India Sugar 19apr21

19 April 2021
SECTOR UPDATE
INDIA SUGAR
INDIA SUGAR
OPPORTUNITY IN ADVERSITY
Government support putting MSP for sugar and high ethanol Incentives for distillery
sugarcane farmers in a prices fixed to benefit players in capacity expansion to
sweet spot the sector boost growth prospects
19 April 2021
SECTOR UPDATE
INDIA SECTOR NAME
TABLE OF CONTENTS
INDIA SUGAR SECTOR

Achal Lohade
03 Introduction achal.lohade@jmfl.com
Tel: (91 22) 6630 3081
04 Key charts
Koundinya Nimmagadda
koundinya.nimmagadda@jmfl.com
MAIN THEMES
Tel: (91 22) 6630 3574
05 Production outlook - Structural increase Shrenik Bachhawat

in place shrenik.bachhawat@jmfl.com
Tel: (91 22) 6630 3074
11 Exports- Is India a new export hub?
13 Government measures/regulations-
Coming full circle!
15 Ethanol
22 Sugar prices - No more cycle - To be

capped! JM Financial Research is also
available on: Bloomberg - JMFR
23 Annexures <GO>, Thomson Publisher &
Reuters S&P Capital IQ and FactSet
COMPANIES
Please see Appendix I at the end of
this report for Important Disclosures
26 Balrampur Chini Mills and Disclaimers and Research
Analyst Certification.
33 EID Parry
You can also access our portal
www.jmflresearch.com
OTHER
REPORTS
Rural Safari XI Rural Safari X India Strategy

2021 Outlook: A new saviour for the
Agriculture set to do the Doubling farm income What killed India’s Food
Optimism on the rise sugar industry?
heavy lifting, again? gets tougher inflation
JM Financial Institutional Securities Limited Page 2

19 April 2021
SECTOR UPDATE
INDIA SUGAR SECTOR
Opportunity in Adversity
We believe India’s sugar sector has drifted away from cyclicality (in terms of sugar prices) as well as from partial deregulation (it is
fully regulated now and is likely to remain so in the foreseeable future). This has been led by a) structural oversupply in terms of
sugar production (from swinging between 22-30mnt to 30mnt plus except in case of drought years in Maharashtra and
Karnataka), b) the government’s efforts on the Ethanol Blending Program (EBP; from 0.8% to almost 8% now; 20% target EBP in
2025) through robust ethanol prices (especially B-Molasses and Sugarcane juice routes, which are indirectly linked with sugar
prices) and c) the government’s objective to ensure sugarcane farmers are paid without significant arrears.
This bodes well for the sugar sector (especially efficient companies) as government policies (sugarcane price/MSP/buffer
stock/export subsidies/ethanol prices) would ensure survival of the weakest. Hence, well-managed sugar companies could
generate enormous earnings/cash flows in the process. We believe ethanol prices are currently significantly above petrol and
alcohol import parity prices as the government is aiming at twin objectives: a) surplus sugar being diverted to ethanol (reduced
subsidy burden), and b) a reduction in carbon emissions and dependence on crude imports. However, this also means a) sugar
prices are capped (B-Molasses/Direct route ethanol is indirectly linked with prices) and b) there is an overbearing regulatory
framework and exposure to regulatory shocks. Nonetheless, we expect strong cash flows for at least 2-3 years for well managed
sugar companies and hence revisit our valuations of companies. We upgrade Balrampur Chini from HOLD to BUY; Maintain BUY
on EID Parry.
India - Structural oversupply with export subsidy may not EBP is a win-win ; 20% EBP is ambitious
be sustainable
India has decisively moved into a structural surplus scenario The government since 2014 has aggressively expanded EBP
wherein gross sugar production would be above 30-33mnt (10x jump from 0.8% to c.8% in ESY21) thanks to
(vs. 18-28mnt earlier) thanks to a) exceptionally high differential and lucrative pricing for B-Route/Direct
profitability of crop and b) government policies (to ensure sugarcane juice route based ethanol. Given the success, the
farmers get paid). Importantly, UP alone has seen an government has advanced its 20% EBP target to 2025,
increase of at least 5-6mnt (of 6-8mnt total) due to which we currently believe is ambitious given a) limited
adoption of a new sugarcane variety which led by a) 30% diversion from sugar for ethanol (5-6mnt max), b) vehicle
higher yield (80t/ha vs. 60t/ha earlier), b) 100-150bps higher configuration (can take up to 12-13%), and c) financing
recovery rates. Excess can only be addressed through a) impediments due to weak balance sheets (only 22% of
exports (subsidies possible only until 2023), or b) diversion applications have reached to banks for funding). Note that
towards ethanol. 20% EBP requires capacity of over 12bn litres (4.26bn litres
as of Mar’20), entailing capex of over INR 375bn.
Sugar prices are capped Expect policy continuity for 2-3 years and robust cash flows
We believe sugar prices are capped (and hence there is no Given the excess sugar production expectation (given robust
scope for exceptional profits in sugar segment) given a) reservoir scenario currently and normal monsoon
inter-linkage of ethanol with sugar prices (B-route/Direct expectation) and government’s objective to achieve 20%
route; EBP will derail if sugar prices rally), and b) significant EBP, we expect the government to continue with current
controls by the government (Minimum Selling Price of sugar policies on a) MSP (possibly modest INR 1/kg hike annually)
/monthly release orders) and its objective of sustained EBP. and monthly release mechanism) and b) robust ethanol
This we believe is reflected in the government’s deferment pricing to achieve adequate distillery capacity addition. Well-
of MSP hike (pending for past 2 years). We note that B- managed sugar companies are expected to continue to
Molasses based ethanol price (INR 57.6/litre) currently is report strong profitability/cash flow generation but the
higher than a) import parity (INR 35-40/litre), b) estimated incremental growth opportunity is limited. Hence, we watch
petrol parity (INR 33-35/litre) and, c) sugar parity, which we out for the company’s distribution policies and accordingly
believe may see rationalisation over the long term. consider valuation.

Sugar 19 April 2021
Exhibit 1. Sugar inventories to remain at elevated levels Exhibit 2. UP Early variety mix
Y/E September; mn tonnes SS19 SS20 SS21E SS22E 000 hectare mnt
Early variety Others Yield (RHS)
Opening stock 10.8 14.7 10.7 9.9
3,000 14.0
Production 33.2 27.4 30.8 30.1 12.0 11.8
YoY growth 3% -17% 12% -2% 2,500 12.0
Uttar Pradesh 11.8 12.6 10.6 10.7 8.8 296 10.0
2,000
Maharashtra 10.7 6.2 10.7 10.2 7.1 6.8 1,026 8.0
6.5
Karnataka 4.4 3.5 4.9 4.7 1,500 1,431
1,766 6.0
Imports (excl raw sugar for refineries) 0.0 0.0 0.0 0.0 2,155 1,964
1,000 1,928 4.0
Local consumption 25.5 25.7 26.0 26.3
500 1,208
Exports (excl white sugar from refineries) 3.8 5.7 5.5 4.0 729 2.0
403
Closing stock 14.7 10.7 9.9 9.8 - 73 177 -
Surplus/Deficit 7.7 1.7 4.8 3.9 SS14 SS15 SS16 SS17 SS18 SS19
Source: Industry, JM Financial Source: Industry, JM Financial
Exhibit 3. 15x jump in ethanol volumes in ESY 13 (Ethanol Supply Exhibit 4. Ethanol prices have been hiked year after year
Year: ‘Dec-Nov’) INR/ltr; Y/E November ESY18 ESY19 ESY20 ESY21
3,500 million ltr Ethanol Supply EBP (RHS)
11.0%
3,000 Fixed June'18 Sep'19 Oct'20
7.8% 9.0%
2,500 6.0% 7.0%
5.0% C Route 40.90 43.70 43.75 45.69
4.3% 4.0%
2,000 5.0%
3.0%
1.9% 2.4%
3.0% B Route NA 52.43 54.27 57.61
1,500 0.8%
1.0%
1,000 Sugarcane Juice Route NA NA 59.48 62.65
-1.0%
Damaged food grains/
1,110
1,250
1,700
2,110
2,980
500 -3.0% NA NA 51.55

154
380
674
665
Maize
- -5.0%
Ethanol from surplus rice
ESY16
ESY21E
ESY13
ESY14
ESY15
ESY17
ESY18
ESY19
ESY20
56.87
with FCI
Source: Industry, JM Financial
Exhibit 5. Fuel Ethanol requirement to jump with EBP Exhibit 6. Petrol price build up (estimated)
Unit 01-Apr-20 01-Apr-21
mn litre Industrial Use Potable Use Fuel Ethanol other Use Total Alcohol Requirement C&F (Cost & Freight) Price (Moving
14,000
average basis) $/bbl 36.12 70.80
11,573 Average Exchange rate Rs/$ 75.04 72.45
12,000 Trade Parity Landed cost based on
daily pricing methodology INR/Litre 17.21 32.56
10,000
Marketing Cost, Margin, Freight and
Other charges INR/Litre 11.07 0.51
8,000
Price Charged to Dealers (excluding
9,000
6,000 Excise Duty and VAT) INR/Litre 28.28 33.07
8% CAGR
3,496 Add : Excise Duty @ Rs.32.98/Ltr INR/Litre 22.98 32.90
4,000 2,370 Add : Dealer Commission INR/Litre 3.54 3.69
1,730 Add : VAT (including VAT on Dealer
2,000 674 1,350
1,000 945 Commission) applicable for Delhi @
588 700 1,029
- 30% INR/Litre 14.79 20.90
ESY15 ESY20 ESY25
Retail Selling Price at Delhi- (Rounded) INR/Litre 69.59 90.56
Source: Industry, JM Financial Source: JM Financial estimates

Sugar 19 April 2021
Production outlook - Structural increase in place

SS21 production at 30.8mnt (net); expect similar production in SS22E
We estimate India’s sugar production to be around 30.8mn tonnes in the current crushing
season (SS21), up 12% YoY on the back of strong recovery in production in Maharashtra
(from 6.2mnt in SS20 to 10.7mnt in SS21) while production in UP is estimated to decline
from 12.6mnt to 10.6mnt on account of lower yield/recovery rates due to disease (increased
pest infestation due to rainwater stagnation in sugarcane fields especially in some eastern
and central parts of the state) and diversion of sugar for ethanol production. As on 15Apr’21,
India has already produced 29.1mnt of sugar, an increase of over 4.3mnt YoY. We note that
SS21 production estimate is assuming diversion of c.2mnt for ethanol through B-Molasses
and Sugarcane juice syrup routes.
While it is early, we believe sugarcane planting is expected to marginally increase for SS22
given the reservoir situation in Maharashtra and Karnataka (largely dependent on monsoon)
and expectation of a normal monsoon in 2021. Moreover, assuming normalisation of yields
in UP, we estimate gross sugar production to increase in SS22 (from 33mnt to 34-34.5mnt
range) but this would be offset by higher diversion of sugar for ethanol (3-3.5mnt vs. 2mnt in
SS21). We estimate sugar inventory in India, currently at 9.9mnt (4.6months consumption),
to remain broadly stable.
Exhibit 7. India demand- supply: Expect inventories to remain at elevated levels for stable sugar prices
Y/E September; mn tonnes SS10 SS11 SS12 SS13 SS14 SS15 SS16 SS17 SS18 SS19 SS20 SS21E SS22E
Opening stock 3.4 4.9 5.9 6.2 8.9 7.5 9.6 8.2 4.4 10.8 14.7 10.7 9.9
Production 18.9 24.4 26.3 25.1 24.4 28.3 25.1 20.3 32.3 33.2 27.4 30.8 30.1
YoY growth 30% 29% 8% -5% -3% 16% -11% -19% 60% 3% -17% 12% -2%
Uttar Pradesh 5.2 6.0 7.0 7.5 6.5 7.1 6.8 8.8 12.0 11.8 12.6 10.6 10.7
Maharashtra 7.1 9.1 9.0 8.0 7.7 10.4 8.4 4.2 10.7 10.7 6.2 10.7 10.2
Karnataka 2.6 4.1 3.8 3.3 4.2 5.0 4.0 2.1 3.7 4.4 3.5 4.9 4.7
Tamil Nadu 1.3 1.9 2.3 2.0 1.4 1.1 1.4 1.1 0.7 1.0 0.79 0.8 0.8
others 2.8 3.3 4.2 4.4 4.6 4.6 4.4 4.0 5.2 5.2 4.3 3.7 3.7
Imports (excl raw sugar for refineries) 4.1 0.0 0.0 0.7 1.2 1.2 0.0 0.4 0.2 0.0 0.0 0.0 0.0
Local consumption 21.3 20.8 22.6 22.8 24.2 25.1 24.9 24.5 25.5 25.5 25.7 26.0 26.3
YoY growth -7% -2% 9% 1% 6% 4% -1% -1% 4% 0% 1% 1% 1%
India population YoY growth 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1%
Exports (excl white sugar from refineries) 0.2 2.6 3.4 0.3 2.8 2.3 1.7 0.0 0.6 3.8 5.7 5.5 4.0
Closing stock 4.9 5.9 6.2 8.9 7.5 9.6 8.2 4.4 10.8 14.7 10.7 9.9 9.8
Surplus/Deficit -2.4 3.6 3.7 2.3 0.2 3.2 0.3 -4.2 6.8 7.7 1.7 4.8 3.9
# of months consumption 2.7 3.4 3.3 4.7 3.7 4.6 4.0 2.2 5.1 6.9 5.0 4.6 4.5
st th
Exhibit 8. SS21 production update (1 Oct- 15 April)
mn tonnes SS20 SS21 YoY Remarks
Maharashtra 6.08 10.40 71% Higher acreage; 54 mills working vs 10 last year
UP 10.83 10.08 -7% Crop disease and diversion for ethanol and jaggery and khandsari
Karnataka 3.38 4.15 23% all mills shut
Tamil Nadu 0.50 0.59 17% 22mills working vs. 8 last year
Gujarat 0.88 0.95 8% 6 mills working vs. 3 last year
Others 3.16 2.94 -7%
Total 24.83 29.09 17%


Sugar 19 April 2021
Exhibit 9. Diversion of sugar for ethanol

mn tonnes SS20 SS21E
UP 0.37 0.67
Maharashtra 0.14 0.66
Karnataka 0.24 0.54
Others 0.10 0.10
Total 0.85 1.97
Exhibit 10. Sugar Production Exhibit 11. Acreage Mix- SS21 highest area under cultivation
mnt Mah UP TN Kar Others mn ha Mah UP TN Kar Others Total (RHS) mn ha
35.0
7.0 7.0
5.7 5.8
30.0 5.2 5.2 6.0
5.2
3.7 5.1 4.9 5.0 5.0 5.0 5.1 4.9 5.1
3.7 6.0 4.7 4.9
4.4 4.4 5.0
4.6 4.4
4.2
25.0 5.6 3.7 4.3 1.1
4.9 4.1 4.9 4.7 5.0 1.1
4.3 4.4 4.0
3.9 4.6 1.1 1.1
2.7 4.9 3.5 1.1 1.1 1.1 1.1 1.1 1.2 1.1 1.1
20.0 2.9 3.9 1.1 3.0
3.7 3.5 4.0 4.0 1.0 1.0
2.8 4.2 4.0 0.8
10.6 10.7 2.0
15.0 2.6 2.1 12.0 11.8 3.0
8.5 7.1 1.0
7.3 2.6 7.0 12.6 2.3
5.9 7.5 6.8 2.3
1.7 6.5 2.2 2.2 2.2
10.0 5.2 2.0 2.1 2.2 2.2 2.2 2.1 2.2 2.2 2.2 0.0
8.8 2.1 2.0 2.2
4.1 -1.0
5.0 10.5 10.7 10.7 10.7 10.2 1.0
9.1 9.1 9.1 9.0 8.0 7.7 8.4
7.1 6.2 1.2 1.4 1.5 -2.0
4.6 4.2 1.0 1.1 0.8 0.8 1.0 1.0 0.9 0.9 1.0 1.0 0.9 1.0
0.6
0.0 0.0 -3.0
SS09
SS16
SS07
SS08
SS10
SS11
SS12
SS13
SS14
SS15
SS17
SS18
SS19
SS20
SS10
SS15
SS20
SS21E
SS22E
SS07
SS08
SS09
SS11
SS12
SS13
SS14
SS16
SS17
SS18
SS19
SS21E
SS22E
Exhibit 12. Yield Exhibit 13. Sugarcane production

