (|) 1.0
produce ethanol. Further, foraying into grain based ethanol has also added
Key Risk
one more revenue stream. Most of the company’s sugar mills are located in
eastern UP, which has sufficient grain availability. With the implementation  Given sugarcane production declined in
of 20% ethanol blending programme, demand for ethanol and ENA would current year due to red rot in BCML
increase 3x in coming years while half of that requirement would be met by catchment area, continued adverse

grain based ethanol. We estimate 25.7% distillery revenue CAGR in FY21- impact on the crop for second year
24E led by 21.4% volume growth and 4.6% in realisation growth. could impact profitability
Higher global, domestic sugar prices to aid earnings  Given 2022 is an election year, any
A severe drought in Brazil is likely to result in ~6 million tonnes (MT) lower irrational increase in sugarcane prices
sugar production in 2021-22 season. Moreover, Thailand has seen two could impact cash flows
consecutive years of lower production. We believe sugar prices would surge
Price Performance
above 20 cents/lb in the next one year, which would be sufficient for Indian
sugar exports with minimal or no export subsidy for the 2021-22 sugar 400 18000
season. We expect 6 MT of sugar exports from India next season. Sugar 350 16000
300 14000
exports would result in sugar inventories going down below 7 MT and 250 12000
domestic sugar prices inching up towards | 36/kg. 200
10000
8000
150 6000
Valuation & Outlook 100 4000
50 2000
We are incorporating FY24 numbers given new distillery is likely to get 0 0
Jan-19
Jan-18
Jan-20
Jan-21
Jul-17
Jul-18
Jul-20
Jul-19
Jul-21
commissioned by November 2022 while its full impact would be felt in

FY24E. Though BCML has faced a considerable drop in sugar production
this sugar season due to red rot, we believe changing sugarcane variety Balrampur Chini NIFTY
would help regain lost sugarcane in its catchment area. With increase in
Research Analyst
distillery capacities & expected increase in sugar prices, we estimate 17.7%
earnings CAGR in FY21-24E. We estimate free cash flow above | 500 crore Sanjay Manyal
every year for next three years, which is likely to increase payout (dividend, sanjay.manyal@icicisecurities.com
buy-backs) to 60%. We value the stock at 14x FY23 earnings with a revised
target price of | 515 (earlier | 385) & maintain BUY rating.
Key Financial Summary
Key Financials FY20 FY21 FY22E FY23E FY24E CAGR (FY21-24E)
Total Operating Income 4741.3 4811.7 4667.2 5697.7 6020.9 7.8%
EBITDA 682.0 713.8 799.1 1015.0 1122.7 16.3%
EBITDA Margin % 14.4 14.8 17.1 17.8 18.6
Net Profit 519.4 479.8 554.8 715.9 783.2 17.7%
Adjusted PAT 519.4 479.8 554.8 715.9 783.2 17.7%
EPS (|) 23.6 22.8 27.1 36.7 42.3 22.8%
P/E 14.4 14.8 12.5 9.2 8.0
RoNW % 21.5 18.3 19.0 21.5 20.8
RoCE (%) 16.12 16.41 18.14 23.09 23.82
Company Update | Balrampur Chini ICICI Direct Research
Exhibit 7: Change in estimates

FY22E FY23E FY24E
(| Crore) Old New % change Old New % change New Comments
We have taken higher sales volumes in FY23 numbers with expected
Net sales 4658.5 4,667.2 0.2 5,418.5 5,697.7 5.2 6,020.9 exports due to higher global prices. We are incorporating FY24E
numbers
EBITDA 778.2 799.1 2.7 1,019.3 1,015.0 -0.4 1,122.7
EBITDA Margin (%) 16.7 17.1 42 bps 18.8 17.8 -100 bps 18.6
PAT 543.6 554.8 2.1 717.5 715.9 -0.2 783.2
EPS (|) 27.2 27.1 -0.5 37.8 36.7 -2.9 42.3 Lower numbers of buyback shares would change our EPS estimate
Exhibit 8: Assumptions
Current Earlier
FY19 FY20 FY21 FY22E FY23E FY24E FY22E FY23E Comments
We have changed the sales volumes
Sugar Sold (in tonne) 1,153,000 1,205,300 1,132,600 960,000 1,164,000 1,152,000 960,000 1,092,000 estimate with expected higher exports in
FY23E
Sugar Price (| per tonne) 29,553 30,341 32,370 34,000 34,800 35,000 34,000 34,500
Distillery volume 110,890 119,320 165,204 180,180 235,200 295,680 180,180 235,200
Distillery price (| per KL) 41,290 45,701 48,350 55,119 55,408 55,408 54,636 55,174
Power Units sold 66.4 52.6 42.6 56.8 56.8 56.8 56.8 56.8
Price per unit (| per units) 4.9 3.1 3.2 3.3 3.4 3.4 3.3 3.4

