Six months after its maiden IPO, Dwarikesh Sugar Industries Limited (DSIL) is approaching international investors Dwarikesh Sugar Industries Limited (DSIL) made an initial public offer (IPO) in November 2004, raising Rs. 32.50 crore at a premium of Rs. 55 per share (CMP: Rs. 143.55; P/E: 4.26 times). It now plans to tap the international market, by issuing foreign currency convertible bonds (FCCBs) to the tune of $25 million. The board has also approved an increase in the investment limit by FIIs, NRIs and OCBs in its equity to 49 per cent.
DSIL, a Rs. 150-crore integrated sugar manufacturer, has three divisions (sugar, power co-generation and industrial alcohol-ethanol) located in Bijnor in UP. Its sugar capacity stands at 6,500 tcd and the company is embarking on a major expansion with two new green-field projects of 7,000 tcd. In industrial alcohol-ethanol, DSIL records a 30 kl output per day, having commenced production in February 2005. "We have come out with two brands (Bundki and Dwarikesh) sold in pouches of 1 kg and 5 kg in northern India," Says Gautam R. Morarka, CMD of the company.
"Orders for all plant and machinery have been placed, civil work has commenced in full swing and cane development activities initiated. It is expected that the plant would be commissioned in November 2005, so as to catch the next crushing season of 2005-06. The green-field project is in line with our company's growth strategy, to become a large integrated sugar conglomerate with interests in synergistic businesses," adds Morarka. He has just announced the half-year working of DSIL (its financial year ends in September).
For the half year ended March 2005, on a 10.53 per cent higher net sales of Rs. 77.99 crore, DSIL has made an almost nine times higher net profit of Rs. 17.28 crore, as against Rs. 1.8 crore in the previous year. The operating profit margins have moved from 8.3 per cent to 37 per cent. "The operating profit margins have moved from 8.3 per cent to 37 per cent. The rise in sales was driven by a better realisation in sugar sales, the last quarter being exceptionally good. Our capacity utilisation has stayed at 100 per cent and our profits have looked up. Successful and timely commissioning of the distillation plant (30,000 litres per day in February 2005) and expanded co-generation capacity has helped boost our bottomline," explains Morarka.
Explaining the growth strategy, Morarka says, "With the likelihood of the government re-introduction of compulsory blending of petrol with ethanol, the distillery division would continue to be a profit generating centre for the company. Our sugar recovery has moved up to 10.47 per cent estimated (second highest in UP) during the sugar season 2003-2004, driven by the efficient cane procurement. Operating margin has also moved up on account of higher crushing, better recovery and cost control measures.
"We are consistently building on our operation efficiencies at all levels," adds J.R. Banka, CGM at DSIL. "Improved recoveries and a lower cost of average borrowings are contributing to our bottomlines. We have been among the first to clear cane price arrears and dues for the season."
According to a report by India Infoline, DSIL's growth was mainly driven not only by the increase in realisations of sugar from Rs. 12.50 to Rs. 17.50 per kg but also by a surge in the prices of the by-products such as bagasse and molasses. The increase in sugar prices was primarily due to a demand-supply gap built in the country on the back of a 30 per cent lower production.
Most sugar analysts believe that the sugar prices are expected to remain firm over the next one year. Further, with the government laying stress on implementing the 5 per cent ethanol blending programme, the revenues and profitability of integrated sugar companies that also have co-generation is expected to go up.
-Lancelot Joseph
Business India
May 23- June 2005