Tonnes/ha Mah UP TN Kar Others Average (RHS) Tonnes/ha mnt Mah UP TN Kar Others Total (RHS) mnt
450.0 81 82 81 82 82 82 89.0 400 500
442
79 80 80 80 81
78 78
426
76 76
400.0 74 79.0 450
400
350
63 67 64
378
377
63 62 64 63 66 63 63
63
362
64
361
62
356
350.0 61 69.0
352
64 400
348
348
342
341
65 300
300.0 90 81 90 59.0
306
90 94 90 91 83 90 90 350
86
292
88 83 84
285
84 69 250
250.0 49.0 68 68
68 300
73 71 66 73
92 98 200 69 70
200.0 111 104 107 101 100 98 96 39.0 66 70 57
105 108 106 102 108 98 87 29 26 59 51 40
39 70 57 250
38 44 72
150.0 29.0 150 36 42 22
41 38 23 30 39 38 67 21
79 34 32 28 28 41 22 200
59 57 60 60 62 65 81 81 73 76 34 16 21
100.0 60 57 52 60 67 19.0 38 33 30 39 25 27 17 21
100 41 34 32 28 17 16
34 25 19 21 150
33 30
50.0 81 85 85 85 82 82 83 92 9.0 19 114 117
75 79 75 75 79 75 78 78 50 92
79 88 82 87 77 85 74 83 73 100
61 64 70 52
0.0 -1.0
0 50
SS21E
SS22E
SS11
SS16
SS07
SS08
SS09
SS10
SS12
SS13
SS14
SS15
SS17
SS18
SS19
SS20
SS12
SS16
SS07
SS08
SS09
SS10
SS11
SS13
SS14
SS15
SS17
SS18
SS19
SS20
SS21E
Source: Industry, JM Financial SS22E
‘Structural Oversupply’ - Can India surpass 35mnt (gross sugar production)?

Given relentless rise in sugarcane price (SAP/FRP), sugarcane is the most profitable crop for
farmers. As a result, sugarcane acreage has been rising. Most importantly, UP farmers have
shifted to a new variety of sugarcane (‘early variety’- CO0238) which yields a 40% higher
sugarcane output (75-80t/ha vs. 55-60t/ha earlier) and results in a higher recovery rate; this
has driven UP’s production to go from 6-8mnt to 10-12mnt. Note that SS21 yield/recovery
rates are impacted due to diseases in certain pockets of the state as well as higher diversion
of sugar for ethanol production.
Maharashtra and Karnataka have seen significant swings in acreage/yields due to their
dependence on monsoon/reservoir situations while Tamil Nadu has seen a structural decline
due to weak monsoons (consecutive 3-4 drought years). Interestingly, we find that Gujarat
th
has surpassed Tamil Nadu in sugar production (now is 4 largest producer) and has seen a
significant increase in the past 5 years (Gujarat mills pays a sugarcane price of over INR
3,500/t, among the highest in the country).
Sugar 19 April 2021
Exhibit 14. UP- from 6-7mnt to now 10-12mnt (net of diversion) Exhibit 15. India-State wise production capacity
Sugar Production (mnt) Yield (tonnes per ha; RHS) mn tonnes SS19
14.0 90
81
81
79
76
All India 40.4
73
80
12.0
67
65
62
70
61
60
60
60
60
59
Maharashtra 11.6
58
58
57
57
56
10.0
56
55
52
60
8.0 50 UP* 14.0
6.0 40 Karnataka 6.0

30
4.0 Tamil Nadu 2.9
20
2.0
12.0
11.8
12.6
10.6
10.7
10 Gujarat 1.6
4.8
5.3
5.7
4.6
5.0
5.8
8.5
7.3
4.1
5.2
5.9
7.0
7.5
6.5
7.1
6.8
8.8
- 0
Others 4.4
SS02
SS03
SS16
SS17
SS01
SS04
SS05
SS06
SS07
SS08
SS09
SS10
SS11
SS12
SS13
SS14
SS15
SS18
SS19
SS20
SS21
SS22
Source: Industry, JM Financial Source: Industry, JM Financial; (*Basis last peak and assuming 90% utilisation)
Exhibit 16. UP Early variety mix Exhibit 17. UP Early variety mix
000 ha t /ha
Early variety Others Yield (RHS) Early variety Others
100%
13%
2,500 79.3 80.8 90.0
90%
80.0
296
67.0 80%
46%
2,000 62.1 64.9
60.5 70.0
1,026
70%
66%
60.0
81%
60%
1,431
1,500
92%
97%
1,766
50.0 50%
1,964
2,155
87%
40.0
1,928
1,000 40%
30.0 30%
54%
1,208
20.0 20%
34%
500
729
19%
10.0
403
10%
177
8%
3%
73
- - 0%
SS14 SS15 SS16 SS17 SS18 SS19 SS14 SS15 SS16 SS17 SS18 SS19
Source: Industry Source: Industry
As shown in the Exhibit below, sugarcane is the most profitable crop for farmers. Moreover,
Sugarcane also offer distinct positives feature for the farmer in the form of: a) sturdy nature
of crop (relatively less impact due to climatic swings), b) assured off-take (the sugar mill with
which farmer registers the cane area is required to accept cane), c) assured price (other crops
have Minimum Support Price but farmers may not always realise the same in open market),
and d) amounts received in bulk (unlikely small revenues from alternate crops). As a result,
farmers are always inclined towards sugarcane crop, if a) adequate water is available and b)
there is a mill around in the catchment area.
Exhibit 18. Profitability of sugarcane crop vs alternate crop (2020-21) Exhibit 19. Relative gross returns over A2+FL relative to sugarcane
Crop Yield (Qtl/ha)
NSP/MSP Cultivation Net Earnings (2017-18)
(INR/Qtl) Cost (INR/Qtl) (INR/ha)
Soybean + Gram Paddy + Paddy Soybean + Wheat
Maharashtra Paddy + Wheat Cotton + Wheat Sugarcane
120
Sugarcane 847 285 134 1,27,897
100 100
100
Wheat (Rabbi) 28 1,925 1,565 10,080
Soybeans (Khariff) 10 3,880 2,589 13,117 80

1 wheat + 1 soybean 4,154 23,197
60 49 50 50
47
Uttar Pradesh
36 34 37
40 31
28
Sugarcane 750 315 125 1,42,500 29
Wheat (Rabbi) 40 1,925 838 43,480 20
Paddy/Rice (Khariff) 37 1,868 924 35,117

0
1 wheat + 1 paddy 1,762 78,597 2016-17 2017-18
Source: Industry, JM Financial Source: ISMA, JM Financial

Sugar 19 April 2021
Exhibit 20. Relentless increase in sugarcane price in past 10 years

INR/quintal UP SAP FRP Sugar Price (RHS)
INR / Kg
38
350 40
34
34
33
32
32
32
35
32
31
300
29
27
30
250
23
25
200
19
18
20
16
15
15
15
15
15
14
14
150
14
13
12
15
100
10
50 5
315
107
115
125
125
140
165
205
240
280
280
280
280
305
315
315
70
62
75
80
85
90
95
95
95
- -
SS96
SS97
SS98
SS99
SS00
SS01
SS02
SS03
SS04
SS05
SS06
SS07
SS08
SS09
SS10
SS11
SS12
SS13
SS14
SS15
SS16
SS17
SS18
SS19
SS20
Only monsoon deficit (that too long spell of dry season) can drive the sugarcane
acreage/sugar production down (that too temporarily)
As shown the Exhibit below, Sugarcane is one of the most water intensive crops and is grown
at a large scale. Maharashtra and Karnataka (among top 3 states) have significant
dependence on the monsoon, which reflected significant swings in area under sugarcane for
these states (Exhibits – 24 & 25). On the other hand, UP has significant coverage of irrigation
thanks to its wide network of rivers and robust water tables and hence there are meagre
swings in sugarcane acreage.
Exhibit 21. Sugarcane is the most water intensive crop

Crop water need Total Growing period
Crop
(mm/total growing period) (days)
High Water requirement
Sugarcane 1,500-2,500 270-365
Banana 1,200-2,200 300-365
Cittrus 90-1,200 240-365
Cotton 700-1,300 180-195
Sunflower 600-1,000 125-130
Moderate Water Requirement
Pepper 600-900 120-210
Potato 500-700 105-145
Peanut 500-700 90-100
Maize 500-800 75-140
Rice (paddy) 450-700 90-150
Tomato 400-800 135-180
Barley/Oats/Wheat 450-650 120-150
Soybean 450-700 135-150
Low Water Requirement
Cabbage 350-500 120-140
Onion 350-550 105-140
Peanut 350-500 90-100
Bean 300-500 120-150


Sugar 19 April 2021
As seen in Exhibit 22/23, reservoirs in Maharashtra and Karnataka states are stable YoY and
continue to be significantly higher than the 10-year average. Moreover, rainfall is expected to
be near normal in the current year. As a result, we believe sugarcane acreage in Maharashtra
and Karnataka is unlikely to see a meaningful decline for at least 2 years.
Exhibit 22. MH Reservoir significantly higher than 10yr average Exhibit 23. And so is for Karnataka
60% 57% 40%
53% 35%
34%
35%
50%
30%
40% 36% 24%
25%
30% 20%
15%
20%
10%
10%
5%
0% 0%
Current Last year Last 10 yr avg Current Last year Last 10 yr avg
Exhibit 24. Sugarcane acreage always bounces back in Maharashtra Exhibit 25. …and in Karnataka
700
631
631
1,800 '000 ha '000 ha
1,492
1,449
1,600 600
506
480
1,163
451
450
1,400
1,093
430
425
500
423
420
417
1,049
1,030
407
1,022
397
383
373
1,200
987
979
965
350
937
933
339
337
902
326
400
313
310
306
1,000
768
282
281
756
243
633
300
595
219
800
590
580
578
573
530
516
501
178
460
443
600
200
324
400
100
200
- -
SS96
SS10
SS98
SS00
SS02
SS04
SS06
SS08
SS12
SS14
SS16
SS18
SS20
SS22E
SS06
SS96
SS98
SS00
SS02
SS04
SS08
SS10
SS12
SS14
SS16
SS18
SS20
SS22E
Sugar deficit at a global level

As per industry estimates, there is slated to be a modest global deficit of 1mnt for 2020-21
thanks to the decline in production in Brazil (higher diversion towards ethanol) and Thailand
(deficit monsoon impact the area under sugarcane), offsetting the entire increase in sugar
production in India.
Exhibit 26. Global demand supply

mnt tonnes 2016-17 2017-18 2018-19 2019-20 2020-21
Opening stock 87 84 93 93 96
Production 169 180 175 170 173
Consumption 172 172 174 170 174
Surplus/deficit -3 9 1 -0 -1
End stocks 84 93 93 96 96
Stocks /consumption ratio (%) 49 54 54% 57% 55%

Source: Industry

Sugar 19 April 2021
The deficit expectation is reflected in the strong rally in raw and white sugar prices, though
future contracts are showing backwardation (distant future prices are lower than near future)
and thus indicating the rally is near term given the deficit.
Exhibit 27. Long-term global sugar prices trend Exhibit 28. Short-term global sugar prices trend
USD/t Raw Sugar White Sugar USD/t Raw Sugar White Sugar
1,000 500
900
450
800
700 400
600
500 350
400
300
300
200 250
100
200
Apr-11
Apr-12
Apr-13
Apr-14
Apr-15
Apr-16
Apr-17
Apr-18
Apr-19
Apr-20
Apr-21
Oct-15
Oct-17
Oct-11
Oct-12
Oct-13
Oct-14
Oct-16
Oct-18
Oct-19
Oct-20
Apr-19
Jul-19
Apr-20
Jul-20
Apr-21
Jan-19
Jan-20
Jan-21
Oct-19
Oct-20
Source: Bloomberg Source: Bloomberg
Exhibit 29. Future prices- Raw Sugar Exhibit 30. Future prices- White Sugar
US cents per pound USD/t
17.0 470
16.7 463
16.6 16.5
16.4
16.5 460
453
450
16.0 450 447
15.7
15.5 440 437

15.1
429
15.0 430
14.5 420
14.0 410
Mar'21 July'21 Oct'21 Mar'22 May'22 July'22 Aug'21 Oct'21 Dec'21 Mar'22 May'22 Aug'22
th th
Source: Sugaronline.com (prices as of 19 April 2021) Source: Sugaronline.com (prices as of 19 April 2021)

Sugar 19 April 2021
Exports- Is India a new export hub?