Company Update | Balrampur Chini ICICI Direct Research
Financial summary
Exhibit 9: Profit and loss statement | crore Exhibit 10: Cash flow statement | crore
(Year-end March) FY21 FY22E FY23E FY24E (Year-end March) FY21 FY22E FY23E FY24E
Total Operating Income 4,811.7 4,667.2 5,697.7 6,020.9 Profit/Loss after Tax 589.6 554.8 715.9 783.2
Growth (%) 1.5 -3.0 22.1 5.7 Add: Depreciation 111.9 117.4 124.3 131.2
Raw Material Expenses 3,456.0 3,297.0 4,092.8 4,273.5 Add: Interest 39.3 0.0 0.0 0.0
Employee Expenses 281.7 295.7 316.4 341.8 (Inc)/dec in Current Assets 106.2 76.9 -72.0 -130.8
Administrative Expenses 0.0 0.0 0.0 0.0 Inc/(dec) in Current Liabilities -140.1 123.9 62.9 -15.1
Excise Duty 0.0 0.0 0.0 0.0 CF from operating activities 649.0 873.0 831.1 768.5
Other expenses 360.1 275.4 273.5 283.0 (Inc)/dec in Investments 15.7 -25.0 -25.0 -25.0
Total Operating Expenditure 4,097.8 3,868.1 4,682.7 4,898.2 (Inc)/dec in Fixed Assets -97.8 -350.0 -150.0 -150.0
Others 0.9 2.4 0.0 0.0
EBITDA 713.8 799.1 1,015.0 1,122.7 CF from investing activities -81.1 -372.6 -175.0 -175.0
Growth (%) 4.7 11.9 27.0 10.6 Issue/(Buy back) of Equity -223.2 -190.0 -200.0 -225.0
Depreciation 111.9 117.4 124.3 131.2 Inc/(dec) in loan funds -251.1 -230.0 -350.6 -150.6
Interest 39.3 30.7 20.3 14.2 Dividend paid & dividend tax -52.5 -102.5 -110.0 -117.0
Other Income 26.9 27.5 24.7 22.2 Inc/(dec) in Sec. premium 0.0 43.9 0.0 0.0
PBT 562.7 651.1 870.4 977.3 Others -42.1 0.0 0.0 0.0
Total Tax 129.4 156.1 214.8 251.9 CF from financing activities -568.9 -478.6 -660.6 -492.6
Net Cash flow -1.0 21.8 -4.5 100.9
PAT 479.8 554.8 715.9 783.2 Opening Cash 1.5 0.4 22.2 17.7
Adjusted PAT 479.8 554.8 715.9 783.2 Cash change due to asset HFS 0.0 0.0 0.0 0.0
Growth (%) -7.6 15.6 29.0 9.4 Cash with bank 0.0 0.0 0.0 0.0
Adjusted EPS (|) 22.8 27.1 36.7 42.3 Closing Cash 0.4 22.2 17.7 118.6
Source: Company, ICICI Direct Research Source: Company, ICICI Direct Research
Exhibit 11: Balance sheet | crore Exhibit 12: Key ratios | crore
FY21 FY22E FY23E FY24E FY21 FY22E FY23E FY24E
Liabilities Per share data (|)
Equity Capital 21.0 20.5 20.0 19.5 EPS 22.8 27.1 36.7 42.3
Reserve and Surplus 2,598.1 2,904.8 3,311.2 3,753.0 Cash EPS 28.2 32.8 43.1 49.4
Total Shareholders funds 2,619.1 2,925.3 3,331.2 3,772.5 BV 124.7 142.7 166.6 193.5
Total Debt 1,134.6 904.6 554.1 403.5 DPS 2.5 5.0 5.5 6.0
Long Term Provisions 8.2 8.2 8.2 8.2 Cash Per Share 28.8 35.2 42.3 50.1
Other Non-current Liabilities 71.2 72.2 73.2 74.2 Operating Ratios (%)
Total Liabilities 3,833.2 3,910.4 3,966.7 4,258.3 EBITDA Margin 14.8 17.1 17.8 18.6
Assets PBT / Net Sales 12.3 14.5 15.7 16.6
Gross Block 2,202.0 2,552.0 2,702.0 2,852.0 PAT Margin 10.0 11.9 12.6 13.0
Less: Acc Depreciation 604.2 721.6 845.9 977.1 Inventory days 180.4 180.5 150.1 150.1
Net Block 1,597.8 1,830.4 1,856.1 1,874.9 Debtor days 18.6 20.3 20.3 20.3
Capital WIP 14.5 14.5 14.5 14.5 Creditor days 45.2 47.5 40.7 36.5
Intangible assets 0.8 0.8 0.8 0.8 Return Ratios (%)
Non Current Investments 249.2 274.2 299.2 324.2 RoE 18.3 19.0 21.5 20.8
Other non-current assets 17.3 17.3 17.3 17.3 RoCE 16.4 18.1 23.1 23.8
Current Assets
Inventory 2,378.5 2,307.7 2,342.4 2,475.3 Valuation Ratios (x)
Debtors 245.5 259.3 316.5 334.5 P/E 14.8 12.5 9.2 8.0
Cash 2.8 22.2 17.7 118.6 EV / EBITDA 11.5 10.0 7.5 6.6
Loans & Advances 0.0 0.0 0.0 0.0 EV / Net Sales 1.7 1.7 1.3 1.2
Other Current Assets 127.7 107.7 87.7 67.7 Market Cap / Sales 1.5 1.5 1.2 1.2
Current Liabilities Price to Book Value 2.7 2.4 2.1 1.9
Creditors 596.4 607.1 635.7 602.2 Solvency Ratios
Provisions 5.4 5.4 5.4 5.4 Debt/EBITDA 1.6 1.1 0.5 0.4
Other CL 199.0 311.2 344.4 361.8 Debt / Equity 0.4 0.3 0.2 0.1
Net Current Assets 1,953.6 1,773.2 1,778.8 2,026.7 Current Ratio 4.3 3.8 3.8 4.1
Total Assets 3,833.2 3,910.4 3,966.7 4,258.3 Quick Ratio 0.6 0.5 0.6 0.6

Dalmia
TAT Bharat Sugar (DALSUG)
July 8, 2021
Fastest in expanding distillery capacity…

Dalmia Bharat Sugar (DBSL) has two of its plant in Maharashtra and three
plants in UP. It would be fastest in increasing its distillery capacity from 8.5
Company Update
crore litre to 15-16 crore litre by March 2022. The company is expanding all
its existing distillery capacities to utilise sugarcane juice & B-heavy route to
produce ethanol. It is also increasing its crushing capacity from 35500 TCD
Particulars
to 40500 TCD in the same period. The company would divert ~8-10% of its
sugarcane towards sugarcane juice ethanol & 75-80% of sugarcane towards Particulars (| crore) Amount
B-heavy ethanol. With the significant increase in distillery capacity, distillery Market Capitalization 3,658.4
sales would contribute ~28% to sales by FY24E. We estimate distillery Total Debt (FY21) 915.9
volumes of 15 crore litre by FY23 and 15.5 crore litre by FY24. Cash and Investments (FY21) 79.8
EV 4,494.6
Steep increase in global prices 52 week H/L (|) 499 / 105
The company has a locational advantage given two of its plants are closer Equity capital 16.2
to ports. The freight cost in Maharashtra is less than | 1/kg compared to Face value (|) 2.0
| 2/kg for UP mills. With the sharp increase in global sugar prices, it has been
able to export more than 1.5 lakh tonnes (lt) in the current season with Key Risk
significant quantities of white sugar exports (trades premium to raw sugar).  Any significant delay in commissioning
DBSL has also switched some of its domestic quota with exports given sugar of new distillery or expansion in
prices in Maharashtra has been muted in the last six months. With | 6/share existing distillery could impact earning
export subsidy, we believe it would have realised more than average | 34/kg
for exports. Further, with rising global sugar prices, DBSL is best placed to  Decline in global sugar prices could

