Dhampur Bio Organics Ltd.

OVERVIEW

Founded in 1933 by Late Ram Narain Ji in a small town of Dhampur, the sugar mill started with the capacity of 300 tonnes per day. With time, the company expanded its capacity and integrated backwards to produce electricity, bagasse etc. With the new generations coming in, the Dhampur Bio Organics was finally carved out in 2022 with Mr Vijay Goel acting as a chairman of DBOL and Mr AK Goel getting the control of the Dhampur Sugars

Business Details

Not very different from Dhampur sugars, the company operates three plants: Asmoli, Mansurpur and Meerganj. The company boasts of the consolidated capacities:

1. 29500 TCD for sugarcane crushing
2. 2000 TPD of sugar refining
3. 700 TPD of pharma grade sugar
4. 800 TPD of low quality whites for exports in neighboring SEA countries
5. 3,12,500 LPD of biofuels and spirits
6. 4.2 million cases of country liquor
7. 95.5 MW of electricity generation

The value added products in the form of biofuels and country liquor is processed only from Asmoli plant. In 2022, the company crushed 43.22 lac tonnes of sugarcane and produced 3.51 lac tonnes of sugar indicating a recovery of 9.42% (since 5.99 lac tonnes of sugarcane was diverted to ethanol).

There are 2 important things worth mentioning:

1. The company has repeatedly mentioned that they are not expanding ethanol capacity yet and are in the process of evaluating dual feedstock based distillery. This would help them avoid the heat faced due to government decisions on ethanol policy
2. The company ventured into country liquor due to the fact that the UP government is having a rule to reserve some portion of molasses for open sale so that country liquor can be produced. The molasses in open market fetch Rs 470 per quintal but these reserved molasses fetch Rs 80 per quintal. In order to avoid selling it at lower price, the company ventured into manufacturing country liquor itself

The current capacity at Asmoli is a dual feed capacity where the company can derive either ENA or B Heavy or C Heavy ethanol based on the demand by Oil Marketing Companies.

The company in the last concall mentioned that at current sugar prices, the viability of producing sugar is more economical than ethanol and hence they have paused the ethanol capacity expansion

Also the company has paused converting asmoli unit to multi feed stock since due to maize price increase, the ethanol production from maize would not have been economical. This indicates a very conservative stance for the company. A tonne of sugarcane yields 116 kg of sugarcane (considering 11.6% gross recovery). From ethanol phases, following is the breakup for 1 tonne of sugarcane crushed:

• Syrup based ethanol: 78 l, sugar 0
• Sugar 101 kg, B molasses based ethanol: 21 litres
• Sugar 116 kg, C molasses based ethanol: 10 litres

We had done some calculations based on the current recovery% and by the fair guesstimate. The revenues from sugar segment only can contribute to 672 crores which is the best ever in company’s short history.

Few reasons to keep in mind:

1. El-Nino effect is prominent in Maharashtra which would transfer the demand to UP Sugar mills

2. The company will not sacrifice the production of ethanol from B-Heavy molasses which will contribute to another ~120 cr of revenues since the recovery of sugar from B heavy is minimal

3. This leads to a solid 792 cr of revenues and 2550 cr of revenue at the end of FY 24. We have considered the realization at RS 38 Per Kg. This can lead to atleast 80cr more profits than last year. Considering the current price, the stock is undervalued and can go up quite considerably.

4. Last year profits were 111 cr. This year is expected to be ~190cr

5. At mcap of 930 cr, the stock can go up by 50%