Moved away from ‘swing’ factor in global supply
As shown in the Exhibit below, India used to swing between import (SS 10/13/14/15/17/18)
rd
and export (SS11/12/14/15/16) but has become a consistent exporter since SS19 (SS21 is 3
consecutive year of exports and SS22 would also have at least 3-4 mnt of exports) given the
structural increase in sugar production. We note that even after significant exports, India
sugar inventories are one of the highest globally and hence inventory overhang continues to
impact the sugar sector.
Exhibit 31. Exports from India Exhibit 32. Imports trend

Exports (mnt) Imports (mnt)
5.7
5.5
6.0 4.5 4.1
4.0
5.0
3.5
4.0
3.8
3.4
4.0 3.0
2.8
2.5
2.6
3.0
2.3
2.0
1.7
2.0 1.5 1.2 1.2

1.0 0.7
0.6
1.0 0.4
0.3
0.2
0.2
0.0
0.5
- - - - - - -
- -
SS21E
SS22E
SS21E
SS22E
SS10
SS11
SS12
SS13
SS14
SS15
SS16
SS17
SS18
SS19
SS20
SS10
SS11
SS12
SS13
SS14
SS15
SS16
SS17
SS18
SS19
SS20
Source: Industry, JM Financial; Note- this excluding import for/export from raw sugar refineries Source: Industry, JM Financial; Note- this excluding import for/export from raw sugar refineries
However, this has been possible only with government export subsidies
Global sugar prices have firmed up on account of expectation of higher diversion of sugarcane
for ethanol in Brazil and continued issues in production in other key countries including in
Thailand and Australia. As seen in the Exhibit below, exports from India are viable currently in
white sugar while they are viable in case of white sugar only with government subsidies.
Exhibit 33. Currently raw exports viable only with govt subsidy
Units May'21 Aug'21 Oct'21 Dec'21
White Sugar Exports
FOB value of white sugar USD/t 463 453 450 447
Realisation for India white sugar INR/t 34,698 33,956 33,679 33,462
Transport subsidy from govt INR/t 6,000 6,000 6,000 6,000
Transportation cost (incl handling charges) INR/t 2,000 2,000 2,000 2,000
Net Exports Realisation INR/t 38,698 37,956 37,679 37,462
Current MSP (ex- mill) INR/t 31,000 31,000 31,000 31,000
Exports vs. domestic 25% 22% 22% 21%
Raw Sugar Exports

Current FOB Price US cents/lb 16.72 16.57 16.43 16.52
FOB realisation USD/t 410 407 404 406
INR/t 30,742 30,484 30,243 30,398
Export incentives INR/t 6,000 6,000 6,000 6,000
Less: Inland transport cost INR/t 2,000 2,000 2,000 2,000
Net Exports Realisation INR/t 34,742 34,484 34,243 34,398
Current MSP (ex- mill) INR/t 31,000 31,000 31,000 31,000
Exports vs. domestic 12% 11% 10% 11%
Source: Bloomberg, JM Financial

Sugar 19 April 2021
We believe India is not cost competitive in case of sugar industry due to the high cost of
production led by the high sugarcane price paid to farmers (almost 80-90% higher than
other leading producing nations).
Exhibit 34. India pays highest cane price Exhibit 35. India has highest cost of production
USD/t USD/t
India Brazil
45 43 600 554
535
40
500
35
30 400
334 345
24 24
25
20 300
20
15 200
10
100
5
- -
Brazil Australia Thailand India 2016-17 2017-18
Source: ISMA PPT (Nov'20) Source: ISMA PPT (Nov'20)
As per the industry, WTO allows export subsidies only until Dec’23. On top of this, several
competing nations have already raised objections on these export subsidies. As a result, we
believe India can be more an opportunistic exporter depending the domestic demand-supply
scenario and global sugar prices.

Sugar 19 April 2021
Government measures/regulations- Coming full circle!

Sugarcane- Crop of significance and hence government intervention inevitable:
Sugarcane is one of the biggest crops in India, cultivated by over 50 million farmers. UP is the
largest state in terms of sugar production (51% of total area) and contributes over 38% to
India’s sugar production (119 out of 520 mills are in UP). Note that sugar mills are duty-
bound to clear the arrears before making any fresh payments for the current season.
Given the significance of the crop for millions of farmers and population in the allied
activities, governments (central as well as state) come to the rescue of the industry time and
again. Moreover, since sugar is part of the Essential Commodities Act, the government is
duty-bound to regulate it.
Exhibit 36. Sugarcane arrears in past

300 INR bn 284
250 229
220
201 198
200 186
150 127 135
86 95
100
43
50 27
2020-21*
2013-14
2014-15
2015-16
2009-10
2010-11
2011-12
2012-13
2016-17
2017-18
2018-19
2019-20
Source: ISMA, Industry’ *2020-21 is as of 28th Feb 2021
As a result, the sugar sector was heavily regulated prior to 2013 (with a monthly release
order and a levy mechanism). In 2013, the government partially accepted Dr. Rangarajan
Committee’s recommendations (linking of sugarcane price to sugar revenue and dismantling
of levy and monthly release mechanism).
However, the industry in India has come full circle since then as the government had to step
in June’2018 due to a significant downturn and depression in sugar prices. These included a)
introduction of the Minimum Selling Price of sugar and b) Monthly release mechanism.
Moreover, it has also fixed robust ethanol volume/price and has incentive exports of surplus
sugar.
If we see, the sugar industry is practically regulated on all fronts including:
 Sugarcane volume (catchment area and minimum distance between 2 sugar mills)
 Sugarcane price (fixed by central government and some of the state governments; to be
paid in 14 days of receipt of cane),
 Sugar Price (MSP below which sugar mills are not permitted to sell)
 Sugar volume (government fixes volume targets unit-wise for each month)
 Export subsidy (without which exports are mostly unviable)
 Power volume/tariff (fixed by respective state governments)
 Ethanol volume (pushed by government) and price (fixed by government annually)
 Molasses production (certain % has to be given to potable alcohol industry on

concessional basis) and price
We believe the industry would continue to be regulated until the demand-supply situation is
balanced for a sustained period of time given significant inventory overhang (unlikely for the
next 2-3 years).

Sugar 19 April 2021
Exhibit 37. Government measures in sugar sector

Date Government Measures
Apr-21 Government allows additional 3675 tonnes sugar export to UK under concessional duty quota
Mar-21 Government decides not to offer soft loans under SDF to sugar mills for a year
Mar-21 Bihar first state to come up with new ethanol policy
Mar-21 Government allows OMCs to sell Ethanol as standalone fuel
Mar-21 Government revises downwards 2020-21 sugar output estimate to 30.2mt
Feb-21 First e-Cabinet okays norms for making ethanol from cane juice – Uttar Pradesh
Feb-21 UP SAP unchanged

Government notifies modified scheme to enhance ethanol distillation capacity in the country for producing ethanol from feed stocks such as cereals, sugarcane, sugar
Jan-21
beet etc.
Dec-20 Cabinet approves modified scheme to enhance ethanol distillation capacity in the country
Dec-20 Government invites public comments for introducing adoption of E20 fuel
Dec-20 Cabinet approves INR 35bn export subsidy
Oct-20 Ethanol price for SS21 increased to INR 45.69/ltr for C-Route, INR 57.61/lts for B-Route, INR 62.65/ltr for direct
Aug-20 OMCs, sugar mills, banks to set up escrow account to pay for ethanol procurement
Aug-20 Niti panel suggests linking cane prices to sugar rates
Aug-20 FRP for sugar season 2020-21 increased to 285 per quintal of sugarcane linked to a basic recovery of 10% vs. `275 per quintal for last year
Aug-20 OMC’s come up with 5 years tender

National Biofuel Coordination Committee (NBCC) approval for using surplus rice available with FCI in making alcohol-based hand-sanitizers and in blending for Ethanol
Apr-20
Blended Petrol (EBP) programme
Jan-20 Maharashtra and Karnataka slash electricity prices from INR 6.5/unit last yr to INR 3-3.5/unit now
Jul-19 Cabinet approves creation of buffer stock of 40 LMT of sugar for a period of one year from 1st August 2019 to 31st July 2020. It would entail capex of INR 16.74bn
Cabinet approves soft loan to sugar mills to for payment of cane dues of the farmers for the current sugar season. It approved proposal to provide soft loans to the
Feb-19
extent of INR 79.0 - 10.54bn.
Feb-19 Government hikes Minimum Selling Price (MSP) of Sugar to INR 31 per kg for the year 2019-20 from INR 29 per kg earlier
Jul-18 Government allowed sugar mills to manufacture ethanol directly from sugarcane juice or intermediate product called B-molasses.
Extended soft loans of INR 44.4bn to setup new distilleries and installation of incineration boilers with interest subvention up to INR 13.3bn; Provided performance based
production subsidy @ INR 4.50 per quintal of cane crushed for sugar season 2015-16 payable to farmers against their cane dues contingent on mills undertaking export
Jul-18
and supplying of ethanol; Provided Assistance to sugar mills @INR 5.50/quintal of cane crushed for sugar season 2017-18 to offset the cost of cane amounting to about
INR 15.4bn
a) Fixed MSP (MSP) at INR 29/kg(ex-factory).
b) Created a monthly stock holding limit and approved to build a buffer of 3MT
Jun-18
c) Put in place a mechanism to control retail prices
d) Approved interest subvention of INR 13.3bn for five years on loans of INR 44.0bn to increase distillery capacities
a) Announced FRP for ethanol supplied for blending with petrol and removed the tender based price discovery procedures for ethanol and fixed attractive prices for
ethanol supplied for petrol blending. Prices were fixed at INR 48.50 to 49.50 per litre depending on distance from the depot thereby effectively giving INR 42 per litre to
Jun-15 the mill as against INR 32 per litre in previous year
b) Increased the import duty to 40% and abolished the Duty Free Import Authorization Scheme
c) Reduced the export obligation period from 18 months to 6 months under the Advanced Authorization Scheme
Maharashtra implements Rangarajan Formula: sugar factory without any by-products will have to pay 70% of its revenue realization as cane price and a sugar factory
which also processes the by-products will have to pay 75% of its revenue realization as cane price. On delivering the cane to the sugar mills, farmers will receive the Fair
Jul-14
Remunerative Price (FRP) as fixed by the Central Government (INR 2,200/ton for a recovery rate of 9.5% and further `232/ton for additional 1% recovery rate above
9.5% for SS15) based on previous year’s recovery rate. Balance amount will be paid according to the revenue realization of the mill
Source: PIB, Media Articles, JM Financial
Proposals under consideration-

In order to make the industry self-dependent, the government has tasked various committees
in the past. Some of the recommendations that the government is deliberating on are: a)
tweaking revenue sharing formula (from current 75% of sugar revenue to 80% of sugar
revenue or 70% of total revenue to 75% of total revenue), b) Price Stabilisation Fund (which
will take care of the arrears in the years of deficit; modalities are yet to be figured out), c)
Staggered payment of cane price (similar to Gujarat model- paid in 3 instalments vs. 14 days
mandate currently), d) redesigning export incentives so that they will not be challenged under
the WTO, e) raising MSP to cover cost of production, interest and maintenance cost, f)
Eliminating buffer stock so that it doesn’t act as an incentive for over-production, and g)
Rethink on cogen pricing to incentivise industry to use bagasse and other biomass.

Sugar 19 April 2021
Ethanol
Ethanol Blending Program (EBP)
Significant pick up in EBP led by strong push by the central government
EBP, initiated in 2003, had seen significant swings until 2013-04 due to a) swings in sugar
production (which impacted molasses and hence alcohol production), b) inconsistent policies
on ethanol pricing and c) significant operational/procedural challenges. However, this has
seen a significant turnaround since 2014 as the new government committed itself to a
significant EBP push in order to a) reduce dependence on oil incrementally and b) help
industry improve revenues and clear sugarcane dues to farmers.
For this, the government among others, a) fixed robust ethanol price (differential pricing for B
heavy and Direct Routes; increase in prices from time to time), b) changed relevant
regulations to allow ethanol production from direct sugarcane juice as well as certain food
grains, c) announced incentives to set up distillery capacities for ethanol production, and d)
worked closely with OMCs to resolve the procedural/operational hurdles. This has resulted in
EBP rising from 0.8% to c.8% in ESY21 (0.2bnlitres in ESY13 to 3bn litres contracts signed
for ESY21).
Exhibit 38. Robust ethanol contracts signed for ESY21

Millions litres ESY 21
Total demand 4,570
offered 3,250
contracted 2,980
Cane base (Juice/B/C) 2,620
Grain 360
supplied 1,000
B route and juice 770
C route and others 230
Some of the other measures the government has taken to further push the momentum
include:
 Approved suppliers list for 5 years from 2020-21 ESY
 Reduced paperwork, resubmission of licenses etc. and thereby reduces delays
 EOIs only for supplies on monthly basis, and every year
 OMCs have reduced security deposit and penalty amounts from 5% to 1%
 Banks & OMCs willing to sign TPAs and loan recovery through escrow accounts- Gives
comfort to banks and will allow mills with weak balance sheets to get loans
We also highlight that Ethanol helps India achieve it’s voluntarily commitment of a reduction
in greenhouse gas emission intensity of its GDP by 33-35% below 2005 levels by 2030. As
per the government, it is on track to achieve this through measures including a) LED adoption
(energy savings), b) non-fossil fuel (38% of installed capacity), c) adoption of Bharat-VI
emission norms in Apr’21 (leading to lesser pollution), d) higher share of natural gas (from
6% to 15% by 2030) as well as e) higher ethanol blending (bio fuel). In fact, given the
current success, the government has suggested advancing 20% EBP timeline from 2030 to
2025.

Sugar 19 April 2021
Exhibit 39. 15x jump in ethanol volume since ESY13 Exhibit 40. From 0.8% in ESY13 to c.8% in ESY21
3,500 million ltr Ethanol Supply EBP (RHS) 40,000 million ltr Petrol Consumption EBP (RHS)
11.0% 11.0%
3,000 35,000
8.0% 9.0% 8.0% 9.0%
30,000
2,500 5.7% 7.0% 5.7% 7.0%
5.0% 5.0%
4.3% 4.0% 25,000 4.3% 4.0%
2,000 5.0% 5.0%
3.0% 3.0%
1.9% 2.4% 20,000 1.9% 2.4%
3.0% 3.0%
1,500 0.8% 0.8%
1.0% 15,000 1.0%
1,000
-1.0% 10,000 -1.0%
37,039
18,743
20,391
22,709
26,008
28,291
31,160
33,672
37,039
1,250
2,980
1,110
1,700
2,110
500 -3.0% 5,000 -3.0%
154
380
674
665
- -5.0% - -5.0%
ESY21E
ESY15
ESY18
ESY13
ESY14
ESY16
ESY17
ESY19
ESY20
ESY20
ESY13
ESY14
ESY15
ESY16
ESY17
ESY18
ESY19
ESY21E
Exhibit 41. Fuel ethanol has surpassed the industrial and potable Exhibit 42. Rising mix of Fuel Ethanol
alcohol segments
Industrial Use Potable Use Fuel Ethanol other Use
Industrial Use Potable Use Fuel Ethanol Total Alcohol Requirement
100%
5,000 4,618 90% 10%
million ltr 17%
4,500 80% 28%
40% 34%
4,000 70% 52% 53%
3,361 3,284 56%
3,500 65%
2,905 60% 47%
2,770 46%
3,000 2,980 50%
2,370
2,500 2,180 42%
1,965 1,886 1,730 40% 36% 41%
2,000 1,110 1,505
1,536 380 674 30% 24% 23%
22%
1,500 154 665 18%
1,000 20% 38%
1,000 718 1,000 1,000 700 735 772 810 32%
800 10% 25% 22% 20% 21% 19% 20%
500 15%
587 700 588 600 400 600 630 662 695 0%
-
ESY13 ESY14 ESY15 ESY16 ESY17 ESY18 ESY19 ESY20 ESY21E
ESY13 ESY14 ESY15 ESY16 ESY17 ESY18 ESY19 ESY20 ESY21E
We believe substantial number of industrial alcohol customers have shifted to imports as high
ethanol prices creates higher benchmark price for alcohol alternatives like Industrial alcohol.
We understand that the landed cost of import of alcohol is between INR 32-INR 40/litre as
compared with INR 45/litre for C Route (INR 55/litre for B route).
Exhibit 43. India ethanol imports (volume) Exhibit 44. Alcohol imports (value) 16% CAGR in FY10-20
INR bn Alcohol imports value
100.0 95.2
90.0 84.4
80.0 76.2
70.0
56.2 56.8 55.3 55.6
60.0
50.0 43.6
40.0 32.6
30.0 22.8
18.4
20.0
10.0
-
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
Source: USDA; Imports consisting Propyl alcohol, Isopropyl alcohol, Other saturated monohydric alcohols,
Polyvinyl Pirolidone, Poly (ether alcohols), Poly (vinyl alcohol), Methyl alcohol
Source: US Census Bureau, Trade Data Monitor and Ministry of Commerce, GOI

Sugar 19 April 2021
Government has approved for significant number of projects- bank funding is

critical for most of them
India, as of ESY 20, had distillery capacity of 427cr litres (including grain based). As illustrated
in the Exhibit 45, Department of Food and Public Distribution (DFPD) has approved about 342
applications from sugar mills/standalone distilleries (based on molasses), of which only 14%
have received disbursements, while those for another 8% are pending at banks (including
sanctioned ones). There is no public information available for c.73% of applications (they
have not approached any bank for funding).
Exhibit 45. Current distribution of capacities across states (ESY 2020)

No of distilleries (ESY20) Ethanol capacity (million litres) LoI for ESY20
Pvt Co-op Standalone Total Pvt Co-op Standalone Total (mn litres)
Maharashtra 34 36 26 96 580 360 330 1,280 280
UP 36 8 11 55 1,200 60 230 1,500 1,057
Karnataka 23 3 3 29 718 25 41 784 NA
Tamil Nadu 9 2 1 12 164 17 22 203 NA
AP 8 - - 8 81 - - 81 NA
Telengana 3 - 3 46 - - 46 NA
Gujarat - 9 3 12 - 70 41 112 NA
Others 13 1 2 16 222 18 46 264 NA
India 126 59 46 231 3,010 550 710 4,270 2,063

Source: Industry,ISMA, JM Financial
Exhibit 46. Status of applications (As of Oct’20)

MH UP Karnataka Others India
In principal approval by DFPD 182 60 64 36 342
Sanctioned and disbursed 19 20 2 7 48
Sanctioned but not disbursed 2 0 3 0 5
Approached to bank but pending 11 3 8 1 23
Rejected 6 7 0 13
Information not received 140 30 51 28 249
Rejected 6 0 0 6
Likely to be processed (disbursed+sanctioned

32 23 13 8 76
+approached but pending)
%of total 18% 38% 20% 22% 22%
Source: ISMA (Oct’2020 presentation)
Strong growth in capacity addition led by robust ethanol prices and interest
subvention scheme:
As per industry, distillery capacity as of Mar’20 stood at 4.26bn litres and around 422
projects are currently under consideration. Note that the momentum of distillery expansion
has picked up after the announcement of a) interest subvention scheme (up to 5% interest
subvention for first 5 years) and b) higher ethanol price in Nov’20 (even though crude oil
price declined 45-50% YoY at last ethanol price revision). Our industry sources indicate
capacity addition of 900-950mn litre is likely to happen in ESY21.