take advantage of expected sugar exports in the 2021-22 sugar season. impact the export sugar realisation for
the company
Strong cash earnings growth & cash flow generation
Price Performance
Considering the increase in distillery capacity from 8.5 crore litre to 15.5
crore litre by FY24E, we estimate distillery sales CAGR of 25% in FY21-24E.
600 18000
Moreover, DBSL would not be sacrificing sugar volumes given it is also 16000
500
increasing its sugar crushing capacity. Sugarcane is more easily available in 14000
Maharashtra for the company given its timely farmer payment has always 400 12000
10000
been an advantage even in a drought year. We also expect domestic sugar 300
8000
prices to move northward given higher diversion toward ethanol and 200 6000
4000
expected sugar exports of 6 MT next year would result in lower sugar 100
2000
inventory levels (below 7 MT country wise). We estimate earnings CAGR of 0 0
15.5% in FY21-24E. We also expect DBSL to generate free cash flow of | 206
Jan-19
Jan-18
Jan-20
Jan-21
Jul-17
Jul-18
Jul-20
Jul-19
Jul-21
crore, | 311 crore in FY22E, FY23E respectively.
Valuation & Outlook Dalmia Sugar NIFTY
With the strong cash flow generation and light balance sheet, the company
would be able to increase its payout in future. We also believe small sugar Research Analyst
mills or single unit sugar mills could be a potential acquisition target for the Sanjay Manyal
company given its de-leveraged balance sheet. We value the company at sanjay.manyal@icicisecurities.com
14x FY23 earnings with a revised target price of | 650/share (earlier | 450)
and maintain our BUY recommendation.
V
s
EBITDA 260.5 471.5 557.6 625.8 656.5 11.7%
EBITDA Margin % 12.8 17.5 20.4 20.6 21.0
Net Profit 193.3 270.4 311.9 376.2 417.0 15.5%
EPS (|) 23.88 33.41 38.54 46.48 51.52 15.5%
P/E 18.9 13.5 11.7 9.7 8.8
RoNW % 9.0 12.6 15.0 15.6 15.1
RoCE (%) 11.8 13.3 14.5 16.3 17.2
Company Update | Dalmia Bharat Sugar ICICI Direct Research
Exhibit 14: Change in Estimates

FY22E FY23E FY24E
Net sales 2705.3 2,730.7 0.9 3,008.6 3,036.5 0.9 3,131.1 We are incorporating FY24E numbers
EBITDA 553.0 557.6 0.8 611.0 625.8 2.4 656.5
EBITDA Margin (%) 20.4 20.4 -2 bps 20.3 20.6 30 bps 21.0
Adjusted PAT 308.5 311.9 1.1 365.1 376.2 3.0 417.0
EPS (|) 38.1 38.5 1.1 45.1 46.5 3.1 51.5

Current Earlier
FY19 FY20 FY21E FY22E FY23E FY24E FY22E FY23E Comments
Sugar Sold (in tonne) 531,000 485,000 620,800 558,720 558,720 569,894 558,720 558,720 We are incorporating FY24E numbers
Power Units sold 38.0 33.4 30.3 32.0 32.0 32.0 32.0 32.0

Company Update | Dalmia Bharat Sugar ICICI Direct Research
Financial summary
Growth (%) 32.5 1.3 11.2 3.1 Add: Depreciation 95.6 109.6 109.1 106.0
Employee Expenses 143.7 152.9 160.9 162.8 (Inc)/dec in Current Assets -41.4 104.9 -46.4 -63.4
Administrative Expenses 0.0 0.0 0.0 0.0 Inc/(dec) in Current Liabilities -90.0 -0.5 -9.2 9.7
Other expenses 241.9 232.1 227.7 234.8 (Inc)/dec in Investments 107.8 -5.0 -5.0 -5.0
Others 1.3 8.5 0.0 0.0
EBITDA 471.5 557.6 625.8 656.5 CF from investing activities 37.1 -315.5 -124.0 -64.0
Growth (%) 81.0 18.3 12.2 4.9 Issue/(Buy back) of Equity 0.0 0.0 0.0 0.0
Depreciation 95.5 109.6 109.1 106.0 Inc/(dec) in loan funds -319.3 140.0 -278.2 -308.2
Interest 61.9 63.4 46.7 28.2 Dividend paid & dividend tax 0.0 -24.3 -48.6 -64.8
Other Income 53.9 32.3 33.0 33.7 Inc/(dec) in Sec. premium 0.0 -353.5 0.0 0.0
PBT 314.1 384.7 470.0 522.3 Others -45.1 0.0 0.0 0.0
Exceptional items 0.0 0.0 0.0 0.0 CF from financing activities -364.4 -237.8 -326.8 -373.0
Total Tax 97.6 105.1 126.7 139.0 Net Cash flow 18.3 -27.5 -20.9 32.4
PAT 270.4 311.9 376.2 417.0 Opening Cash 53.0 71.3 43.8 22.9
Growth (%) 39.9 15.4 20.6 10.8 Cash with bank 8.5 0.0 0.0 0.0
EPS (|) 33.4 38.5 46.5 51.5 Closing Cash 79.8 43.8 22.9 55.3
Total Debt 915.9 1,055.9 777.7 469.5 DPS 0.0 3.0 6.0 8.0
Less: Acc Depreciation 980.8 1,090.4 1,199.5 1,305.5 Inventory days 186.2 152.1 136.9 136.9
Current Assets
Debtors 115.3 227.6 253.0 260.9 P/E 13.5 11.7 9.7 8.8
Cash 79.8 43.8 22.9 55.3 EV / EBITDA 9.5 8.3 7.0 6.2
Net Current Assets 1,549.8 1,408.5 1,442.1 1,527.1 Current Ratio 5.6 3.9 4.1 4.1

Triveni
TAT Engineering (TRIENG)
July 8, 2021
Distillery capacity to double by November 2022…

