Sugar Cycles: 7-8 years of losses followed by 2-3 years of super gains!

Govt. doesnt want to take a chance – as the production could be lower and so closing stock estimates can end up being wrong and sugar prices can shoot up. Only when Maharashtra mills stop crushing in Feb/ March when decision on ethanol will be taken.
As far as farmers are concerned they are quite content as SAP has been increased by Rs. 20 (industry was expecting Rs. 25) and sugarcane is the most profitable cash crop today.

Regarding Dhampur Bio – the stock has reacted negatively because the numbers are not presented well. Points to note for Q3 numbers:

1. Recovery has increased by 0.82% – this is big jump. I was expecting a 0.5% improvement this year and 0.5% next year. Company has done very well on this front.
2. Cane crushed is higher by 3%. Hopefully this will increase to 10% by March.
3. Sugar production has increased by 35%. Ethanol has come down.
4. Sugar realisation is > Rs. 40 per kg (at this price sugar has higher margin than ethanol)
5. Sugar and ethanol stocks are higher than last year. Sales was lower as per quota alloted. This could turn out to be better as prices are expected to increase going forward due to higher cane prices and expected early close of crushing in Maharashtra.

(I think the CFO should do a better job at presenting numbers – that too after they have appointed a Investor relations advisor !!) Information on C Heavy ethanol is missing. (there is lots of info which not captured…)

Recovery rate is the best metric to analyse a sugar company as that is what contributes to margins. Other factors like plant efficiency does not matter much now as all the mills have upgraded or are in the process of doing it over next year.

As per my estimates, Balrampur Chini, Dhampur Bio, Awadh will perform better as there is room for improvement on recovery and also efficiency. Sugar-ethanol mix for these companies are ideal ad also the single plant sizes are in the range of 7,000 to 10,000 tpa (crushing capacity). Companies like Dhampur Sugar, Triveni are already fairly valued and there is low scope on improvement on either valuation or financial / operation performance. Even ethanol capacity for these companies is on higher side.