Sugar 19 April 2021
Exhibit 47. Strong growth in distillery capacity

4,500 Distillery capacity
mn litres
4,000
17% CAGR
3,500
3,000 7% CAGR
2,500
2,000
1,500
1,000
2,215
2,690
4,260
500
-
ESY14 ESY17 ESY20
Source: ISMA, Industry’ *2020-21 is as of 28th Feb 2021
B Route/Direct route are significantly more profitable than conventional route:

As can be seen in the Exhibit below, the Direct Route (Sugarcane juice to Ethanol) and B
Molasses route are significantly more profitable than Conventional C Molasses route. As a
result, we believe significant part of new capacities are basis ‘B molasses route’ as one retains
the flexibility of switch between sugar and ethanol depending on economics and it does not
warrant significant capacity addition and avoids dependence on outside raw material source
(as direct route based capacity has to depend for alternate feedstock like food grains to
operate during the off-season).
Exhibit 48. Profitability scenario for 100tonnes sugarcane crushed

Unit C Molasses B Molasses Sugarcane juice route
Cane crushed tonnes 100 100 100
Recovery assumption
Sugar % 12.0 10.5

75 litres per tonne of
Molasses % 4.9 6.6
cane
Ethanol (per tonne of molasses) Litres 230.0 295.0
Volume
Sugar Tonnes 12.00 10.50 -
Ethanol Litrs 1,116 1,947 7,500
Realisation
Sugar INR/Kg 31.0 31.0 -
Ethanol INR/ltr 45.7 57.6 62.7
Total Revenue INR 445,578 460,956 493,164
RM Cost INR 340,000 340,000 340,000
Conversion Cost INR 73,551 77,878 58,415
Profit INR 32,027 43,078 94,749
Incremental profit over C molasses route INR 11,051 62,722

Source: JM Financial, Industry
Robust payback period boosting capacity addition prospects:

While on the face of it C and B molasses profitability appear higher, we note the significant
molasses quantities are required (reflected in implied TCD capacity required to produce such
molasses quantities) as compared to direct route. As per our estimates (shown in Exhibit
below), payback period for B-route is the best among 3 options and hence believe most of
the new capacities would come through the B route.

Sugar 19 April 2021
Exhibit 49. Payback period

Unit of C Molasses route B Molasses route Sugarcane Juice
Measurement Route
Distillery Capacity KLPD 100 100 100

no of days operations days 330 330 330
Production (sales) litres 330,00,000 330,00,000 330,00,000
Ethanol realisation INR/ltr 45.7 57.6 62.7
Revenue INR mn 1,508 1,901 2,067
Less: RM Cost INR mn 502 783 1,496
Molasses purchase price INR/tonne 3,500 7,000
Molasses required Tonnes 1,43,478 1,11,864
Ethanol Recovery rate Ltr/tonne 230 295
Sugarcane required tonnes 4,40,000
Sugarcane price INR/tonne 3,400
Less: Process cost INR mn 231 241 231
INR/ltr 7.0 7.3 7.0
Total cost at EBITDA level INR mn 733 1,024 1,727
Total cost at EBITDA level INR/ltr 22.2 31.0 52.3
EBITDA INR mn 775 877 340

EBITDA % 51.4% 46.1% 16.5%
EBITDA INR/ltr 23.47 26.58 10.32
Less: Depreciation INR mn 67 67 67

Total Cost (EBIT level) INR mn 800 1,090 1,794
EBIT INR mn 708 811 274
EBIT margin % 47.0% 42.6% 13.3%
EBIT margin INR/ltr 21.5 24.6 8.3
Interest INR mn 67 67 67
PBT INR mn 641 744 207
INR/ltr 19.4 22.5 6.3
Tax rate % 25% 25% 25%
PAT INR mn 481 558 155
ROE % 100% 116% 32%

ROCE (post tax) % 33% 38% 13%
Pay back period years 3.42 2.46 7.28
Investment per KLPD INR mn 130,00,000 130,00,000 133,00,000

Capex required INR mn 1,330 1,330 1,330
Source: Industry, JM Financial; *assuming 150 days operations
Ethanol and petrol parity price?

As shown in Exhibit below, ethanol prices have been hiked since 2018. Moreover, the
government also introduced differential pricing for B Molasses (June’18), sugarcane juice
route (Sep’19) and also allowed ethanol production from grain wastage (Oct’20).

Sugar 19 April 2021
Exhibit 50. Ethanol prices have been hiked year after year
INR/ltr ESY18 ESY19 ESY20 ESY21
Fixed June'18 Sep'19 Oct'20
C Route 40.90 43.70 43.75 45.69
B Route NA 52.43 54.27 57.61
Sugarcane Juice Route NA NA 59.48 62.65
Damaged food grains/ Maize NA NA 51.55
Ethanol from surplus rice with FCI 56.87

Source: Industry, JM Financial; Ex-distillery
Our calculations suggest that petrol price (excluding Excise and VAT) is around INR 32-33/litre
while Excise and VAT are estimated to be charged on the blended petrol. As a result, even
the C-Molasses based ethanol price is higher than petrol costs. However, the blending is led
by the mandate and the push by the central government. We also note that these higher
costs are effectively recovered from customers.
Exhibit 51. Estimated petrol price build (Ex-Delhi)

Unit 01-Apr-19 01-Apr-20 01-Jan-21 01-Mar-21 01-Apr-21
C&F (Cost & Freight) Price (Moving average basis) $/bbl 73.94 36.12 54.79 70.10 70.80
Average Exchange rate Rs/$ 68.94 75.04 73.64 72.67 72.45
Trade Parity Landed cost based on daily pricing methodology INR/Litre 32.36 17.21 25.61 32.34 32.56
Marketing Cost, Margin, Freight and Other charges INR/Litre 3.47 11.07 2.13 1.20 0.51
Price Charged to Dealers (excluding Excise Duty and VAT) INR/Litre 35.83 28.28 27.74 33.54 33.07
Add : Excise Duty @ Rs.32.98/Ltr INR/Litre 17.98 22.98 32.98 32.90 32.90
Add : Dealer Commission INR/Litre 3.56 3.54 3.67 3.69 3.69
Add : VAT (including VAT on Dealer Commission) applicable for Delhi @ 30% INR/Litre 15.49 14.79 19.32 21.04 20.90
Retail Selling Price at Delhi- (Rounded) INR/Litre 72.86 69.59 83.71 91.17 90.56
Source: JM Financial
Extent of sugar production diversion for ethanol?

We believe diversion of sugar through direct route/B molasses route to be around 5-6mn
tonnes (+/- 1 mn tonnes; around 4,000-4,500mn litres) on a sustainable basis as
a) government will try to balance ethanol requirement as well as the domestic consumption
(currently at 26mnt, growing at 1.5-2% annually),
b) geographical limitation (only 4 key states account for 90% of India’s sugar production
but only 39% of total petrol consumption ) and molasses remain state subject
c) Government would also promoter grain based distilleries (by OMCs and others) in order
to utilise the wastage and also avoid pollution.
What are the key constraints?

While EBP momentum has picked up significantly in past 3 years, we highlight constraints
issues of
a) Inadequate infrastructure at various depot across the country to accept the quantities
contracted (this is interim and can be resolved)
b) Higher transportation costs incurred by distilleries/mills upto the depot (ethanol prices
are fixed Ex-distillery basis and are reimbursed on formula basis for the transportation to
the depot). We believe distilleries are incurring additional cost of INR 3-5/litre on ethanol
supplied to the distant depots (expected to be resolved soon)
c) Constraints to blend ethanol beyond 10-12% of petrol as it could possibly lead to

corrosion of certain rubber components and need replacement

Sugar 19 April 2021
d) Moreover, 20% and beyond EBP will require introduction of flex fuel vehicles (FFV),
which we understand is still at discussion stage. We note that while this can still happen,
it may be only for the incremental vehicles and achieving 20% EBP and beyond is
possible only in distant future.
e) 20% EBP will require capacity of 14bn litres (i.e. 10.2bn litres over (4.26bn litres as of
Mar’20), implying capex of INR 400bn and interest subvention of over INR70bn by
government.
Exhibit 52. 20%EBP would require total capacity of over 12bn litres and about INR 375bn investments (between Mar’20-Mar’25).
mn litres ESY21E ESY22E ESY23E ESY24E ESY25E
Petrol Consumption mn litres 38,235 40,147 42,154 44,262 45,000
Alcohol Required (EBP+Potable+Industrial+Others)
@10% EBP mn litres 5,705 6,049 6,416 6,806 7,073
@15%EBP mn litres 7,617 8,057 8,523 9,019 9,323
@20%EBP mn litres 9,528 10,064 10,631 11,232 11,573
Capacity utilisation assumption % 85% 85% 85% 85% 85%
Capacity required
@10% EBP mn litres 6,712 7,117 7,548 8,007 8,322
@15%EBP mn litres 8,961 9,478 10,027 10,610 10,969
@20%EBP mn litres 11,210 11,840 12,507 13,214 13,616
Incremental capacity required (4260mn ltr as of Mar'20)
@10% EBP mn litres 2,452 2,857 3,288 3,747 4,062
@15%EBP mn litres 4,701 5,218 5,767 6,350 6,709
@20%EBP mn litres 6,950 7,580 8,247 8,954 9,356
Capex Required (INR13mn per KLPD= INR 40/ltr)
@10% EBP INR mn 98,065 1,14,269 1,31,513 1,49,866 1,62,463
@15%EBP INR mn 1,88,030 2,08,733 2,30,700 2,54,013 2,68,346
@20%EBP INR mn 2,77,996 3,03,197 3,29,887 3,58,159 3,74,228


Sugar 19 April 2021
Sugar prices - No more cycle - To be capped!

Domestic sugar prices are influenced by MSP and release order quantities
As shown in Exhibit below, domestic sugar prices used to swing significantly June’12-Nov’12
and sharp fall from INR 38/kg to INR 23/kg in Oct’15) thanks to volatile sugar production
(primarily in Maharashtra and Karnataka) and export-import policies. However, since
government’s introduction of Minimum Selling Price (MSP) of sugar and monthly release
mechanism in June’18, sugar prices have been range-bound between INR 31-34/kg, though
modest amount of seasonality still remains
Exhibit 53. Domestic sugar price (Delhi M-30): Long Term Exhibit 54. Domestic sugar prices (Delhi M-3)- Mid term
INR/kg INR/kg
46 46
42 42
38 38
34 34
30 30
26 26
22 22
18 18
Jan-12
Jan-17
Dec-14
Dec-19
Nov-12
Nov-17
Mar-16
Mar-21
Jul-14
Oct-15
Jul-19
Oct-20
Jul-18
Sep-18
Nov-18
Jul-19
Sep-19
Nov-19
Jul-20
Sep-20
Nov-20
Jun-12
Apr-13
Feb-14
May-15
Aug-16
Jun-17
Jan-18
Mar-18
Jan-19
Sep-13
Apr-18
Feb-19
May-20
Mar-19
Jan-20
Mar-20
Jan-21
Mar-21
Sep-18
May-18
May-19
May-20
Source: Bloomberg, Industry, JM Financial Source: Bloomberg, Industry, JM Financial
MSP hike has been long pending, expect at least INR 1/kg hike soon:
Government initially fixed MSP of INR29/kg in Jun’18 and raised it to INR 31/kg in Feb’19,
even though industry has been demanding MSP of INR 34-35/kg. This has been long pending
demand of the industry given sugar segment is the largest segment for sugar mills. We
believe the MSP hike has been possibly delayed on account of
 Government is already providing subsidies in the form of a) sugar export subsidies, b)
buffer stock, and c) robust ethanol price
 Mills in Maharashtra are unable to sell even at MSP (there have been reports of mills
selling INR1-2/kg below MSP to raise resource to pay farmers) given the demand-supply
mismatch (almost all south states produce sugar more than its own requirements and
require selling northern/eastern states).
 Most of the sugar mills have been able to make cane price payments, albeit with some
delays
 Impact of sugar prices on food inflation (sugar and allied constitute c.1.36% of CPI) and
 Will require further hikes in B molasses and direct route based ethanol prices (high sugar
prices may lead to mills switching back to sugar and may lead to derailment of !
Sugar prices would have an implied cap given its linkage with ethanol prices (mills
can go back to higher sugar production if sugar prices are more profitable)
As per our calculations, B Molasses based ethanol need to be at least 65-70% higher than
sugar prices (exact quantum depends on recovery rates for sugar/ethanol for the
state/company) given reduction in recovery rate in order to incentives millers to opt B-
Molasses route and reduce the sugar production. As a result, we expect sugar prices to move
up in very gradual manner (with bouts of sharp rise and fall due to seasonality/festival led
demand changes). With that stability, the government will ensure that
 Achieve desired target EBP
 Stable sugar and ethanol price regime- thus incentivise more capacity creation
 Avoid any inflation related concerns