Triveni Engineering (TEL) is also one of the major beneficiaries of the ethanol
blending programme given large availability of sugarcane in western and
Company Update
central UP. The company has produced more than 9.4 lakh tonnes (lt) in the
current sugar season (larger than Balrampur) and has remained largely
unaffected by the drop in sugarcane output in the state. Also, its distillery Particulars
volumes have increased from 8.5 crore litre to 10.4 crore litre in FY21. TEL Particulars (| crore) Amount
is expanding its current distillery capacity from 11 crore litre to 22 crore litre Market Capitalization 4,716.3
by November-2022 with expansion of its existing distilleries for the Total Debt (FY21) 958.0
utilisation of sugarcane Juice & B-heavy route to produce ethanol. Moreover,
it is establishing two new distilleries with 160 KLD & 40 KLD capacity (grain
EV 5,663.0
based). This would take the distillery revenue contribution to 27% by FY24E.
52 week H/L (|) 209 / 52
Aggressive capacity addition; inventory reduction to aid profit Equity capital 24.2
TEL announced another distillery capacity addition of 140 KLD with capex of Face value (|) 1.0
| 100 crore. This capacity will be commissioned in November 2022 and takes
the total annual distillery capacity to 22 crore litre. Post this expansion, it Key Risk
would be able to divert more than 80% of its sugarcane towards either B-  Slower/no recovery in gear & water
heavy or sugarcane juice ethanol. We believe TEL would be able to sacrifice business could adversely impact cash
1.5 lt of sugar in FY23E, which would help it reduce the sugar inventory to flows in medium term
reasonable levels. We estimate distillery revenue CAGR of 35% over FY21-
24E led by 28.7% volume CAGR and 5% realisation growth. TEL would  Any irrational increase in sugarcane

continue to export the excess inventory in the 2021-22 sugar season as well. prices could impact profitability
We believe expected increase in global prices would help the industry to
export 6 million tonnes (MT) of sugar in next season with either minimal or
no export subsidy. The company would be able to reduce additional Price Performance
inventories through exports till the distillery capacities come on stream.
Strong cash flow generation; further reduction in debt 250 18000
16000
200 14000
TEL has produced 56% of ethanol from B-heavy molasses. With expected
12000
commissioning of 160 KLD distillery capacity in January 2022, it would be 150 10000
able to produce 80% of ethanol from B-heavy molasses or sugarcane juice. 100 8000
6000
This would significantly improve distillery realisation & profitability. We 4000
50
estimate 24% earnings CAGR in FY21-24E and operating cash flow 2000
generation of ~| 500 crore every year between FY21-24E, which would be 0 0
Jan-19
Jan-18
Jan-20
Jan-21
Jul-17
Jul-18
Jul-20
Jul-19
utilised for | 350 crore of capex in the next two years. Moreover, we expect Jul-21
debt reduction of | 480 crore by FY24E.
Valuation & Outlook Triveni Engineering NIFTY
Sugar industry fundamentals have changed with implementation of ethanol
blending programme. We believe sugar companies would be able to Research Analyst
generate 25-30% of sales from distillery segment. With strong earnings Sanjay Manyal
growth, cash flow generation, the company would not only be able to sanjay.manyal@icicisecurities.com
deleverage its balance sheet but is also expected to increase shareholder’s
payout (dividend, buybacks) to ~40%. We maintain BUY recommendation
with a target price of | 270/share, valuing at 13x FY23 PE (earlier TP | 270).
s
EBITDA 543.2 558.2 607.0 718.6 816.5 13.5%
EBITDA Margin % 12.2 11.9 13.1 14.9 16.5
Net Profit 335.1 294.6 394.5 480.6 561.9 24.0%
EPS (|) 13.52 12.18 16.66 20.74 24.77 26.7%
P/E 14.4 16.0 11.7 9.4 7.9
RoNW % 19.9 18.9 22.3 23.4 23.6
RoCE (%) 17.6 19.4 19.8 22.8 25.3
Company Update | Triveni Engineering ICICI Direct Research

FY22E FY23E FY24E
Net sales 4624.3 4,624.3 0.0 4,816.7 4,816.7 0.0 4,943.1 We are incorporating FY24E numbers
EBITDA 607.0 607.0 0.0 718.6 718.6 0.0 816.5
EBITDA Margin (%) 13.1 13.1 0 bps 14.9 14.9 0 bps 16.5
PAT 394.5 394.5 0.0 480.6 480.6 0.0 561.9
EPS (|) 16.7 16.7 -0.2 20.7 20.7 0.2 24.8

Current Earlier
Sugar Sold (in tonne) 759,067 1,069,545 1,103,233 971,611 915,779 861,295 971,611 915,779 We are incorporating FY24E numbers
Power Units sold 17.5 14.5 21.1 15.5 17.5 17.5 15.5 17.5
Gear/Gear box revenue 129.3 150.3 130.1 169.1 186.0 197.2 169.1 186.0
Water segment revenue 231.4 289.1 246.9 308.6 339.5 356.4 308.6 339.5

Company Update | Triveni Engineering ICICI Direct Research
Financial summary
Raw Material Expenses 3,436.1 3,314.6 3,340.3 3,305.0 Add: Interest & Others 49.3 0.0 0.0 0.0
Employee Expenses 270.8 300.6 337.2 365.8 (Inc)/dec in Current Assets 396.7 21.0 74.8 -94.8
Administrative Expenses 0.0 0.0 0.0 0.0 Inc/(dec) in Current Liabilities -131.3 21.3 -134.5 -53.7
Marketing expenses 0.0 0.0 0.0 0.0 (Inc)/dec in Investments 2.1 0.3 0.0 0.0
Other expenses 409.1 369.9 385.3 415.2 (Inc)/dec in Fixed Assets -89.2 -270.0 -120.0 -30.0
Total Operating Expenditure 4,145.1 4,017.3 4,098.1 4,126.6 Others -21.0 1.3 0.0 0.0
EBITDA 558.2 607.0 718.6 816.5 CF from investing activities -107.9 -273.4 -125.0 -35.0
Growth (%) 2.8 8.7 18.4 13.6 Issue/(Buy back) of Equity -65.0 -0.5 -0.5 -0.5
Interest 51.6 44.7 33.0 19.1 Dividend paid & dividend tax 0.0 -59.2 -69.5 -79.4
Other Income 30.4 31.0 27.9 25.1 Inc/(dec) in Sec. premium -7.1 0.0 0.0 0.0
PBT 458.6 504.6 618.5 725.9 Others -51.5 0.0 0.0 0.0
Exceptional items -0.7 0.0 0.0 0.0 CF from financing activities -703.7 -244.2 -394.5 -472.8
Total Tax 165.2 127.1 155.9 182.9 Net Cash flow -20.8 8.1 -3.6 2.1
PAT 294.6 394.5 480.6 561.9 Opening Cash 32.0 11.3 19.3 15.7
EPS (|) 12.2 16.7 20.7 24.8 Closing Cash 12.6 19.3 15.7 17.8
Total Debt 870.5 810.5 610.5 367.1 DPS 0.0 2.5 3.0 3.5
Total Liabilities 2632.4 2781.8 2866.9 2955.0 EBITDA Margin 11.9 13.1 14.9 16.5
Less: Acc Depreciation 378.0 466.8 561.8 658.4 Inventory days 135 125 112 114
Net Block 1,059.0 1,240.2 1,265.2 1,198.6 Debtor days 16 25 25 25
Capital WIP 22.2 22.2 22.2 22.2 Creditor days 48 51 49 49
Current Assets
Debtors 208.4 321.1 334.5 343.3 P/E 16.0 11.7 9.4 7.9
Cash 12.6 19.3 15.7 17.8 EV / EBITDA 9.9 9.0 7.3 6.1
Net Current Assets 1225.1 1188.5 1243.6 1393.3 Current Ratio 2.7 2.6 2.8 3.0

