Better realizations from sugar and rising contribution from its co-generated power business boosted Dhampur Sugar Mills Ltd’s performance in the December quarter. The Rs946 crore turnover sugar company’s revenue rose by 29% to Rs347 crore, while net profit jumped fourfold to Rs57 crore, compared with the same period last year.
Like Bajaj Hindusthan Ltd, which declared its results recently, Dhampur, too, has built sugar stocks for sale during a year of appreciating prices.
In the December quarter, Dhampur sold only around 80,000 tonnes of sugar, compared with 130,000 tonnes in the same period last year. It produced 140,000 tonnes of sugar, including 80,000 tonnes from crushing cane and the rest from processing raw sugar. The farmers’ agitation contributed to lower crushing. Dhampur has a sugar inventory of 110,000 tonnes of sugar for sale in the coming quarters.
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Costs are on the rise. While mills were willing to pay around Rs190 a quintal, average cane prices were higher than that. Cane procurement prices are at Rs230-240 a quintal at present. Recovery rates of sugar from cane are relatively lower, at 8.8% compared with 9.1% in the year-ago period. Lower recoveries mean that mills are getting less sugar from crushing despite paying higher prices.
Still, companies are doing well because of higher sugar prices. Dhampur’s average realization during the quarter was Rs32, around 80% higher than last year. Moreover, companies have contracted for raw sugar in the year to 20 September. Sugar companies count their year from October.
Dhampur has contracted for 245,000 tonnes of raw sugar, of which 70,000 tonnes has been processed. Since most of these sugar contracts will be at lower than current rates, companies expect to profit. Though Uttar Pradesh has made it difficult for mills to import raw sugar into the state, Dhampur has enough stocks at present. Nearly half the 120,000 tonnes of raw sugar already imported is in its factories, the management said in a conference call with analysts.
Sugar sales rose by 17% to Rs316 crore on lower volumes, but segment margins improved to 23.5% compared with about 9%. Higher cane costs and lower recovery rates have tempered margins. Its cogeneration power business did well, as output was higher and power tariffs went up. Sales rose by 92% and segment profit by 59%. The dampener was the chemicals ethanol and alcohol business as product prices were not enough to cover costs.
Overall, operating profits margins expanded from 21% to 32%. Dhampur expects to sell between 400,000 to half a million tonnes of sugar during fiscal 2010, with raw sugar contributing around 175,000 tonnes and the rest coming from crushing cane. Current sugar realizations are around Rs43 a kg and are expected to go higher.
Sugar companies seem to be lining up equity issuances as investors are favouring sugar scrips. Dhampur has taken board approval for raising up to Rs250 crore through an equity issue.
The stock has fallen a bit recently, but is within shouting distance of its 52-week high.
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