Sugar 19 April 2021
Annexure
Exhibit 55. Sugar companies: Financial comparison
CAGR
INR mn FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
(FY10-20)
Revenue
Balrampur Chini 17,471 29,724 23,096 32,748 26,649 29,870 27,567 34,601 43,425 42,858 47,413 10%
Dwarikesh Sugar 4,619 5,551 5,931 6,986 9,276 11,284 7,943 11,904 14,299 10,841 13,361 11%
Dhampur Sugar 9,355 23,376 15,363 14,812 18,221 17,761 21,834 25,340 32,785 27,545 33,538 14%
EID Parry 11,473 12,557 15,199 19,645 17,674 20,548 25,613 22,300 18,962 18,452 18,749 5%
EBITDA
Balrampur Chini 4,472 5,156 2,383 4,199 2,140 1,225 4,110 9,198 4,517 7,381 6,820 4%
Dwarikesh Sugar 1,244 629 744 939 587 855 1,081 2,734 1,425 1,291 1,361 1%
Dhampur Sugar 1,916 2,077 2,021 2,210 1,315 1,371 2,191 5,203 3,637 4,759 3,664 7%
EID Parry 2,059 223 1,041 2,326 989 2,058 610 3,451 1,672 -310 945 -7%
PAT
Balrampur Chini 1,960 1,627 987 2,278 36 -577 2,372 6,387 2,211 5,156 4,578 9%
Dwarikesh Sugar 251 -90 -131 -113 -193 -168 391 1,593 1,014 951 735 11%
Dhampur Sugar 567 87 286 224 -744 -99 242 2,344 1,571 2,668 2,286 15%
EID Parry 1,981 627 1,373 916 265 1,482 -921 2,740 1,375 47 18 -37%
Net Debt*
Balrampur Chini 9,564 18,514 19,760 15,686 13,806 15,923 16,545 17,778 9,811 17,290 14,778 4%
Dwarikesh Sugar 4,434 4,521 4,661 5,237 3,901 6,235 6,508 4,748 3,213 6,343 6,513 4%
Dhampur Sugar 6,951 8,720 9,791 14,263 13,204 15,944 16,377 18,961 14,363 18,081 16,081 9%
EID Parry 5,015 6,044 8,507 18,167 19,142 18,029 12,132 9,373 10,079 8,077 10,200 7%
Equity
Balrampur Chini 11,338 12,894 12,181 13,231 12,185 11,295 12,315 15,413 15,872 20,827 23,704 8%
Dwarikesh Sugar 1,585 1,494 1,363 1,350 1,206 1,039 1,170 2,860 3,658 4,636 4,837 12%
Dhampur Sugar 4,995 5,089 4,853 4,872 4,469 4,293 7,224 9,111 10,161 12,431 13,751 11%
EID Parry 10,963 11,503 12,176 13,469 12,794 13,692 12,828 14,775 16,381 17,135 17,138 5%
Median
INR mn FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
(FY10-19)
net D/E
Balrampur Chini 0.8 1.4 1.6 1.2 1.1 1.4 1.3 1.2 0.6 0.8 0.6 1.2
Dwarikesh Sugar 2.8 3.0 3.4 3.9 3.2 6.0 5.6 1.7 0.9 1.4 1.3 3.0
Dhampur Sugar 1.4 1.7 2.0 2.9 3.0 3.7 2.3 2.1 1.4 1.5 1.2 2.0
EID Parry 0.5 0.5 0.7 1.3 1.5 1.3 0.9 0.6 0.6 0.5 0.6 0.6
RoE
Balrampur Chini 18% 13% 8% 18% 0% -5% 20% 46% 14% 28% 21% 18%
Dwarikesh Sugar 17% -6% -9% -8% -15% -15% 35% 77% 31% 23% 16% 16%
Dhampur Sugar 12% 2% 6% 5% -16% -2% 6% 29% 16% 23% 16% 6%
EID Parry 19% 6% 12% 7% 2% 11% -7% 20% 9% 0% 0% 7%
RoCE (Post Tax)
Balrampur Chini 13% 10% 7% 11% 1% 1% 11% 22% 9% 17% 13% 11%
Dwarikesh Sugar 11% 3% 5% 7% 3% 4% 10% 24% 15% 9% 9% 9%
Dhampur Sugar 10% 9% 6% 5% 4% 1% 7% 14% 9% 12% 11% 9%
EID Parry 12% 4% 11% 8% 2% 16% 1% 18% 6% 1% 3% 6%
CFO
Balrampur Chini 6,636 -6,293 1,950 5,554 4,624 -763 1,470 3,463 11,798 -5,230 8,496 3,463
Dwarikesh Sugar 2,120 395 533 78 2,033 -1,507 367 1,410 2,982 -2,504 113 395
Dhampur Sugar 3,460 644 517 -1,487 4,859 -784 1,637 -500 8,054 -1,766 3,565 644
EID Parry 1,789 -3,887 260 -928 1,457 464 502 5,185 -193 -39 -156 260
Source: Industry
*net Debt at year end

Sugar 19 April 2021
Exhibit 56. Sugar companies: Valuation comparison

Valuation (FY20) CAGR (FY15-20)
INR mn, unless MKt Cap Equity Net Debt* EBITDA PAT Replacement
EV
specified otherwise (INR bn) (FY20) (FY20) (FY20) (FY20) Cost (FY20)
EV/Repl P/BV EV/EBITDA Revenue EBITDA PAT*
Balrampur Chini 52.2 1.47 2.20 9.82 10% 41% 18% 66,995 23,704 14,778 6,820 4,578 45,620
Dwarikesh Sugar 6.2 0.98 1.28 9.35 3% 10% 17% 12,727 4,837 6,513 1,361 735 13,040
Dhampur Sugar 13.1 0.94 0.96 7.90 14% 22% 75% 28,943 13,751 15,809 3,664 2,286 30,763
EID Parry 55.9 2.37 3.26 NM -2% -14% N/A 66,085 17,138 10,200 945 18 27,860
*Year-end Net Debt

Sugar 19 April 2021
Exhibit 57. Process chart
Source: Industry
Exhibit 58. Thumb rule
Source: Industry

19 April 2021 India | Sugar | Rating Upgrade
Balrampur Chini | BUY

On a roll
We expect the current favourable government policy (MSP of sugar, robust ethanol price, Achal Lohade
achal.lohade@jmfl.com | Tel: (91 22) 66303081
ethanol capex incentives) to continue for at least next 2 years. Balrampur Chini (BRCM),
nd Koundinya Nimmagadda
being one of the biggest (2 largest sugar producer in country) and most efficient will be koundinya.nimmagadda@jmfl.com | Tel: (91 22)
significant beneficiary of this policy continuity and cost efficiencies. Hence, we estimate 66303574
robust cash flow generation (OCF/FCF of INR 28bn/INR 22bn in FY21-23; free cash flow yield Shrenik Bachhawat
shrenik.bachhawat@jmfl.com | Tel: (91 22) 66303074
of c.14%), though we point out that cash flows are boosted because of higher monthly
release quota for BRCM (as it achieves higher B-Molasses mix). We reflect a) revised capex
for new distillery at Maizapur (320KLPD; INR 4.25bn vs INR 3.2bn earlier), and b) lower
crushing volume for FY22 due to lower yield. We now value BRCM at 1.2xEV/Replacement
(vs 0.7x earlier) to reflect strong cash flows in medium term and arrive at Mar’22TP of INR300
(11xFY23EPS; 7x FY23 EV/EBITDA). Key risks - a) higher than expected SAP (we assume Recommendation and Price Target
Current Reco. BUY
INR20/quintal increase in FY22 and flat YoY in FY23), and b) any sharp cut in ethanol prices.
Previous Reco. HOLD
nd
 In a ‘sweet spot’: Balrampur Chini is the 2 largest producer and has one of the best Current Price Target (12M) 300
optimisation and cost efficiencies in the industry (inventory valuation on Mar’20 was at Upside/(Downside) 21.3%
Previous Price Target 180
INR29.5/kg, almost same at RM cost). We believe the govenrment has to continue
Change 66.7%
handholding of the industry till inventory overhang is removed, which is expected to be
there for at least 2-3 years. Key Data – BRCM IN
Current Market Price INR247
 Strong cash flow generation and history of payouts: The company generated OCF of INR Market cap (bn) INR51.9/US$0.7
18.5bn in FY17-20, of which, it distributed INR 7.3bn to shareholders (c.39% of Free Float 58%
cumulative profit in the period) in the form of dividend and buyback. We estimate BRCM Shares in issue (mn) 210.0
to generate OCF of INR 28bn in FY21-23 and distribute c.INR 7.6bn (c.50% payout), incur Diluted share (mn) 210.0
3-mon avg daily val (mn) INR573.1/US$7.7
capex of INR5.8bn (including INR4.25bn capex for 320KLPD distillery at Maizapur) and see 52-week range 272/83
substantial reduction in debt (INR10bn). Sensex/Nifty 47,949/14,359
INR/US$ 74.9
 Revise estimates to reflect lower crushing volume in FY22 and new distillery
operationalization: Our estimates now reflect a) revised distillery capex (INR 4.25bn vs INR Price Performance
3.2bn earlier) and commissioning in Dec’22, b) unchanged cane price for SS21 and INR % 1M 6M 12M
20/quintal increase in SS22, and c) lower cane crushing volume due to lower yields in Absolute 22.3 60.6 129.3
Relative* 27.1 35.8 51.3
SS21 (primarily impacting FY22; Apr-May’21 may see minimal crushing as compared
* To the BSE Sensex
1.2mnt in Apr-May’20).
 Upgrade to BUY on stronger visibility on medium term cash flow generation: We upgrade
BRCM from HOLD to BUY on the back of strong cash flow generation led by a)
expectation of policy continuity (steady ethanol prices, stable MSP). We note that sharp
rise in sugar prices are unlikely given its interlinkage with ethanol price and EBP
momentum. Moreover, the government has control over volumes/sugar prices. We raise
our EV/Replacement multiple to 1.2x (0.7x earlier; implies 10.7xFY23EPS/7xFY23
EV/EBITDA) to reflect robust cash flow generation and arrive at Mar’22TP of INR300.
 Key risk- a) Higher than expected hike in SAP of sugarcane (we assume INR20/quintal for
SS22), and b) unfavourable change in government regulations
Financial Summary (INR mn)

Y/E March FY19A FY20A FY21E FY22E FY23E
Net Sales 42,858 47,413 51,909 51,312 55,376
Sales Growth (%) -1.3 10.6 9.5 -1.2 7.9 JM Financial Research is also available on:
EBITDA 7,381 6,820 7,357 6,728 8,538 Bloomberg - JMFR <GO>,
EBITDA Margin (%) 17.2 14.4 14.2 13.1 15.4
Adjusted Net Profit 5,156 4,578 4,766 4,371 5,886
Thomson Publisher & Reuters,
Diluted EPS (INR) 22.6 20.8 22.7 20.8 28.0 S&P Capital IQ, FactSet and Visible Alpha
Diluted EPS Growth (%) 133.2 -7.8 9.1 -8.3 34.7
ROIC (%) 20.0 14.5 14.5 16.0 23.4 Please see Appendix I at the end of this
ROE (%) 28.1 20.6 19.1 16.3 20.3
report for Important Disclosures and
P/E (x) 10.9 11.9 10.9 11.9 8.8
P/B (x) 2.7 2.3 2.0 1.9 1.7 Disclaimers and Research Analyst
EV/EBITDA (x) 9.4 9.8 7.9 7.5 5.7 Certification.
Dividend Yield (%) 1.0 1.0 1.0 5.7 6.1
Source: Company data, JM Financial. Note: Valuations as of 19/Apr/2021
JM Financial Institutional Securities Limited

Balrampur Chini 19 April 2021
Exhibit 1. Mar’22TP of INR300, implies 11xFY23EPS (7xFY23 EV/EBITDA)

Target Date Mar’22
Replacement value INR mn 49,870
EV/Replacement multiple times 1.20
Implied EV INR mn 59,844
Less: Net debt (incl working cap) INR mn -2,597
Equity value INR mn 62,441
Shares outstanding mn 210
Target Price INR/sh 300
CMP INR/sh 247
Potential upside/(Downside) % 21%
Implied P/BV (1yr forward) x 2.2
Implied P/E (1yr forward) x 11.0
Implied EV/EBITDA (1yr forward) x 7.0

Source: JM Financial, Company
Exhibit 2. BRCM: EV/Replacement band Exhibit 3. BRCM: P/E band

x EV/Replacement value 5-Year Mean x P/BV 5-Year Mean
1.4 Mean + 1SD (5-yr) Mean-1SD (5-Year) 20.0 Mean + 1SD (5-yr) Mean-1SD (5-Year)
18.0
1.2
16.0
1.0 14.0
0.9 12.0
0.8
10.0 11
0.7
0.6 8.0
0.5 7
0.4 6.0
4.0 4
0.2
2.0
0.0 0.0
Oct-12
Apr-12
Apr-13
Oct-13
Apr-14
Oct-14
Apr-15
Oct-15
Apr-16
Oct-16
Apr-17
Oct-17
Apr-18
Oct-18
Apr-19
Oct-19
Apr-20
Oct-20
Apr-21
Apr-12
Oct-12
Apr-13
Oct-13
Apr-14
Oct-14
Apr-15
Oct-15
Apr-16
Oct-16
Apr-17
Oct-17
Apr-18
Oct-18
Apr-19
Oct-19
Apr-20
Oct-20
Apr-21
Source: Bloomberg, Company, JM9 9
1
1Financial 9
1
1Financial
9
Source: Bloomberg, Company, JM
Exhibit 4. BRCM: EV/EBITDA band Exhibit 5. BRCM: P/BV band

x EV/EBOTDA 5-Year Mean x P/BV 5-Year Mean
Mean + 1SD (5-yr) Mean-1SD (5-Year)
18.0 Mean + 1SD (5-yr) Mean-1SD (5-Year) 3.0
16.0
2.5
14.0
12.0 2.0 2.0
10.0
1.5 1.5
8.0
6.0 6 1.0 1.0
5
4.0
3 0.5
2.0
0.0 0.0
Apr-17
Apr-12
Oct-12
Apr-13
Oct-13
Apr-14
Oct-14
Apr-15
Oct-15
Apr-16
Oct-16
Apr-17
Oct-17
Apr-18
Oct-18
Apr-19
Oct-19
Apr-20
Oct-20
Apr-21
Apr-12
Oct-12
Apr-13
Oct-13
Apr-14
Oct-14
Apr-15
Oct-15
Apr-16
Oct-16
Oct-17
Apr-18
Oct-18
Apr-19
Oct-19
Apr-20
Oct-20
Apr-21
Source: Bloomberg, Company, JM9 9