Dwarikesh
TAT Sugar (DWASUG)
July 8, 2021
Sufficient feedstock to double distillery capacity…

Dwarikesh Sugar (DSL) is one of the most efficient sugar companies with
highest recovery rate in UP & ample sugarcane availability. It has distillery
Company Update
capacity of 160 KLD, which can produce 5.5 crore litre of ethanol every year.
In FY21, the company sold 3.2 crore litre of ethanol with ~50% of volumes
contributed by B-heavy ethanol. DSL would only be producing B-heavy
ethanol in FY22 given sufficient availability of feedstock. Moreover, the Particulars
company is also contemplating a 175 KLD distillery (approval taken under Particulars (| crore) Amount
interest subvention scheme) to utilise sugarcane juice & B-heavy route to Market Capitalization 1,401.9
produce ethanol. We believe the new distillery capacity would not be Total Debt (FY21) 556.8
commissioned before the 2022-23 sugar season. We believe DSL would be Cash and Investments (FY21) 1.2
able to produce ~9 crore litre after the full distillery expansion and the EV 1,957.5
segment would contribute 26% to revenues. We are incorporating FY24 52 week H/L (|) 82 / 23
numbers given the full impact of expansion would be realised in FY24. Equity capital 18.8
High global sugar prices to drive exports Face value (|) 1.0
Global raw sugar prices have risen by more than 50% in the last one year, Key Risk
which has helped the industry export ~7 million tonnes (MT) of sugar in the  The company has been slow in
2020-21 sugar season. With the considerable decline in Brazilian sugar adding distillery capacity in the last. If
production (estimated to be ~5-6 MT due to severe drought & destruction it is unable to expand its distillery
of sugarcane crop due to frost in some regions, global sugar prices are capacity in appropriate time, it would
expected to touch 20 cents/lb in the next one year. We believe DSL would be unable to leverage the ethanol

be able to export sufficient quantities to reduce its excess sugar inventories. blending programme
Moreover, its domestic sale quota has also increased to ~39000 tonnes in
last two month, which would ensure that the company would be able to sell  Any irrational increase in sugarcane
its current year inventories by December 2021. We believe DSL would be prices in 2021-22 season could impact
able to reduce its sugar inventories and de-leverage its balance sheet profitability, going forward
through exports till the time distillery capacity comes on stream.
Price Performance
Distillery volumes to drive earnings
The company clocked 3.2 crore litre of distillery volumes in FY21, which was 90 18000
80 16000
adversely impacted by lower offtake by OMCs due to Covid-19 related 70 14000
disruption. With the increasing production of B-heavy ethanol, distillery 60 12000
50 10000
volume would increase to 5.5 crore litre in 2021-22 sugar season. With the 40 8000
expected new capacity by November-2022, we expect DSL to produce 9 30 6000
20 4000
crore litre of ethanol by FY24E by diverting 82% of its sugarcane towards B- 10 2000
heavy & sugarcane juice ethanol. We estimate distillery revenue CAGR of 0 0
Jan-19
Jan-20
Jan-21
Jan-18
Jul-17
Jul-18
Jul-19
Jul-20
Jul-21
45.7% in FY21-24E.
Valuation & Outlook
Dwarikesh Sugar NIFTY
With possibility of higher exports and domestic sales quota, DSL would be
able to liquidate its excess inventory. The company would be able to Research Analyst
increase its distillery volumes close to 3x in next three years, which would
help it to improve its operating margins by ~750 bps. With high earnings Sanjay Manyal
sanjay.manyal@icicisecurities.com
growth & inventory reduction, DSL would be able to generate operating cash
flow of | 150-300 crore every year. We value stock at 2.5x FY23 price to book
with a revised target price of | 110 (earlier | 62) and maintain BUY rating.
s Key Financial Summary

EBITDA 136.1 201.3 235.7 263.8 352.6 20.6%
EBITDA Margin % 10.2 10.9 12.9 14.2 18.6
Net Profit 73.5 91.5 132.8 152.2 223.0 34.6%
EPS (|) 3.9 4.9 7.1 8.1 11.8 34.6%
P/E 19.1 15.3 10.6 9.2 6.3
RoNW % 15.2 15.8 19.3 18.7 22.3
RoCE (%) 9.0 14.4 18.0 18.0 24.6
Company Update | Dwarikesh Sugar ICICI Direct Research

©
FY22E FY23E FY24E

(| Crore) Old New % change Old New % change New
We changed our sugar volume estimates upwards for
Net sales 1821.7 1,821.5 0.0 1,773.4 1,861.2 5.0 1,896.8
FY23E. We are incorporating FY24E Numbers
EBITDA 235.2 235.7 0.2 267.1 263.8 -1.2 352.6
PAT 132.4 132.8 0.3 154.6 152.2 -1.6 223.0
EPS (|) 7.0 7.1 0.8 8.2 8.1 -1.4 11.8

Current Earlier
FY19 FY20 FY21E FY22E FY23E FY24E FY22E FY23E Comments
We have changed our sugar volumes numbers for
FY23E given higher global pries would help liquidate
Sugar Sold (in tonne) 317,700 387,848 494,890 440,452 422,834 380,551 440,452 396,407
excess inventories. We are incorporating FY24E
numbers
Power Units sold 20.2 16.3 17.1 17.5 18.0 18.5 18.0 19.5

Company Update | Dwarikesh Sugar ICICI Direct Research
Financial summary
(Year-end March) FY21 FY22E FY23E FY24E (Year-end March) FY19 FY21 FY22E FY23E FY24E
Employee Expenses 92.7 99.3 109.8 117.6 (Inc)/dec in Current Assets 108.1 134.1 -26.4 -34.8
Administrative Expenses 0.0 0.0 0.0 0.0 Inc/(dec) in Current Liabilities -15.0 -12.9 -14.9 2.9
Other expenses 113.8 96.5 100.5 100.5 (Inc)/dec in Investments 0.0 0.0 0.0 0.0
Others 1.9 1.0 0.0 0.0
Depreciation 40.9 40.5 47.7 48.9 Inc/(dec) in loan funds -236.1 -140.0 0.0 -160.0
PBT 112.7 166.6 191.1 287.9 Others 0.0 0.0 0.0 0.0
Total Tax 28.3 41.9 48.1 75.1 Net Cash flow -1.8 53.4 -49.7 12.2
PAT 91.5 132.8 152.2 223.0 Opening Cash 1.9 0.1 53.6 3.8
EPS (|) 4.9 7.1 8.1 11.8 Closing Cash 1.2 53.6 3.8 16.1
Reserve and Surplus 560.1 670.8 794.8 980.1 Cash EPS 7.0 9.2 10.6 14.4
Total Shareholders funds 578.9 689.6 813.6 998.9 BV 30.7 36.6 43.2 53.0
Total Debt 556.8 416.8 416.8 256.8 DPS 0.0 1.3 1.5 2.0
Gross Block 931.5 1,011.5 1,191.5 1,221.5 PAT Margin 5.0 7.3 8.2 11.8
Net Block 409.9 449.5 581.8 563.0 Debtor days 13.5 12.2 12.2 12.2
Current Assets
Inventory 855.3 708.4 713.5 727.1 Valuation Ratios (x)
Debtors 67.9 60.7 62.0 63.2 P/E 15.3 10.6 9.2 6.3
Cash 1.2 53.6 3.8 16.1 EV / EBITDA 9.7 7.5 6.9 4.6

Dhampur
TAT Sugar (DHASUG)
July 8, 2021
Ramping up of distillery utilisation to aid profit…

Dhampur Sugar has announced a de-merger of the business to create two
separate entities consisting of two equal sugarcane crushing, distillery &
Company Update
power capacities. However, we are projecting our numbers as a single entity
until the de-merger process is completed. The company is increasing its
distillery capacity by 100 KLD, which would be commissioned in December
Particulars
2021. Dhampur would be able to clock distillery volumes of ~17 crore litre
Particulars (| crore) Amount
after the capex. After the capex, the distillery segment would contribute 25%
to revenues. We believe the company would be able to divert 80% of its Market Capitalization 2,433.4
sugarcane towards B-heavy & sugarcane juice ethanol. Total Debt (FY21) 1,030.8
Global, domestic sugar prices inching up EV 3,384.3
With the severe drought like conditions in Brazil and destruction of 52 week H/L (|) 395 / 122
sugarcane crop due to frost, global sugar prices are expected to cross 20 Equity capital 66.5
cents/lb in the next six months to one year, which would help Indian sugar Face value (|) 10.0
companies to export 6 million tonnes (MT) in the 2021-22 sugar season with Key Highlights
minimal or no export subsidy. The higher exports would result in sugar
inventory reduction to 7 MT by September 2022 and, in turn, result in higher  Any irrational increase in sugarcane
domestic sugar prices. We expect ~10% increase in domestic sugar prices prices could negatively impact
in the next one year. Higher sugar prices along with increasing distillery profitability
volumes would boost earnings. We believe Dhampur would be able export
excess sugar inventory until it ramps up distillery capacity. We estimate
 The possibility of delay in

commissioning of new distillery
earnings CAGR of 18.8% in FY21-24E.
capacities could impact revenues &
Strong cash flow generation earnings in FY22E
The company has been able to export excess sugar production in the last Price performance
two years with the help of export subsidy. With the distillery capacity
expansion, Dhampur would be able to divert 80% of its sugarcane towards 450 18000
B-heavy & sugarcane juice ethanol. The higher diversion of sugarcane 400 16000
towards ethanol would replace sugar exports in the next two to three years. 350 14000
300 12000
Given ethanol segment margins are significantly higher vs. sugar segment 250 10000
margins at current sugar prices, we estimate ~300 bps improvement in 200 8000
operating margins. We estimate free cash flow generation of | 200-400 crore 150 6000
100 4000
every year, which would help the company to de-leverage its balance sheet. 50 2000
We expect | 600 crore of debt repayment in the next three years. 0 0
Jan-19
Jan-18
Jan-20
Jan-21
Jul-17
Jul-18
Jul-20
Jul-19
Jul-21
Valuation & Outlook
Dhampur has been quick to expand its distillery capacity to utilise the
Dhampur Sugar NIFTY
opportunity of 20% ethanol blending programme. We believe the company
would be able to generate sustainable cash flows in future and increase its
dividend payout. However, de-merger of the business into two separate Research Analyst
entities would be an overhang in the medium term. We are valuing the stock
1.6x FY23 price to book to arrive at a revised target price to | 500 (earlier | Sanjay Manyal
260) and maintain our BUY recommendation.
s
Key Financials FY20 FY21E FY22E FY23E FY24E CAGR (FY21-24E)
EBITDA 362.2 455.4 514.8 559.5 598.6 9.5%
EBITDA Margin % 10.4 11.0 13.1 13.6 14.3
Net Profit 215.6 228.1 297.9 352.7 382.4 18.8%
EPS (|) 32.48 34.36 44.88 53.13 57.60 18.8%
P/E 11.3 10.7 8.2 6.9 6.4
RoNW % 15.8 14.6 16.6 17.0 16.0
RoCE (%) 10.4 14.8 16.8 19.1 18.9
Company Update | Dhampur Sugar ICICI Direct Research

FY22E FY23E FY24E
We have increased sugar sales volume for FY23E given
Net sales 3915.9 3915.3 0.0 3,789.5 4,101.3 8.2 4,193.9
higher global sugar prices would help exporting excess
EBITDA 500.5 514.8 2.9 560.3 559.5 -0.1 598.6
PAT 287.9 297.9 3.5 340.6 352.7 3.5 382.4
EPS (|) 43.4 44.9 3.4 51.3 53.1 3.6 57.6

Current Earlier
We have increased sugar sales volumes given
global sugar prices would help export excess
sugar volumes. We are incorporating FY24E
numbers
Power Units sold 42.9 35.2 35.4 36.5 36.5 36.5 36.5 36.5