1
1Financial Source: Bloomberg, Company, JM9 9
1
1Financial

Exhibit 6. Distribution to shareholders has structurally improved to 40-60%

Cumulative Cumulative
INR mn FY17 FY18 FY19 FY20 FY21E FY22E FY23E
FY17-20 FY21-23
Profit before Tax 7,341 3,322 5,950 5,549 6,140 5,662 7,498 22,163 19,300
-Inc/dec in working cap -4,552 8,234 -11,081 2,382 5,711 6,025 510 -5,017 12,247
Others 674 243 -99 565 142 76 -272 1,382 -54
Cash Flow from operations 3,463 11,798 -5,230 8,496 11,993 11,763 7,736 18,528 31,492
Capex -1,223 -1,321 -1,257 -2,419 -600 -1,300 -3,300 -6,221 -5,200
Free Cash Flow 2,241 10,477 -6,487 6,077 11,393 10,463 4,436 12,307 26,292
Inc/(dec) in capital -1,747 -989 0 -1,493 -1,800 0 0 -4,229 -1,800
Inc/dec in loans 1,112 -7,925 7,902 -2,658 -3,800 -6,187 -800 -1,569 -10,787
Dividends paid -1,032 -707 -688 -663 -525 -2,940 -3,150 -3,091 -6,615
Dividends Paid 857 588 571 550 525 2,940 3,150 2,566 6,615
Buyback - 990 - 1,477 1,800 - - 2,467 1,800
Total distribution 857 1,578 571 2,027 2,325 2,940 3,150 5,033 8,415
Reported Profit 5,923 2,211 5,706 5,093 4,766 4,371 5,886 18,933 15,022
OCF 3,463 11,798 -5,230 8,496 11,993 11,763 7,736 18,528 31,492
Cash Accrual (PAT+Dep-Def Tax Asset) 6,812 3,563 5,624 5,593 5,582 5,187 6,776 21,591 17,546
Total distribution as
% of Report Profit 14% 71% 10% 40% 49% 67% 54% 27% 56%
% of OCF 25% 13% -11% 24% 19% 25% 41% 27% 27%
% of Cash Accrual 13% 44% 10% 36% 42% 57% 46% 23% 48%
Source: Company, JM Financial

Exhibit 7. BRCM: DCF Valuation (Hypothetical analysis)

INR mn FY18 FY19 FY20 FY21E FY22E FY23E FY24E FY28E
Cane Crushing Vol (tonnes) 92,78,300 1,10,36,200 1,02,03,000 1,02,03,000 89,78,640 1,09,53,941 1,15,01,638 1,28,15,912
YoY 17% 19% -8% 0% -12% 22% 5% 2%
Recovery Rate
Sugar (%) 10.8% 11.6% 11.4% 10.9% 10.9% 11.1% 11.4% 11.4%
Distillery (per tonne of cane) 8.69 10.05 11.69 15.37 17.29 18.20 24.25 23.85
power ( units per tonne of cane) 61.22 60.15 51.56 41.88 41.47 40.71 38.45 38.61
Volume
Sugar (tonnes) 10,29,500 11,53,000 12,05,300 12,44,254 11,83,845 12,11,780 12,55,124 14,56,208
Distillery (KL) 80,659 1,10,898 1,19,300 1,56,861 1,55,262 1,99,337 2,78,873 3,05,639
Power ('000 units) 5,68,000 6,63,800 5,26,100 4,27,271 3,72,346 4,45,887 4,42,285 4,94,792
Realisation
Sugar (INR/tonne) 35,560 29,553 30,344 32,574 33,500 34,000 34,500 35,000
Distillery (INR/KLPD) 39,150 41,290 44,690 48,598 53,042 54,852 57,647 58,052
Power (INR/unit) 4.78 4.94 3.06 3.12 3.15 3.18 3.18 3.18
Revenue 43,425 42,858 47,413 51,909 51,312 55,376 62,928 70,286
YoY 25.5% -1.3% 10.6% 9.5% -1.2% 7.9% 13.6% 2.0%
Sugar 36,609 34,074 36,574 40,530 39,659 41,201 43,302 50,967
Distillery 3,158 4,579 5,332 7,623 8,235 10,934 16,076 17,743
Power 2,715 3,279 1,610 1,334 1,174 1,420 1,408 1,575
EBIT 3,486 5,962 5,802 5,462 4,771 6,465 7,628 7,128
Sugar 1,388 1,662 3,442 3,038 1,705 3,374 2,849 2,184
Distillery 1,082 3,165 2,615 2,819 3,611 3,543 5,282 5,502
Power 1,721 1,786 475 383 296 431 424 445
Unallocable -705 -650 -731 -779 -841 -883 -927 -1,003
EBIT per unit
Sugar (INR/tonne) 1,349 1,441 2,856 2,442 1,440 2,784 2,270 1,500
Distillery (INR/KLPD) 13,414 28,542 21,917 17,972 23,258 17,776 18,941 18,000
Cogen (INR/unit) 3.03 2.69 0.90 0.90 0.79 0.97 0.96 0.90
EBIT Before Financial Other Income 3,564 6,422 5,806 6,240 5,612 7,348 8,555 7,128
EBIT Margin 8.2% 15.0% 12.2% 12.0% 10.9% 13.3% 13.6% 10.1%
Effective Tax Rate 33.4% 3.8% 8.2% 22.4% 22.8% 21.5% 24.4% 25.2%
Tax on EBIT at Effective Tax Rate 1,192 243 478 1,397 1,279 1,580 2,090 1,796
NOPLAT 2,373 6,179 5,328 4,843 4,332 5,768 6,465 5,332
YoY -64% 160% -14% -9% -11% 33% 12% 2%
Change in Adj Net Working Capital 9,055 -11,311 2,064 5,521 6,051 338 621 -351
% of sales 20.9% -26.4% 4.4% 10.6% 11.8% 0.6% 1.0% -0.5%
Capex -1,281 -670 -3,000 -724 0 -4,300 -400 -351
% of sales -3.0% -1.6% -6.3% -1.4% 0.0% -7.8% -0.6% -0.5%
Gross Fixed Assets (excl WIP) 17,495 18,165 21,166 21,890 21,890 26,190 26,590 28,023
GFA to Sales ratio 2.5 2.4 2.2 2.4 2.3 2.1 2.4 2.5
FREE CASH FLOW 11,099 -4,843 5,406 10,756 11,499 2,996 8,061 6,058
Discounting Factor 0.90 0.81 0.53
PV of cash flows 2,699 6,543 3,239
Mar22 DCF
PV of Cash Flow - Explicit Period 26,203
PV of Terminal Value 34,606
Enterprise Value 60,808
Less: Net Debt (sustainable) -2,266
Value attributable to Equity Shareholders 63,074
No of Equity Shares 210
BRCM Fair Value (DCF based) 300
One yr fwd EPS 28.0
Implied Fair PE - one-yr fwd 10.7
*Assuming Cost of Equity at 11.0%

Exhibit 8. Assumptions (segmental EBIT/EBITDA calculations are implied)

CAGR CAGR
Y/E March Units FY17A FY18A FY19A FY20A FY21E FY22E FY23E
FY17-20 FY20-23
Cane crushed mn tonnes 7.95 9.28 11.04 10.20 10.20 8.98 10.95 9% 2%
YoY % 7% 17% 19% -8% 0% -12% 22%
Recovery rate % 10.7% 10.8% 11.6% 11.4% 10.9% 10.9% 11.1%
Sugar Production 000 tonnes 847 1,006 1,278 1,167 1,107 976 1,212 11% 1%
Cane cost INR/tonne 3,224 3,293 3,208 3,380 3,400 3,600 3,700 2% 3%
Gross spread INR/kg 5.65 5.18 1.85 3.06 2.24 0.65 0.55 -18% -43%
Sales Volume
Sugar (incl exports) 000 tonnes 797 1,030 1,153 1,205 1,234 1,135 1,212 15% 0%
YoY % -1% 29% 12% 5% 2% -8% 7%
Distillery (incl ethanol) mn litres 69 81 111 119 157 155 199 20% 19%
YoY % 7% 17% 37% 8% 31% -1% 28%
Co-gen mn units 510 568 664 526 427 372 446 1% -5%
YoY % -4% 11% 17% -21% -19% -13% 20%
Realisation (Ex-mill)
Sugar INR/tonne 35,900 35,560 29,553 30,344 33,124 33,500 34,000 -5% 4%
YoY % 33% -1% -17% 3% 9% 1% 1%
Distillery INR/litre 42.55 39.15 41.29 44.69 48.60 53.04 54.88 2% 7%
YoY % 5% -8% 5% 8% 9% 9% 3%
Co-gen INR/unit 4.81 4.78 4.94 3.06 3.12 3.15 3.18 -14% 1%
YoY % -5% -1% 3% -38% 2% 1% 1%
Revenue (INR mn)
Sugar INR mn 28,627 36,609 34,074 36,574 40,884 38,023 41,201 9% 4%
Distillery INR mn 2,944 3,158 4,579 5,332 7,623 8,235 10,940 22% 27%
Co-gen INR mn 2,455 2,715 3,279 1,610 1,334 1,174 1,420 -13% -4%
EBIT 8,149 3,564 6,422 5,806 6,530 5,719 7,363 -11% 8%
Sugar INR mn 5,393 762 1,471 2,715 3,328 1,813 3,383 -20% 8%
Co-gen INR mn 1,577 1,721 1,786 475 383 296 431 -33% -3%
EBITDA INR mn 9,198 4,517 7,381 6,820 7,667 6,856 8,573 -9% 8%
Sugar INR mn 5,966 1,282 1,998 3,250 3,908 2,393 3,964 -18% 7%
Co-gen INR mn 1,947 2,049 2,111 825 733 646 781 -25% -2%
EBITDA Mix % 100% 100% 100% 100% 100% 100% 100%
Sugar % 65% 28% 27% 48% 51% 35% 46%
Distillery % 14% 26% 44% 40% 39% 56% 45%
Co-gen % 21% 45% 29% 12% 10% 9% 9%


Financial Tables (Standalone)

Income Statement (INR mn) Balance Sheet (INR mn)
Y/E March FY19A FY20A FY21E FY22E FY23E Y/E March FY19A FY20A FY21E FY22E FY23E
Net Sales 42,858 47,413 51,909 51,312 55,376 Shareholders’ Fund 20,827 23,704 26,145 27,576 30,312
Sales Growth -1.3% 10.6% 9.5% -1.2% 7.9% Share Capital 228 220 210 210 210
Other Operating Income 0 0 0 0 0 Reserves & Surplus 20,599 23,484 25,935 27,366 30,102
Total Revenue 42,858 47,413 51,909 51,312 55,376 Preference Share Capital 0 0 0 0 0
Cost of Goods Sold/Op. Exp 30,080 35,015 38,761 38,475 40,620 Minority Interest 0 0 0 0 0
Personnel Cost 2,305 2,540 2,743 2,963 3,200 Total Loans 17,340 14,825 11,025 4,838 4,038
Other Expenses 3,092 3,038 3,048 3,146 3,019 Def. Tax Liab. / Assets (-) 783 241 541 841 1,141
EBITDA 7,381 6,820 7,357 6,728 8,538 Total - Equity & Liab. 38,950 38,770 37,711 33,255 35,491
EBITDA Margin 17.2% 14.4% 14.2% 13.1% 15.4% Net Fixed Assets 14,676 16,366 15,849 16,033 18,142
EBITDA Growth 63.4% -7.6% 7.9% -8.5% 26.9% Gross Fixed Assets 18,165 21,166 21,890 21,890 26,190
Depn. & Amort. 959 1,014 1,116 1,116 1,190 Intangible Assets 0 0 0 0 0
EBIT 6,422 5,806 6,240 5,612 7,348 Less: Depn. & Amort. 3,948 4,924 6,040 7,157 8,347
Other Income 427 385 350 450 500 Capital WIP 458 124 0 1,300 300
Finance Cost 409 642 450 400 350 Investments 1,201 1,854 2,054 2,054 2,054
PBT before Excep. & Forex 6,440 5,549 6,140 5,662 7,498 Current Assets 30,688 29,259 29,118 24,371 25,226
Excep. & Forex Inc./Loss(-) 0 0 0 0 0 Inventories 23,159 22,950 17,776 12,024 12,334
PBT 6,440 5,549 6,140 5,662 7,498 Sundry Debtors 4,500 2,393 2,844 2,812 3,034
Taxes 244 456 1,375 1,291 1,612 Cash & Bank Balances 49 47 5,015 6,401 7,037
Extraordinary Inc./Loss(-) -490 0 0 0 0 Loans & Advances 2,980 3,870 3,483 3,134 2,821
Assoc. Profit/Min. Int.(-) 0 0 0 0 0 Other Current Assets 0 0 0 0 0
Reported Net Profit 5,706 5,093 4,766 4,371 5,886 Current Liab. & Prov. 7,615 8,708 9,310 9,203 9,932
Adjusted Net Profit 5,156 4,578 4,766 4,371 5,886 Current Liabilities 6,063 6,699 7,111 7,029 7,586
Net Margin 12.0% 9.7% 9.2% 8.5% 10.6% Provisions & Others 1,553 2,009 2,199 2,174 2,346
Diluted Share Cap. (mn) 228.4 220.0 210.0 210.0 210.0 Net Current Assets 23,073 20,550 19,808 15,168 15,294
Diluted EPS (INR) 22.6 20.8 22.7 20.8 28.0 Total – Assets 38,950 38,770 37,711 33,255 35,491
Diluted EPS Growth 133.2% -7.8% 9.1% -8.3% 34.7% Source: Company, JM Financial
Total Dividend + Tax 688 663 525 2,940 3,150
Dividend Per Share (INR) 2.5 2.5 2.5 14.0 15.0
Cash Flow Statement (INR mn)

Dupont Analysis
Profit before Tax 5,950 5,549 6,140 5,662 7,498
Net Margin 12.0% 9.7% 9.2% 8.5% 10.6%
Depn. & Amort. 959 1,014 1,116 1,116 1,190
Asset Turnover (x) 1.3 1.2 1.4 1.4 1.6
Net Interest Exp. / Inc. (-) 389 612 100 -50 -150
Leverage Factor (x) 1.8 1.7 1.5 1.3 1.2
Inc (-) / Dec in WCap. -11,081 2,382 5,711 6,025 510
Others -124 -69 300 300 300 RoE 28.1% 20.6% 19.1% 16.3% 20.3%
Taxes Paid -1,323 -992 -1,375 -1,291 -1,612

Operating Cash Flow -5,230 8,496 11,993 11,763 7,736 Key Ratios
Capex -1,257 -2,419 -600 -1,300 -3,300 Y/E March FY19A FY20A FY21E FY22E FY23E
Free Cash Flow -6,487 6,077 11,393 10,463 4,436 BV/Share (INR) 91.2 107.7 124.5 131.3 144.3
Inc (-) / Dec in Investments -363 -686 -200 0 0 ROIC 20.0% 14.5% 14.5% 16.0% 23.4%
Others 28 58 350 450 500 ROE 28.1% 20.6% 19.1% 16.3% 20.3%
Investing Cash Flow -1,592 -3,047 -450 -850 -2,800 Net Debt/Equity (x) 0.8 0.6 0.2 -0.1 -0.1
Inc / Dec (-) in Capital 0 -1,493 -1,800 0 0 P/E (x) 10.9 11.9 10.9 11.9 8.8
Dividend + Tax thereon -688 -663 -525 -2,940 -3,150 P/B (x) 2.7 2.3 2.0 1.9 1.7
Inc / Dec (-) in Loans 7,902 -2,658 -3,800 -6,187 -800 EV/EBITDA (x) 9.4 9.8 7.9 7.5 5.7
Others -395 -641 -450 -400 -350 EV/Sales (x) 1.6 1.4 1.1 1.0 0.9
Financing Cash Flow 6,819 -5,455 -6,575 -9,527 -4,300 Debtor days 38 18 20 20 20
Inc / Dec (-) in Cash -3 -6 4,968 1,386 636 Inventory days 197 177 125 86 81
Opening Cash Balance 87 49 47 5,015 6,401 Creditor days 62 60 58 58 59
Closing Cash Balance 84 43 5,015 6,401 7,037 Source: Company, JM Financial

History of Earnings Estimate and Target Price Recommendation History

Date Recommendation Target Price % Chg.
8-Oct-18 Hold 90
23-Sep-19 Hold 140 55.6
25-Jun-20 Hold 160 14.3
7-Nov-20 Hold 180 12.5
20-Apr-21 Buy 300 66.7

19 April 2021 India | Sugar | Company Update
EID Parry | BUY

On a deleveraging path
EID Parry (EID) has been working on the turnaround its sugar segment through asset- Achal Lohade
relocation (Pudukottai unit to Haliyal) to increase cane availability while it remains optimistic achal.lohade@jmfl.com | Tel: (91 22) 66303081
on Ethanol Blending Programme (EBP). It is expected to add 60KLPD Bagalkot distillery and is Koundinya Nimmagadda
considering potential distillery capacity addition based on government initiatives. EID sold an koundinya.nimmagadda@jmfl.com | Tel: (91 22)
66303574
additional 5.85mn shares of its subsidiary Coromandel International (CRIN; EID owns 56.42%
Shrenik Bachhawat
now), which it plans to utilise to reduce long term debt. Separately, it has received INR 3bn shrenik.bachhawat@jmfl.com | Tel: (91 22) 66303074
dividend from CRIN in FY21, which will also help EID in deleveraging (we estimate D/E to fall
from 0.6x to 0.1x in FY21). This also reflects extreme liquid nature of its stake in CRIN and
hence does not warrant the current hefty discount (c..80%), in our view. We maintain BUY
as operational profitability improvement to also boost stock performance.
 Sugar remains sour, Distillery to balance out: While EID’s sugar segment has been Recommendation and Price Target
reporting losses since FY13 (excl. FY17), management had remained non-committal about Current Reco. BUY
a quick turnaround given the pricing/cost dynamics, though better availability of cane in Previous Reco. BUY
Current Price Target (12M) 430
Karnataka will augur well for the company. On its part, EID is shifting its Pudukottai unit Upside/(Downside) 36.6%
to Haliyal in Karnataka, given better availability of Cane at Haliyal. Management believes Previous Price Target 370
the commissioning of its 60KLPD Bagalkot (by FY22) can offset the muted performance in Change 16.2%
core sugar and Cogen segments. It remains optimistic on the EBP and is evaluating
Key Data – EID IN
potential capacity expansions
Current Market Price INR315
 Focus on debt reduction: EID parry has been continuously focusing on delevraging its Market cap (bn) INR55.8/US$0.7
Free Float 42%
balance sheet, largey driven by a) proceeds from stake sale in its subsidiary, Coromadel
Shares in issue (mn) 177.0
International (CRIN), b) Dividend from CRIN (est. INR 3bn inflow in FY21) and c) efficient Diluted share (mn) 177.0
working capital management. It had sold 5.85mn shares of CRIN in Jun’20 which helped 3-mon avg daily val (mn) INR113.6/US$1.5
it reduce its standalone debt from INR 10bn in Mar’20 to c.INR 5bn in Dec’20 (additional 52-week range 372/137
Sensex/Nifty 47,949/14,359
INR 2bn refinery debt) In addition, it had announed sale of 5.85mn shares of CRIN in
INR/US$ 74.9
Dec’20 (to be reflected in 4QFY21), which will reduce its debt further. We expect EIDto
be net cash company in Mar’23 (standalone level). Price Performance
% 1M 6M 12M
 Refinery turnaround: EID’s refinery business saw c.39% YoY sales growth in 9MFY21 led Absolute -7.0 19.0 128.2
by market traction on tight refined sugar supply and healthy order backlog with EID parry. Relative* -3.3 0.6 50.6
Notwithstanding the spike in refinery spreads in Aug-Sep’20, management had guided * To the BSE Sensex
for spreads to remain at USD 40-43 given the demand-supply dynamics.
 Maintain BUY: We revise our FY21/22 estimates, introduce FY23E and value EID on an
SoTP basis with a) sugar and allied businesses valued at 1x Mar’23 replacement cost, b)
the CRIN stake valued at a 65% discount to the current market price (INR726), c) Silkroad
Refinery and other investments valued at 0.5x BV and d) the bio-products business valued
at 10x Mar’23EBIT. We roll forward to Mar’22 TP of INR 430. We maintain BUY as EID’s
current share price reflects a c.80% holding company discount to the value of its stake in
of Coromandel International (CRIN IN; EID owns 56.42% stake), one of the highest in the
past 4 years. Key risk to our call is lower-than-expected sugar realisations
Financial Summary (INR mn)

Net Sales 18,452 18,749 19,646 20,918 23,198
Sales Growth (%) -2.7 1.6 4.8 6.5 10.9 JM Financial Research is also available on:
EBITDA -310 945 1,660 1,627 2,146 Bloomberg - JMFR <GO>,
EBITDA Margin (%) -1.7 5.0 8.4 7.8 9.2
Adjusted Net Profit 47 18 2,539 1,511 2,049
Thomson Publisher & Reuters,
Diluted EPS (INR) 0.3 0.1 14.3 8.5 11.6 S&P Capital IQ, FactSet and Visible Alpha
Diluted EPS Growth (%) -96.5 -61.4 13,773.4 -40.5 35.6
ROIC (%) -0.4 0.8 1.4 1.8 4.4 Please see Appendix I at the end of this
ROE (%) 0.3 0.1 11.9 5.8 7.6
report for Important Disclosures and
P/E (x) 1,175.0 3,046.7 22.0 36.9 27.2
P/B (x) 3.3 3.3 2.2 2.1 2.0 Disclaimers and Research Analyst
EV/EBITDA (x) -206.0 69.8 34.5 34.0 24.8 Certification.
Dividend Yield (%) 1.6 0.3 1.3 1.3 1.3
Source: Company data, JM Financial. Note: Valuations as of 19/Apr/2021
JM Financial Institutional Securities Limited

EID Parry 19 April 2021
Exhibit 1. Valuation Table

Particulars Unit Valuation INR/share
Replacement Value of Sugar and Related Capacities A INR mn 30,512
EV/Replacement multiple B x 0.90
Enterprise Value for Sugar business C=AxB INR mn 27,461
Less: Net sustainable Debt at standalone level D INR mn -686 (4)
Equity value for Sugar Business E=C-D INR mn 28,147 159
India Bio Products EBIT F INR mn 26
PE Multiple G x 10
Value of India Bio Products Business H=FxG INR mn 264 1
Valuation of stake in Coromandel International
Per share value of CRIN I INR 728
No of shares held by EID J mn 165
Market value of the investment K=IxJ INR mn 1,20,452
Less: Holding company discount (65%) L INR mn 78,294
Value of investment in Coromandel M=K-L INR mn 42,158 238
Investment in Silkroad Refinery N INR mn 2,919 16
Other Investments into subsidiaries O INR mn 2,598 15
Fair value for EID Equity P=E+H+M+N+O INR mn 76,085 430
No of shares Q mn 177
Fair value per share R=P/Q INR 430
CMP INR 313
Upside potential % 37%

Source: Company, JM Financial, Bloomberg
Exhibit 2. Implied discount to CRIN’s stake Exhibit 3. EV/Replacement band

Prem/(Disc) to CRIN stake value 5-Year Mean Mean + 1SD (5-yr) Mean-1SD (5-Year) EV/ Replacement cost 5-Year Mean Mean + 1SD (5-yr) Mean-1SD (5-Year)
80% 3.0
60%
2.5
40%
20% 2.0
0%
1.5
-20% 1.2
1.0
-40%
0.6
-60% 0.5
-80%
0.0 0.0
-100%
-0.5
-120%
Sep-10
Sep-11
Sep-12
Sep-13
Sep-14
Sep-15
Sep-16
Sep-17
Sep-18
Sep-19
Sep-20
Mar-11
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
Mar-19
Mar-20
Mar-21
-1.0
Mar-10
Mar-14
Mar-21
Mar-08
Mar-09
Mar-11
Mar-12
Mar-13
Mar-15
Mar-16
Mar-17
Mar-18
Mar-19
Mar-20
Sep-19
Sep-07
Sep-08
Sep-09
Sep-10
Sep-11
Sep-12
Sep-13
Sep-14
Sep-15
Sep-16
Sep-17
Sep-18
Sep-20
Source: Company, Bloomberg, JM Financial Source: Company, Bloomberg, JM Financial

Exhibit 4. Revenue trend Exhibit 5. EBITDA trend

Sugar Co-Generation INR bn
EBITDA EBITDA margin (RHS)
Distillery Bio-Products 4.0 18.0%
INR bn YoY growth (RHS) 16.0%
3.5
30.0 35% 14.0%
1.8 30% 3.0
0.7 12.0%
25.0 2.9 25% 2.5
1.7 0.8 20% 10.0%
1.3 3.2 0.7 0.7 0.6 0.7
20.0 2.6 2.0 8.0%
1.7 2.7 4.1 15%
1.2 2.0 2.0 3.1 3.2 3.6 4.0
2.4 10% 1.5 6.0%
15.0 1.4 1.4
1.2 1.1 0.8 5%
1.1 1.3 1.3 0.7 1.0 4.0%
10.0 1.3 0%
-5% 2.0%
0.5
5.0 -10% 1.0 2.3 1.0 2.1 0.6 3.5 1.7 0.9 1.7 1.6 0.0%
12.0 15.4 13.1 15.4 20.3 18.0 14.9 13.9 13.8 14.1 15.2 -15% 0.0 -2.0%
0.0 -20% -0.3
-0.5 -4.0%
FY14
FY12
FY13
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
Source: Company, JM Financial Source: Company, JM Financial
Exhibit 6. Sugar segment performance Exhibit 7. Distillery segment performance

Sugar revenue Sugar EBIT margin(RHS) Distillery revenue Distillery EBIT margin (RHS)
INR bn INR bn
25.0 10.0% 4.5 40.0%
8.0% 4.0 35.0%
20.0 6.0% 3.5 30.0%
4.0% 3.0
15.0 2.0% 25.0%
2.5
0.0% 20.0%
2.0
10.0 -2.0% 15.0%
-4.0% 1.5
1.0 10.0%
5.0 -6.0%
-8.0% 0.5 5.0%
12.0 15.4 13.1 15.4 20.3 18.0 14.9 13.9 13.8 14.1 15.2 1.2 2.0 2.4 2.7 2.9 3.2 3.1 3.2 3.6 4.0 4.1
0.0 -10.0% 0.0 0.0%
FY15
FY20
FY16
FY12
FY13
FY14
FY16
FY17
FY18
FY19
FY12
FY13
FY14
FY15
FY17
FY18
FY19
FY20
FY21E
FY22E
FY21E
FY22E
Exhibit 8. Cogen segment performance Exhibit 9. Bio products performance

Cogen revenue Cogen EBIT margin (RHS) Bio_products revenue Bio_products EBIT margin (RHS)
INR bn INR bn
3.0 60.0% 2.0 30%
50.0% 1.8 25%
2.5 40.0% 1.6 20%
2.0 30.0% 1.4 15%
20.0% 1.2 10%
1.5 10.0% 1.0 5%
0.0% 0.8 0%
1.0 -10.0% 0.6 -5%
0.5 -20.0% 0.4 -10%
1.3 1.4 1.1 1.4 2.6 2.0 1.1 1.3 1.3 0.7 0.8 -30.0% 0.2 1.2 1.3 1.7 1.7 1.8 0.7 0.7 0.7 0.6 0.7 0.8 -15%
0.0 -40.0% 0.0 -20%
FY15
FY20
FY15
FY20
FY12
FY13
FY14
FY16
FY17
FY18
FY19
FY12
FY13
FY14
FY16
FY17
FY18
FY19
FY21E
FY22E
FY21E
FY22E

Financial Tables (Standalone)

Income Statement (INR mn) Balance Sheet (INR mn)
Y/E March FY19A FY20A FY21E FY22E FY23E Y/E March FY19A FY20A FY21E FY22E FY23E
Net Sales 18,452 18,749 19,646 20,918 23,198 Shareholders’ Fund 17,135 17,138 25,533 26,336 27,677
Sales Growth -2.7% 1.6% 4.8% 6.5% 10.9% Share Capital 177 177 177 177 177
Other Operating Income 0 0 0 0 0 Reserves & Surplus 16,958 16,961 25,356 26,159 27,500
Total Revenue 18,452 18,749 19,646 20,918 23,198 Preference Share Capital 0 0 0 0 0
Cost of Goods Sold/Op. Exp 13,766 12,761 13,508 14,635 16,211 Minority Interest 0 0 0 0 0
Personnel Cost 1,454 1,596 1,444 1,531 1,623 Total Loans 8,323 10,350 2,223 523 23
Other Expenses 3,541 3,447 3,034 3,125 3,218 Def. Tax Liab. / Assets (-) -546 -730 -730 -730 -730
EBITDA -310 945 1,660 1,627 2,146 Total - Equity & Liab. 24,912 26,758 27,027 26,129 26,971
EBITDA Margin -1.7% 5.0% 8.4% 7.8% 9.2% Net Fixed Assets 12,760 12,643 11,911 11,167 10,411
EBITDA Growth 0.0% 0.0% 75.6% -2.0% 31.9% Gross Fixed Assets 17,006 17,951 18,451 18,951 19,451
Depn. & Amort. 1,138 1,196 1,231 1,244 1,256 Intangible Assets 0 0 0 0 0
EBIT -1,448 -251 428 383 890 Less: Depn. & Amort. 4,361 5,502 6,733 7,977 9,233
Other Income 2,070 1,462 3,888 2,039 2,039 Capital WIP 115 193 193 193 193
Finance Cost 1,134 1,357 882 353 141 Investments 10,012 10,243 10,204 10,204 10,204
PBT before Excep. & Forex -512 -146 3,435 2,069 2,787 Current Assets 15,527 17,074 17,087 17,722 19,461
Excep. & Forex Inc./Loss(-) 0 0 0 0 0 Inventories 9,727 9,568 9,698 9,958 9,958
PBT -512 -146 3,435 2,069 2,787 Sundry Debtors 1,618 1,618 1,695 1,805 2,002
Taxes -491 -219 1,570 504 683 Cash & Bank Balances 246 150 755 1,020 2,563
Extraordinary Inc./Loss(-) 352 0 7,294 0 0 Loans & Advances 1,405 1,947 1,947 1,947 1,947
Assoc. Profit/Min. Int.(-) 0 0 0 0 0 Other Current Assets 2,532 3,792 2,992 2,992 2,992
Reported Net Profit 331 73 9,158 1,566 2,104 Current Liab. & Prov. 13,388 13,202 12,175 12,963 13,105
Adjusted Net Profit 47 18 2,539 1,511 2,049 Current Liabilities 11,985 11,343 10,227 10,889 10,805
Net Margin 0.3% 0.1% 12.9% 7.2% 8.8% Provisions & Others 1,403 1,859 1,948 2,074 2,300
Diluted Share Cap. (mn) 177.0 177.0 177.0 177.0 177.0 Net Current Assets 2,139 3,872 4,912 4,758 6,356
Diluted EPS (INR) 0.3 0.1 14.3 8.5 11.6 Total – Assets 24,912 26,758 27,027 26,129 26,971
Diluted EPS Growth -96.5% -61.4% 13,773.4% -40.5% 35.6% Source: Company, JM Financial
Total Dividend + Tax 1,062 1,062 708 708 708
Dividend Per Share (INR) 5.0 1.0 4.0 4.0 4.0
Cash Flow Statement (INR mn)