Company Update | Dhampur Sugar ICICI Direct Research
Financial summary
Add: Interest 0.0 0.0 0.0 0.0
Raw Material Expenses 3,225.7 2,946.3 3,041.4 3,071.1 (Inc)/dec in Current Assets 450.9 -0.4 114.4 -247.2
Employee Expenses 147.1 156.6 180.5 188.7 Inc/(dec) in Current Liabilities -10.0 -6.2 72.2 32.8
Other expenses 328.4 297.6 319.9 335.5 CF from operating activities 746.6 366.9 618.1 248.5
Total Operating Expenditure 3,701.2 3,400.5 3,541.8 3,595.3 (Inc)/dec in Investments 3.4 -5.0 -5.0 -5.0
(Inc)/dec in Fixed Assets -69.0 -155.7 -158.8 -130.6
Others -2.4 7.8 0.0 0.0
Other Income 17.5 19.2 21.1 23.3 Inc/(dec) in Sec. premium 10.2 -10.7 0.0 0.0
PBT 297.8 375.4 445.3 487.9 Others 0.0 0.0 0.0 0.0
Total Tax 86.2 96.7 113.8 128.8 Net Cash flow 62.3 -29.8 7.8 -36.8
Opening Cash 9.9 72.1 42.3 50.1
PAT 228.1 297.9 352.7 382.4 Cash & cash equivalents 0.0 0.0 0.0 0.0
EPS (|) 34.4 44.9 53.1 57.6 Closing Cash 79.9 42.3 50.1 13.3
Total Debt 1,030.8 850.8 470.8 400.8 DPS 6.0 8.0 10.0 12.0
Less: Acc Depreciation 1,080.1 1,155.8 1,234.6 1,315.2 Inventory days 113.5 121.7 106.5 126.7
Current Assets
Debtors 296.7 304.5 319.0 326.2 P/E 10.7 8.2 6.9 6.4
Cash 79.9 42.3 50.1 13.3 EV / EBITDA 7.4 6.2 5.1 4.7
Net Current Assets 1,012.2 979.3 798.5 974.1 Current Ratio 2.7 2.3 2.1 2.4

Avadh
TAT Sugar & Energy (AVASUG)
July 8, 2021
De-leveraging to boost profitability...

Avadh Sugar has 31400 TCD sugarcane crushing capacity, 200 KLD distillery
capacity and 74 MW saleable power capacity. The company is increasing its
Company Update
distillery capacity to 320 KLD, which would be commissioned in March 2022.
It would be able to produce 11 crore litre of ethanol per annum from the
current 6.2 crore litre after this expansion. We believe Avadh would be able
to divert 80% of its sugarcane towards B-heavy ethanol. We expect distillery
sales to contribute ~21% to sales. We believe the company still has scope
to further increase its distillery capacity to utilise the sugarcane juice route. Particulars
Moreover, increasing global sugar prices would help the company to Particulars (| crore) Amount
liquidate its excess sugar inventories in the next one year. Market Capitalization 955.2
Total Debt (FY21) 1,215.1
Increasing global sugar prices likely to drive exports Cash and Investments (FY21) 6.9
The company is holding very high inventory of | 1350 crore as on March EV 2,163.3
2021. With rising global sugar prices, Avadh would be able to export excess 52 week H/L (|) 548 / 155
sugar in the next one year. Moreover, the company would be able to reduce Equity capital 20.0
sugar production by 16% by diverting sugarcane towards ethanol Face value (|) 10.0
production. We believe Avadh would be able to reduce its sugar inventory Key Risk
by 1.2 lakh tonnes (lt) in the next two years on account of exports &
sugarcane diversion towards B-heavy ethanol. Further, we estimate distillery  Any irrational increase in sugarcane
prices would negatively impact
revenue CAGR of 22.7% in FY21-24E. We estimate 220 bps improvement in
profitability
operating margins led by increasing distillery volumes & higher proportion

of B-heavy ethanol. We believe the company could further expand its  Any delay in commissioning of
distillery capacity in future to utilise sugarcane juice route given ethanol distillery capacity could impact
margins are far more remunerative compared to sugar (until sugar prices earnings & derail de-leveraging plan
remain below | 40/kg).
Price Performance
De-leveraging of balance sheet to aid earnings growth
700 18000
With the | 400 crore of sugar inventory reduction in the next three years and 16000
600
increasing distillery volumes (84% increase in the next three years), the 500
14000
12000
company would be able to generate free cash flow of | 450–550 crore every 400 10000
year, which would de-leverage the balance sheet. We estimate | 300-400 300 8000
6000
crore debt reduction every year for the next three years. This would result 200
4000
100
in interest cost reduction from | 116 crore in FY21 to | 27 crore in FY24E. 2000
0 0
Considering strong operating profit growth and interest cost reduction, we
Jan-19
Jan-18
Jan-20
Jan-21
Jul-17
Jul-18
Jul-20
Jul-19
Jul-21
expect net profit to grow at a CAGR of 40.1% during FY21-24E.
Valuation & Outlook Avadh Sugar NIFTY
Avadh has a sizable sugar & ethanol capacity and is also further increasing Research Analyst
its distillery capacity to utilise B-heavy route for producing ethanol. With the
increasing clarity on global sugar prices and ethanol blending programme, Sanjay Manyal
a sugar inventory reduction is imminent. The company also has sufficient
sugarcane availability to further expand distillery capacity in future. We
change our cautious stance on the company given strong earnings growth
and free cash flow visibility. We are valuing the stock at 1.4 FY23E price to
book with a revised target price of | 685/share (earlier | 345). We change
our recommendation from HOLD to BUY.

EBITDA 261.4 259.3 305.7 362.4 364.6 12.0%
EBITDA Margin % 10.2 9.6 10.4 11.7 11.8
Net Profit 88.6 77.6 133.0 189.8 213.3 40.1%
EPS (|) 44.31 38.79 66.51 94.89 106.67 40.1%
P/E 10.8 12.3 7.2 5.0 4.5
RoNW % 15.0 11.7 16.8 19.6 18.2
RoCE (%) 10.6 11.5 14.7 20.6 23.3
s

Company Update | Avadh Sugar ICICI Direct Research
Exhibit 42 Change in estimates

©
FY22E FY23E FY24E

We revise sales volumes numberss downwards given
higher B-heavy diversion and increased our distillery
Net sales 3022.4 2928.9 -3.1 2,841.2 3084.2 8.6 3091.7
revenues on the back of expected commissioning of
new distillery
EBITDA 288.1 305.7 6.1 312.3 362.4 16.0 364.6
EBITDA Margin (%) 9.5 10.4 90 bps 11.0 11.7 76 bps 11.8
PAT 124.2 133.0 7.1 157.1 189.8 20.8 213.3
EPS (|) 62.1 66.5 7.1 78.6 94.9 20.7 106.7

Current Earlier
We change our sugar volume numbers
downwards given commissioning of new
distillery capacity would lead to higher
sugarcane diversion towards ethanol and,
hence, lower sugar production. We incorporte
FY24E numbers
Sugar Price (| per 30,696 29,962 31,850 33,500 33,800 34,200 33,500 34,000
We increase our distillery volume estimates
Distillery volume (in
5.8 4.8 6.2 8.0 10.9 11.6 8.0 8.0 given new distillery would be commissioned by
cr litre)
March 2022
Distillery price (| per
43.7 49.4 55.6 55.6 55.6 55.6 55.6 56.1
KL)
Power Units sold 19.0 17.6 14.8 17.0 17.1 17.3 17.0 17.1
Price per unit (| per
5.0 2.9 3.0 3.1 3.2 3.2 3.1 3.2
units)

Company Update | Avadh Sugar ICICI Direct Research
Financial summary
Growth (%) 5.9 8.1 5.3 0.2 Add: Depreciation 48.4 57.2 58.0 58.8
Employee Expenses 97.3 108.4 117.2 123.7 (Inc)/dec in Current Assets 268.3 220.7 117.1 134.8
Administrative Expenses 0.0 0.0 0.0 0.0 Inc/(dec) in Current Liabilities -49.3 20.6 65.7 55.5
Other expenses 226.2 225.5 243.7 247.3 (Inc)/dec in Investments 0.0 0.0 0.0 0.0
Others 2.9 2.0 0.0 0.0
Growth (%) -0.8 17.9 18.5 0.6 Issue/(Buy back) of Equity 0.0 0.0 0.0 0.0
PBT 95.0 167.5 247.3 278.8 Others -177.6 0.0 0.0 0.0
Total Tax 23.8 40.9 63.9 71.9 Net Cash flow -0.5 17.2 0.1 1.6
PAT 77.6 133.0 189.8 213.3 Opening Cash 5.4 4.9 22.1 22.2
EPS (|) 38.8 66.5 94.9 106.7 Closing Cash 4.9 22.1 22.2 23.8
Reserve and Surplus 645.7 770.8 948.5 1,149.9 Cash EPS 62.9 95.1 123.9 136.1
Total Shareholders funds 665.8 790.8 968.6 1,169.9 BV 332.9 395.4 484.3 584.9
Total Debt 1,215.1 925.1 525.1 155.1 DPS 4.0 4.0 6.0 6.0
Current Assets
Inventory 1,350.6 1,098.3 985.2 858.8 Valuation Ratios (x)
Debtors 55.1 86.7 82.7 74.3 P/E 12.3 7.2 5.0 4.5
Cash 6.9 22.1 22.2 23.8 EV / EBITDA 8.3 6.1 4.0 3.0

RATING RATIONALE
ICICI Direct endeavours to provide objective opinions and recommendations. ICICI Direct assigns ratings to its
stocks according to their notional target price vs. current market price and then categorizes them as Buy, Hold,
Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined
as the analysts' valuation for a stock
Buy: >15%
Hold: -5% to 15%;
Reduce: -15% to -5%;
Sell: <-15%
Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.com
ICICI Direct Research Desk,

ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
research@icicidirect.com

ANALYST CERTIFICATION
I/We, Sanjay Manyal (MBA Finance) Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect
our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s)
in this report. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve
months and do not serve as an officer, director or employee of the companies mentioned in the report.
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Sugar: Ethanol Story Intact Sugar Prices To Move Up

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Sugar: Ethanol Story Intact Sugar Prices To Move Up

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Sugar

Ethanol story intact; sugar prices to move up…

Clear roadmap for 20% ethanol blending

ICICI Securities – Retail Equity Research

Sugar inventories to further decline in next one year

Source: Company, ICICI Direct Research

Massive distillery capex to leverage ethanol opportunity

ICICI Securities | Retail Research 2

Exhibit 3: Expected cumulative distillery (Ethanol + ENA) capacities by 2025-26

Grain based Molasses based

Source: MPNG, Niti Aayog, ICICI Direct Research

Most companies in our coverage universe are doubling their capacity.

10.0 Ethanol blending requirement for 10% by 2022 & 20% by

Ethanol blending (bn litres) Blending rate %

Source: MPNG, Niti Aayog, ICICI Direct Research

Increasing global sugar prices to smoothen exports

ICICI Securities | Retail Research 3

Exhibit 5: Brazil sugar production expected to decline (in million tonne)

Demand to outpace supply even beyond 2025

ICICI Securities | Retail Research 4

Sugarcane availability to improve with variety change

ICICI Securities – Retail Equity Research

commissioned by November 2022 while its full impact would be felt in

Exhibit 7: Change in estimates

ICICI Securities | Retail Research 6

ICICI Securities | Retail Research 7

Fastest in expanding distillery capacity…

ICICI Securities – Retail Equity Research

Valuation & Outlook Dalmia Sugar NIFTY

Exhibit 14: Change in Estimates

Exhibit 15: Assumptions

ICICI Securities | Retail Research 9

ICICI Securities | Retail Research 10

Distillery capacity to double by November 2022…

ICICI Securities – Retail Equity Research

Exhibit 21: Change in estimates

Exhibit 22: Assumptions

ICICI Securities | Retail Research 12

ICICI Securities | Retail Research 13

Sufficient feedstock to double distillery capacity…

ICICI Securities – Retail Equity Research

s Key Financial Summary

Exhibit 28: Change in estimates

FY22E FY23E FY24E

Exhibit 29: Assumptions

ICICI Securities | Retail Research 15

ICICI Securities | Retail Research 16

Ramping up of distillery utilisation to aid profit…

ICICI Securities – Retail Equity Research

Exhibit 35: Change in estimates

Exhibit 36: Assumptions

ICICI Securities | Retail Research 18

ICICI Securities | Retail Research 19

De-leveraging to boost profitability...

ICICI Securities – Retail Equity Research

Key Financial Summary

Source: Company, ICICI Direct Research

Exhibit 42 Change in estimates

FY22E FY23E FY24E

Exhibit 43: Assumptions

ICICI Securities | Retail Research 21

ICICI Securities | Retail Research 22

Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.com