Dupont Analysis
Profit before Tax -512 -146 3,435 2,069 2,787
Net Margin 0.3% 0.1% 12.9% 7.2% 8.8%
Depn. & Amort. 1,138 1,196 1,231 1,244 1,256
Asset Turnover (x) 0.7 0.7 0.7 0.8 0.9
Net Interest Exp. / Inc. (-) -77 680 -2,221 -901 -1,113
Leverage Factor (x) 1.5 1.5 1.3 1.0 1.0
Inc (-) / Dec in WCap. -118 -1,496 -435 419 -55
Others -2,501 -335 6,564 -730 -730 RoE 0.3% 0.1% 11.9% 5.8% 7.6%
Taxes Paid 491 219 -1,570 -504 -683

Operating Cash Flow -1,578 118 7,003 1,597 1,462 Key Ratios
Capex -513 -943 -500 -500 -500 Y/E March FY19A FY20A FY21E FY22E FY23E
Free Cash Flow -2,091 -826 6,503 1,097 962 BV/Share (INR) 96.8 96.8 144.3 148.8 156.4
Inc (-) / Dec in Investments -713 -213 40 0 0 ROIC -0.4% 0.8% 1.4% 1.8% 4.4%
Others 5,191 841 3,833 1,984 1,984 ROE 0.3% 0.1% 11.9% 5.8% 7.6%
Investing Cash Flow 3,965 -316 3,373 1,484 1,484 Net Debt/Equity (x) 0.5 0.6 0.1 0.0 -0.1
Inc / Dec (-) in Capital 0 0 0 0 0 P/E (x) 1,175.0 3,046.7 22.0 36.9 27.2
Dividend + Tax thereon -1,062 0 -708 -708 -708 P/B (x) 3.3 3.3 2.2 2.1 2.0
Inc / Dec (-) in Loans -1,871 2,015 -8,127 -1,700 -500 EV/EBITDA (x) -206.0 69.8 34.5 34.0 24.8
Others -994 -1,445 -882 -353 -141 EV/Sales (x) 3.5 3.5 2.9 2.6 2.3
Financing Cash Flow -3,927 570 -9,716 -2,761 -1,349 Debtor days 32 31 31 31 31
Inc / Dec (-) in Cash -1,540 372 660 320 1,597 Inventory days 192 186 180 174 157
Opening Cash Balance 101 246 150 755 1,020 Creditor days 233 233 208 206 187
Closing Cash Balance -1,438 618 810 1,075 2,618 Source: Company, JM Financial

History of Earnings Estimate and Target Price Recommendation History

Date Recommendation Target Price % Chg.
8-Oct-18 Buy 230
23-Sep-19 Buy 280 21.7
25-Jun-20 Buy 370 32.1

APPENDIX I
JM Financial Inst itut ional Secur ities Lim ited

Corporate Identity Number: U67100MH2017PLC296081
Member of BSE Ltd., National Stock Exchange of India Ltd. and Metropolitan Stock Exchange of India Ltd.
SEBI Registration Nos.: Stock Broker - INZ000163434, Research Analyst – INH000000610
Registered Office: 7th Floor, Cnergy, Appasaheb Marathe Marg, Prabhadevi, Mumbai 400 025, India.
Board: +9122 6630 3030 | Fax: +91 22 6630 3488 | Email: jmfinancial.research@jmfl.com | www.jmfl.com
Compliance Officer: Mr. Sunny Shah | Tel: +91 22 6630 3383 | Email: sunny.shah@jmfl.com
Definition of ratings
Rating Meaning
Buy Total expected returns of more than 10% for large-cap stocks* and REITs and more than 15% for all other stocks, over the next twelve
months. Total expected return includes dividend yields.
Hold Price expected to move in the range of 10% downside to 10% upside from the current market price for large-cap* stocks and REITs and
in the range of 10% downside to 15% upside from the current market price for all other stocks, over the next twelve months.
Sell Price expected to move downwards by more than 10% from the current market price over the next twelve months.
* Large-cap stocks refer to securities with market capitalisation in excess of INR200bn. REIT refers to Real Estate Investment Trusts.
Research Analyst(s) Certification
The Research Analyst(s), with respect to each issuer and its securities covered by them in this research report, certify that:
All of the views expressed in this research report accurately reflect his or her or their personal views about all of the issuers and their securities; and
No part of his or her or their compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this research
report.
Important Disclosures
This research report has been prepared by JM Financial Institutional Securities Limited (JM Financial Institutional Securities) to provide information about the
company(ies) and sector(s), if any, covered in the report and may be distributed by it and/or its associates solely for the purpose of information of the select
recipient of this report. This report and/or any part thereof, may not be duplicated in any form and/or reproduced or redistributed without the prior written
consent of JM Financial Institutional Securities. This report has been prepared independent of the companies covered herein.
JM Financial Institutional Securities is registered with the Securities and Exchange Board of India (SEBI) as a Research Analyst and a Stock Broker having trading
memberships of the BSE Ltd. (BSE), National Stock Exchange of India Ltd. (NSE) and Metropolitan Stock Exchange of India Ltd. (MSEI). No material disciplinary
action has been taken by SEBI against JM Financial Institutional Securities in the past two financial years which may impact the investment decision making of the
investor.
JM Financial Institutional Securities renders stock broking services primarily to institutional investors and provides the research services to its institutional
clients/investors. JM Financial Institutional Securities and its associates are part of a multi-service, integrated investment banking, investment management,
brokerage and financing group. JM Financial Institutional Securities and/or its associates might have provided or may provide services in respect of managing
offerings of securities, corporate finance, investment banking, mergers & acquisitions, broking, financing or any other advisory services to the company(ies)
covered herein. JM Financial Institutional Securities and/or its associates might have received during the past twelve months or may receive compensation from
the company(ies) mentioned in this report for rendering any of the above services.
JM Financial Institutional Securities and/or its associates, their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell
the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other
compensation or act as a market maker in the financial instruments of the company(ies) covered under this report or (c) act as an advisor or lender/borrower to,
or may have any financial interest in, such company(ies) or (d) considering the nature of business/activities that JM Financial Institutional Securities is engaged in,
it may have potential conflict of interest at the time of publication of this report on the subject company(ies).
Neither JM Financial Institutional Securities nor its associates or the Research Analyst(s) named in this report or his/her relatives individually own one per cent or
more securities of the company(ies) covered under this report, at the relevant date as specified in the SEBI (Research Analysts) Regulations, 2014.
The Research Analyst(s) principally responsible for the preparation of this research report and members of their household are prohibited from buying or selling
debt or equity securities, including but not limited to any option, right, warrant, future, long or short position issued by company(ies) covered under this report.
The Research Analyst(s) principally responsible for the preparation of this research report or their relatives (as defined under SEBI (Research Analysts) Regulations,
2014); (a) do not have any financial interest in the company(ies) covered under this report or (b) did not receive any compensation from the company(ies) covered
under this report, or from any third party, in connection with this report or (c) do not have any other material conflict of interest at the time of publication of this
report. Research Analyst(s) are not serving as an officer, director or employee of the company(ies) covered under this report.
While reasonable care has been taken in the preparation of this report, it does not purport to be a complete description of the securities, markets or
developments referred to herein, and JM Financial Institutional Securities does not warrant its accuracy or completeness. JM Financial Institutional Securities may
not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This
report is provided for information only and is not an investment advice and must not alone be taken as the basis for an investment decision.

The investment discussed or views expressed or recommendations/opinions given herein may not be suitable for all investors. The user assumes the entire risk of
any use made of this information. The information contained herein may be changed without notice and JM Financial Institutional Securities reserves the right to
make modifications and alterations to this statement as they may deem fit from time to time.
This report is neither an offer nor solicitation of an offer to buy and/or sell any securities mentioned herein and/or not an official confirmation of any transaction.
This report is not directed or intended for distribution to, or use by any person or entity who is a citizen or resident of or located in any locality, state, country or
other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject JM Financial Institutional
Securities and/or its affiliated company(ies) to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be
eligible for sale in all jurisdictions or to a certain category of investors. Persons in whose possession this report may come, are required to inform themselves of
and to observe such restrictions.
Persons who receive this report from JM Financial Singapore Pte Ltd may contact Mr. Ruchir Jhunjhunwala (ruchir.jhunjhunwala@jmfl.com) on +65 6422 1888 in
respect of any matters arising from, or in connection with, this report.
Additional disclosure only for U.S. persons: JM Financial Institutional Securities has entered into an agreement with JM Financial Securities, Inc. ("JM Financial
Securities"), a U.S. registered broker-dealer and member of the Financial Industry Regulatory Authority ("FINRA") in order to conduct certain business in the
United States in reliance on the exemption from U.S. broker-dealer registration provided by Rule 15a-6, promulgated under the U.S. Securities Exchange Act of
1934 (the "Exchange Act"), as amended, and as interpreted by the staff of the U.S. Securities and Exchange Commission ("SEC") (together "Rule 15a-6").
This research report is distributed in the United States by JM Financial Securities in compliance with Rule 15a-6, and as a "third party research report" for
purposes of FINRA Rule 2241. In compliance with Rule 15a-6(a)(3) this research report is distributed only to "major U.S. institutional investors" as defined in Rule
15a-6 and is not intended for use by any person or entity that is not a major U.S. institutional investor. If you have received a copy of this research report and are
not a major U.S. institutional investor, you are instructed not to read, rely on, or reproduce the contents hereof, and to destroy this research or return it to JM
Financial Institutional Securities or to JM Financial Securities.
This research report is a product of JM Financial Institutional Securities, which is the employer of the research analyst(s) solely responsible for its content. The
research analyst(s) preparing this research report is/are resident outside the United States and are not associated persons or employees of any U.S. registered
broker-dealer. Therefore, the analyst(s) are not subject to supervision by a U.S. broker-dealer, or otherwise required to satisfy the regulatory licensing
requirements of FINRA and may not be subject to the Rule 2241 restrictions on communications with a subject company, public appearances and trading
securities held by a research analyst account.
JM Financial Institutional Securities only accepts orders from major U.S. institutional investors. Pursuant to its agreement with JM Financial Institutional Securities,
JM Financial Securities effects the transactions for major U.S. institutional investors. Major U.S. institutional investors may place orders with JM Financial
Institutional Securities directly, or through JM Financial Securities, in the securities discussed in this research report.
Additional disclosure only for U.K. persons: Neither JM Financial Institutional Securities nor any of its affiliates is authorised in the United Kingdom (U.K.) by the
Financial Conduct Authority. As a result, this report is for distribution only to persons who (i) have professional experience in matters relating to investments
falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the "Financial Promotion Order"), (ii)
are persons falling within Article 49(2)(a) to (d) ("high net worth companies, unincorporated associations etc.") of the Financial Promotion Order, (iii) are outside
the United Kingdom, or (iv) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial
Services and Markets Act 2000) in connection with the matters to which this report relates may otherwise lawfully be communicated or caused to be
communicated (all such persons together being referred to as "relevant persons"). This report is directed only at relevant persons and must not be acted on or
relied on by persons who are not relevant persons. Any investment or investment activity to which this report relates is available only to relevant persons and will
be engaged in only with relevant persons.
Additional disclosure only for Canadian persons: This report is not, and under no circumstances is to be construed as, an advertisement or a public offering of the
securities described herein in Canada or any province or territory thereof. Under no circumstances is this report to be construed as an offer to sell securities or as
a solicitation of an offer to buy securities in any jurisdiction of Canada. Any offer or sale of the securities described herein in Canada will be made only under an
exemption from the requirements to file a prospectus with the relevant Canadian securities regulators and only by a dealer properly registered under applicable
securities laws or, alternatively, pursuant to an exemption from the registration requirement in the relevant province or territory of Canada in which such offer or
sale is made. This report is not, and under no circumstances is it to be construed as, a prospectus or an offering memorandum. No securities commission or
similar regulatory authority in Canada has reviewed or in any way passed upon these materials, the information contained herein or the merits of the securities
described herein and any representation to the contrary is an offence. If you are located in Canada, this report has been made available to you based on your
representation that you are an “accredited investor” as such term is defined in National Instrument 45-106 Prospectus Exemptions and a “permitted client” as
such term is defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Under no circumstances is the
information contained herein to be construed as investment advice in any province or territory of Canada nor should it be construed as being tailored to the
needs of the recipient. Canadian recipients are advised that JM Financial Securities, Inc., JM Financial Institutional Securities Limited, their affiliates and authorized
agents are not responsible for, nor do they accept, any liability whatsoever for any direct or consequential loss arising from any use of this research report or the
information contained herein.

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19 April 2021

INDIA SUGAR SECTOR

05 Production outlook - Structural increase Shrenik Bachhawat

22 Sugar prices - No more cycle - To be

Rural Safari XI Rural Safari X India Strategy

JM Financial Institutional Securities Limited Page 2

JM Financial Institutional Securities Limited Page 3

500 -3.0% NA NA 51.55

JM Financial Institutional Securities Limited Page 4

Production outlook - Structural increase in place

YoY growth -7% -2% 9% 1% 6% 4% -1% -1% 4% 0% 1% 1% 1%

India population YoY growth 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1%

Karnataka 3.38 4.15 23% all mills shut

Gujarat 0.88 0.95 8% 6 mills working vs. 3 last year

Others 3.16 2.94 -7%

Total 24.83 29.09 17%

JM Financial Institutional Securities Limited Page 5

Exhibit 9. Diversion of sugar for ethanol

Exhibit 12. Yield Exhibit 13. Sugarcane production

450.0 81 82 81 82 82 82 89.0 400 500

‘Structural Oversupply’ - Can India surpass 35mnt (gross sugar production)?

6.0 40 Karnataka 6.0

Soybeans (Khariff) 10 3,880 2,589 13,117 80

Sugarcane 750 315 125 1,42,500 29

Wheat (Rabbi) 40 1,925 838 43,480 20

Paddy/Rice (Khariff) 37 1,868 924 35,117

JM Financial Institutional Securities Limited Page 7

Exhibit 20. Relentless increase in sugarcane price in past 10 years

Exhibit 21. Sugarcane is the most water intensive crop

Sugarcane 1,500-2,500 270-365

Banana 1,200-2,200 300-365

Cittrus 90-1,200 240-365

Cotton 700-1,300 180-195

Sunflower 600-1,000 125-130

Moderate Water Requirement

Pepper 600-900 120-210

Potato 500-700 105-145

Peanut 500-700 90-100

Maize 500-800 75-140

Rice (paddy) 450-700 90-150

Tomato 400-800 135-180

Barley/Oats/Wheat 450-650 120-150

Soybean 450-700 135-150

Low Water Requirement

Cabbage 350-500 120-140

Onion 350-550 105-140

Peanut 350-500 90-100

Bean 300-500 120-150

JM Financial Institutional Securities Limited Page 8

Sugar deficit at a global level

Exhibit 26. Global demand supply

Production 169 180 175 170 173

Consumption 172 172 174 170 174

Stocks /consumption ratio (%) 49 54 54% 57% 55%

JM Financial Institutional Securities Limited Page 9

15.5 440 437

JM Financial Institutional Securities Limited Page 10

Exports- Is India a new export hub?

Exhibit 31. Exports from India Exhibit 32. Imports trend

2.0 1.5 1.2 1.2

Raw Sugar Exports

JM Financial Institutional Securities Limited Page 11

JM Financial Institutional Securities Limited Page 12